What It Takes to Become A Millionaire
So what does it take to become a millionaire?
If you Google “how to become a millionaire,” you will find a lot of suggestions, including a very popular post from Jeremy at Generation X Finance, one from Free Money Finance, as well as the latest addition on Blueprint for Financial Prosperity. While I agree that the suggestions from these posts are practical, I myself am not a big fan of “how to become a millionaire” (I don’t read any book on that subject). Not that I don’t want to, but I don’t think it’s a goal that needs five steps or six ways. Why not four or eight? In fact, if you go through those discussions, you will realize that all the suggestions come down to Earn more and save more, plus some disciplines, whether you earn it from your job, your rental property, or your business, whether you save it in your IRA, 401(k), or savings account.
That said, you may not have one million dollars under your name if you only save $100 a month, though you are disciplined enough to save that amount every month. For example, if you save $100 a month and put the money in your bank account that earns 3.00% or 4.00% return, you will never have a chance to be a millionaire if that’s all you do because that amount of saving will take some 100 years to become a million!
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The following is plot of what I called “What It Takes To Become A Millionaire.” It’s not about what you should do, getting a second job, living below your mean, or anything like that. It’s rather about when you will be a millionaire if you save/invest a certain amount of money with salary being your main source of income. Given a monthly saving ($100, $200, … $3,600 in all accounts) and an annual return (from 3% to 25%) you assume your money will earn, it tells you how many years have to pass before you will have one million dollars (interests compounded annually), when you have zero to begin with.
From the plot, to accumulate $1,000,000 in a reasonable time period, at least $500 should be set aside every month with the assumption that the average long-term return is around 8%. To shorten the time required, the savings rate has to go up, unless the return is extraordinary. However, that could happen only in the short period of time. Excessive return is something we can’t rely on in the long-term.
A table for the above plot is given next for easy lookup.
How long will it take you to become a millionaire, if that’s your goal?
*Photo from Buzzle.com
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