If you’re looking to put away more money for retirement, you may have a goal in mind that you’re trying to reach, such as saving $1 million. You may want to earn and save more than that, of course, but for many people, saving $1 million is a big milestone that can also feel out of reach. Here are some practical steps to help make that goal a reality, but it might be best for many to consider working with a financial advisor because each person’s financial situation is different. A financial advisor can help you create a financial plan for your needs and goals.
How to Save $1 Million Dollars
Unfortunately, there is no secret to saving a million dollars. It involves, as you would expect, the discipline to put money away every month until eventually, you have a million dollars saved up. Still, here are three common strategies that every saver should adhere to, whether you earn a lot or a little:
- Automate your savings: If you set up your paycheck so that a certain amount of money goes into a savings account every month, you’re much more likely to accumulate savings than if you make a choice every month to put away money.
- Create a budget and monitor it regularly: If you don’t get your monthly budget under control, you’ll probably never save a million dollars. That’s because you’ll constantly need to withdraw from your savings to make sure you can meet your bills.
- Establish an emergency savings account: This is very important, going hand-in-hand with developing a budget you can stick to. If you don’t have an emergency fund for surprise expenses, you’re much more likely to raid your retirement and savings accounts.
Start Early and Think About Compound Interest
If you want to save one million dollars, time and compound interest can help you get there. An investment calculator can help you estimate how long it will take for you to reach that goal with compound interest.
As an example, if you have $100 starting off in your savings account, you are 35 years old and you decide to start saving up to a million dollars, you’ll have to put $675 away every month, with a rate of return of 8%, to reach $1 million (actually $1,007,086) by the age of 65. For comparison, if you put that same amount over the same time into a savings account with 2% interest, you would only earn $332,772.
Time too plays an important part in saving a million dollars. If you are age 50 and want to save a million dollars and you start off with $100 in your savings account and put away $675 a month at an 8% rate of return, by the time you were 65, you’d only have $233,906, which is a significant amount of money but far short of a million.
There is no easy formula to saving one million dollars easily and fast unless you’re making half a million dollars each year. But the more time you have to save and the higher your interest rate, the better off you’ll be.
Investment Vehicles You May Want to Consider
On your path to saving one million dollars, you may consider investing in the following:
- Stocks: You can buy them directly from a company, but more likely, you’re going to probably want to find a brokerage to work with. Some of the bigger names include Charles Schwab, Fidelity and Vanguard, but there are plenty of other names you could consider. Some brokerages require you to have a certain amount of money to start off with, like $500 or $1,000, but some will work with you if you have less.
- Bonds: This is a type of investment that’s considered very safe, but the downside is that the money you can earn is usually less than, for instance, what you’ll get if you invest in stocks. But many financial advisors will suggest investing in stocks and bonds, to diversify your risk.
- Mutual Funds: When you invest in mutual funds, your money is going into numerous companies. The fund itself may be investing in stocks and bonds, and there are risks to investing in mutual funds as with any investment, generally, mutual funds are considered a very safe and responsible approach to investing.
The Bottom Line
Saving $1 million can feel daunting but not out of reach. Putting $675 away every month at a rate of return of 8%, for example, can help you get to that milestone in 30 years. Time and compound interest will play in your favor, as well as taking additional steps to keep on track. The best way to save $1 million is to find ways to increase how much you can bring in through added income or other asset investments.
Tips Retirement Investing
- A financial advisor can help you pick retirement investments for your financial plan. If you dont’ have a financial advisor, finding one 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.
- SmartAsset’s free retirement calculator can help you figure out how much money you will need to pay for retirement.
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