If you knew working twice as hard over the next five years would net you $1 million in your savings account, would you jump at the opportunity? The number might seem impossible, but you can accomplish it. To save $1 million in five years, you will have to calculate how much you will need to save and which investments can help you reach that goal. Use the tips below to start your journey toward $1 million. You can also work with a financial advisor who can help you create a financial plan in order to achieve your goals.
First, Create a Plan
Setting a goal of saving $1 million allows you to orient your plan toward your target. A solid financial plan includes your income, expenses and savings deposits. However, instead of picking a random number out of the air for your monthly savings, it’s crucial to use an investment calculator to understand how your money will grow.
For instance, say you opened an investment account today with $100 and contributed $100 per month. With a 5% interest rate, your account will grow to $83,673 after thirty years. While you might have been disciplined with your deposits, your contributions and interest weren’t sufficient to hit your goal. As a result, you’ll need to do some number-crunching to create a plan that will get you to $1 million within five years.
Tips for Saving $1 Million in 5 Years
It’s not an easy task to save $1 million in a short time period. Five years isn’t that long of time unless you have a significant income. With that in mind, we’ve put together a list of six tips you can utilize to help get you close to your overall goal.
1. Capitalize on Compound Interest
Receiving interest on your investments is vital – but getting paid interest on interest will make your account skyrocket. In other words, compound interest turns paid interest into more money to invest. So, high-interest savings accounts that compound your interest more frequently can help you earn more.
2. Leverage Your Job
A job paying minimum wage with no opportunities for growth probably won’t help you get to $1 million. As a result, you might need to look for a job with higher pay, growth potential, a benefits package or a combination of all three.
Finding a suitable job might necessitate a career change. Fortunately, numerous lucrative options are available for those looking to switch jobs. For example, you can take advantage of free courses and train to be a full-stack software developer in a year. But, whatever you choose, it helps when your employer offers a 401(k), especially if they provide matching contributions.
3. Establish Daily, Weekly and Monthly Savings Goals
Saving $1 million can be a daunting goal, so breaking it into manageable chunks can help. Getting into the habit of saving and investing at set intervals can help get your account rolling, even if it means starting small.
For example, if you’ve never saved money before, setting a monthly savings goal of $50 can help you get into the groove. If this number seems like too much, you can break it down further to transferring $1.67 to your savings account or IRA every day to reach your goal.
In addition, having financial check-ins with yourself is vital to monitor your progress and make adjustments. For instance, if you get a raise or finish paying off a debt, you can direct that extra money toward your savings.
4. Identify Ways to Increase Your Income
Increasing your income is an excellent move if you’re already keeping your monthly expenses at a minimum but are struggling to invest. For example, if you’ve put in several years in your company and haven’t gotten a raise recently, asking for a bump in pay can put more investment money in your pocket.
In addition, a side hustle is a surefire way to invest more. Whether you rent out your car on the weekends or start a blog, you can turn your spare time into a second income stream to boost your investments.
5. Find Simple Investments to Grow Your Money
Getting to $1 million requires straightforward, cost-effective investments. For example, you can find exchange-traded funds (ETFs) and mutual funds with low fees. Specifically, investment vehicles that use index funds are among the most efficient investment vehicles available.
In other words, these accounts diversify your investments, lowering your risk while giving exposure to profitable companies. In addition, they use the passive management style, so you won’t pay exorbitant administrative costs. To assess the risk of a specific fund, you can research its past performance and choose more reliable accounts, such as an index fund for the S & P 500.
6. Cut Expenses
Your monthly budget likely includes excess spending that could go toward investments. For instance, that extra streaming subscription or weekly night out might cost you hundreds of dollars that could be earning compound interest instead.
If you’re struggling to reduce spending, a helpful strategy can be to pay yourself first. In other words, deposit your target savings and investment dollars first. That way, you’ll have to make ends meet with the remainder of your paycheck and will have less room for impulse purchases.
Focus on a Long-Term Financial Stability
Another great mantra in dealing with your finances is to focus on long-term growth. When the going gets tough, reminding yourself of your motivation can help you continue. Remember, your goal isn’t cutting cable or eating out less; those are both means of financial freedom. Your goals are bigger than that.
Saving $1 million in five years is a lofty goal, but doing so will allow you to live off the interest payments of your nest egg. Hitting your target means you can choose what your life looks like next, whether it’s continuing to build wealth, taking time off to travel or pursuing your dream career.
Remember, though, that you should prioritize your long-term financial stability over any short-term financial goal. You don’t want to sacrifice all of your wealth in an effort to speed up the time it takes to save the amount of money that you need. Consider working with a professional so that they can help protect your future as well as save for it.
The Bottom Line
While it may be challenging to achieve, you can build a fund of $1 million by ramping up your savings and investment deposits over time while improving your income. It also requires discipline across multiple areas of life, including budgeting, working extra hours, cutting expenses and increasing your financial knowledge. It’s been said that the hardest things in life are also those worth doing. If you succeed, your endeavor will be worth $1 million.
Tips on Saving $1 Million
- If you’re having trouble organizing your money, a financial advisor can help. An advisor can help you create a financial plan and even manage your assets to help build wealth on your timeline. Finding the right financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- A savings account interest rate affects your finances differently than an interest rate from a credit card. Use this guide to interest rates to understand how you can use interest to launch your financial situation to the next level.
- Investing means contributing to an account from your employer or getting one through a financial institution. Therefore, it’s helpful to differentiate between the 6 main types of investment accounts to know which is best for you.
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