Increase Font Size Option 5 Reset Font Size Option 5 Decrease Font Size Option 5
Home | Personal Finance | Investing | How to Make a Million Dollars
Got Opinions? facebook_16 Facebook twitter_16 Twitter RSSRSS
 
How to Make a Million Dollars Print E-mail
(12 votes, average 4.08 out of 5)
Personal Finance - Investing
Written by livecheap staff   

So you want to make a million dollars?  Well for most of us, the real goal will be to SAVE a million dollars.  Of course, it isn't what it used to be.   Not so long ago, it used to be considered wealth but these days it only qualifies as being well off. These days, if you have to live off of it and you want it to last, you're not going to have a house in the south of France and an ocean-front condo in Bal Harbor.  If you have that kind of cash in the bank, you'd be lucky to earn $35,000 a year in interest.  Even if that kind of money doesn't let you live in the lap of luxury, with a million dollars saved in the bank, you'll definitely have enormous options in life.  If you want to flip your slave-driving boss the bird, having a liquid million is a goal worth attaining.  So it's worth reviewing the math behind saving $1 million because it's a goal that is achievable on a middle-class income.  Making a million dollars, that's not hard, its keeping it that's the real struggle.

Unless you are a Wall Street trader, Fortune 500 CEO, or a professional sports athlete, it's unlikely that you are ever going to get paid that kind of cash in a single year.  Very few wage earners manage to reach that magic number by stuffing hundred dollar bills under the mattress. It's more likely that they managed that impressive feat with the benefit of capital appreciation along the way. An there's a simple recipe that works for the vast majority of people.

  1. Save $7,000 to $15,000 a year
  2. Invest it in the stock market
  3. Wait a long time and avoid taxes along the way

For most of us, it will take 20 to 30 years of disciplined savings to get to be a millionaire. Returns vary, but over the long haul, investing in the stock market has returned about 10% not accounting for inflation.  If you invest in small caps you can expect a higher return and if you invested in bonds/low risk companies, you could expect a lower return (albeit with more risk).

Let's assume that we are living sensibly, have good income and save $1,000 a month.  If we stick it under the mattress, it would take us 83 years to hit our goal.  While life expectancies are going up, you would have to live to a hundred and work for 80 years  to save up that kind of money.  But if you manage to get a 10% return on your investments.  So your first $12,000 will be worth $13,200 after a year and $14,520 after two.  (For more on compounding, read Compounding: Your Best Friend or Worst Enemy).

If you did this for 20 years and invested an additional $12K each year, you would have about $750K.  And if you did it for 25 years, you would have about $1.3 million and exceed your goal. To figure out how much money you end up with if you invest a fixed amount every month, you can use the following table.  It gives you a multiple that you use to see how your investment will appreciate depending on the the length of time you let it sit and the rate of return.

Investment Return Rate
Years 0.0% 5.0% 7.5% 10.0% 12.5% 15.0%
10 10.0 13.2 15.2 17.5 20.2 23.5
15 15.0 22.7 28.1 35 43.7 54.7
20 20.0 34.7 46.6 63 85.9 117.8
25 25.0 50.1 73.1 108.2 162 244.7
30 30.0 67.1 103.6 162.4 257 409.3

 

So for instance, if you are able to save $5,000 each year for 30 years and get a 10% return on your money, simply multiply $5000  by the multiple on the table and you'll should end up with $812,000.  A glance at the lower right hand side of the table gives you an idea how very wealthy people can get so darn rich.  If you are able to invest $25,000 a year and get a 15% rate of return for 30 years, you are looking at roughly $10 million dollars!

So if you have aspirations to accumulate wealth over the long haul, use this table to motivate you to save your pennies each year and invest them very wisely in stocks and real estate and you'll end up with some pretty spectacular results.

There are obviously some considerations here such as capital gains taxes, inflation, and fees, but you can adjust these to your circumstances. Carry this table in your pocket just to remind you that it doesn't take magic to get to save a million - it just takes discipline.


Related articles:

Want All of Our Articles Delivered to You? Subscribe Today!

 

 

Like this article? Share it on Facebook or more!

Twitter! Facebook! Del.icio.us! Digg! Google! Yahoo! Reddit! Mixx! Live! StumbleUpon!
 
Joomla Templates by Joomlashack