The First Million is the Hardest How to Build a Million Dollar Net Worth. How to become a millionaire. . . and other encouraging retirement realities.
By David Rae Certified Financial Planner™, Accredited Investment Fiduciary™
Some of us are old enough to remember when having a million bucks really made you feel like a million bucks (paging Austin Powers). Unfortunately, no matter your age today, chances are you’re going to need to accumulate at least a million dollars to maintain your standard of living in retirement. I believe everyone reading this can become a millionaire given they follow a financial plan and given enough time. The good news is that we are seeing record numbers of American becoming multi-millionaires.
A client of mine who had checked out a retirement estimator was shocked to learn they needed to accumulate several million dollars to reach their retirement goals. It’s true, the more you make the more you will need to set aside to replace that income in your golden years. Plus, the younger you are now, the more you’re going to need to sock away in the long run. But I do have some good news; the first million is the hardest and it can most definitely get easier from there.
Start Savings NOW So You Don’t have to constantly worry about running out of money in retirement.
How can this be? First off, if you’ve managed to squirrel away a cool million so far, you have probably developed some positive financial habits that will continue into the future. Then as your net worth increases, most of your wealth-building sweat labor will be replaced by compounding interest.
Financial Habits of Millionaires in the Making.
The Millionaire Next Door by Thomas Stanley is one of my favorite books on personal finance and I highly recommend you give it a read. Even though it was first published over 30 years ago, the essence of what it has to say is evergreen. According to the book, the average (non-inheriting, that is) millionaire is just like the Average Joe but in contrast, has been financially savvy for years and consequently been rewarded for his or her good fiscal deeds. The book’s major takeaway is that becoming a ‘millionaire’ (that was then, ‘multimillionaire’ is more now) is more about smart financial habits than just making a ton of money.
A few of these habits include things like paying yourself first, being smart with debt, and letting compound interest work its magic. These factors often aren’t doing all the heavy lifting alone though. For example, a happy marriage can increase your odds of accumulating substantial wealth whereas divorce can destroy the financial foundation you have worked hard to build. With our financial planning guidance, you can achieve financial freedom before you know it.
Fiscal Fitness – How to build a Million-Dollar Net Worth
The fiscally fit also avoids many of the traps that can really keep them from achieving true financial independence, such as procrastinating on retirement planning for the future (denial, anyone?) or falling prey to continuous “lifestyle inflation.”
Compounding interest building the big bucks – on your way to million-dollar net worth: Let’s assume you are saving $100 per month* and over the long term earn 8% after fees and taxes. (Hopefully, you are saving way more than this and have some tax-deferred accounts such as a 401(K) plan or perhaps a ROTH IRA) At that rate would take you about 635 months (about 53 years) to build your first million dollars. If you started at 18, that would put you in your seventies.
Now you might guess it would take some similarly onerous amount of time to accumulate your second million but not so fast, Trigger. Using the same amounts and parameters as above at $100 per month, thanks to compounding interest your second million would take only 103 months (about 8.5 years) to accrue. That’s 85% faster than the first million.
The amount of time to add a million to your net worth shortens for each additional million. It is the magic of compounding interest, your money makes money, and that money makes money and pretty soon you’re the one sitting pretty. From $10 million to $11 million you would take just 14 months! This my friends are how the rich get richer and you can too.
Getting going and staying on it- Build that Million Dollar Net Worth
Starting the process can be a bit discouraging at the beginning. Put this another way, you put in $100 per month for one year you have a total of $1245. So your portfolio grew a whopping $45, enough for two movie tickets and popcorn to split, but not exactly a life changer. But fast forward to when your account has a $5 million balance. If you continue that easy $100 per month contributions for a year and all of a sudden your accounts grew around $415,000. I’m going to go out on a limb here and assume if you are saving just $100 per month your income isn’t anywhere near $400,000 per year. So how to get from where you are to where you want to be?
The best advice I can give you is to sharpen your smart financial habits and get started sooner rather than later. The more time you give yourself the easier it will be to get your financial house in order and keep it growing. Work with a Fiduciary Financial Planner to set a roadmap towards your various financial goals and someday it’ll be your next-door neighbor pointing you out, “See that one over there? Easily worth millions!”
Extra Credit: Save into a tax-deferred account like a Solo 401(k) or Cash Balance Pension Plan to lower your taxes and make saving more easier on your take-home pay each month.
Live for Today, Save for Tomorrow. Until Next Time Remember YOUR MONEY MATTERS. Now you know How to Build a Million Dollar Net Worth
DAVID RAE, CFP®, AIF® is a Los Angeles-based fiduciary financial planner with DRM Wealth Management, a regular contributor to Forbes.com, Advocate Magazine, Huffington Post, and Investopedia not to mention numerous TV appearances. He helps smart people across the USA get on track for their financial goals. For more information visit his website at www.davidraefp.com
*Calculations are compounded annually at a rate of 8%. Also, the earnings are compounded and reinvested and do not take into consideration any tax implications and their effect on the investment. They are not representative of past or future performance but are provided for illustrative purposes only. The illustration is not indicative of any specific investment. Actual investment results will vary. This type of plan does not assure a profit or protect against loss in declining markets.
My Stock Market Dream – How to Invest Money Smarter
[…] For example, if you choose to save for retirement in a fixed account after inflation – just about as risk-free as you can get – you essentially have to save every penny out of your own pocket to fund what could easily be 30 years of retirement. At the same time you are foregoing all the magic of compounding interest. […]
Hi blogger, i’ve been reading your site for some time and I really like coming back here.
I can see that you probably don’t make money on your site.
I know one cool method of earning money, I think you will like it.
Search google for: dracko’s tricks
Thanks for sharing this great post. It was very motivational
These are spot-on advice on hitting your first landmark. I totally agree with all of them, which takes a practical POV on wealth management rather than what others say is true. I would also suggest aspiring millionaires to keep a track of their net worth every 3 months, to both keep themselves motivated as well as see what they are doing right/wrong.
And thanks for the book suggestions too.
[…] If you only look at the day to day movements if your stock portfolio, you may always feel like you are losing money. You will always be comparing your current account balance to the peak value of your portfolio. You may think your 401(k) stinks if you see the value drop from $1.1 million to just a measly million dollars. That $100,000 “loss” may be easier to stomach if you remember how you actually put into the account. After employer matching, tax breaks and compound interest over time you might be surprised how little you actually had to put into you 401(k) to grow it to a million dollars. […]
[…] If you only look at the day to day movements if your stock portfolio, you may always feel like you are losing money. You will always be comparing your current account balance to the peak value of your portfolio. You may think your 401(k) stinks if you see the value drop from $1.1 million to just a measly million dollars. That $100,000 “loss” may be easier to stomach if you remember how you actually put into the account. After employer matching, tax breaks and compound interest over time you might be surprised how little you actually had to put into you 401(k) to grow it to a million dollars. […]
[…] If you only look at the day to day movements if your stock portfolio, you may always feel like you are losing money. You will always be comparing your current account balance to the peak value of your portfolio. You may think your 401(k) stinks if you see the value drop from $1.1 million to just a measly million dollars. That $100,000 “loss” may be easier to stomach if you remember how you actually put into the account. After employer matching, tax breaks and compound interest over time you might be surprised how little you actually had to put into you 401(k) to grow it to a million dollars. […]
[…] Related: The First Million is the Hardest How to Build A Million Dollar Net Worth […]
[…] Related: The First Million is the Hardest How to Build A Million Dollar Net Worth […]
[…] Related: The First Million is the Hardest How to Build A Million Dollar Net Worth […]
[…] Related: The First Million is the Hardest How to Build A Million Dollar Net Worth […]
[…] Related: The First Million is the Hardest How to Build A Million Dollar Net Worth […]
[…] Related: The First Million is the Hardest How to Build A Million Dollar Net Worth […]
[…] Related: The First Million is the Hardest How to Build A Million Dollar Net Worth […]
[…] Related: The First Million is the Hardest How to Build A Million Dollar Net Worth […]
[…] Related: The First Million is the Hardest How to Build A Million Dollar Net Worth […]
[…] For extra credit have the kids open a ROTH IRA with their earning. Imagine what compounding interest could do for investment opened as a teenager. If your child put away $5500 for just three years from 15 to 17 into a ROTH IRA. Never contributed again and earned 10% per year until 70 how much would you have? Contributing just $16500 would turn into a whopping 2.5 million dollars! You could literally turn your kids into future millionaires!! […]
sensor
[…] without insurance. On the other hand, if you are socking away a large amount of money each month, and have built up a multi-million dollar net worth, you may not want to worry about buying Earthquake […]
[…] Can You Come to be A Roth IRA Millionaire? […]
[…] Can You Become A Roth IRA Millionaire? […]
[…] Can You Become A Roth IRA Millionaire? […]
[…] Can You Become A Roth IRA Millionaire? […]
You can register the web domain SECRETMILLIONAIRE.GUIDE ! Visit http://namechomp.tk/?domain=secretmillionaire.guide to register your domain now — LAST CHANCE before someone else takes it!
[…] Can You Become A Roth IRA Millionaire? […]
[…] a retirement account each month. The money goes in pre-tax and you get a match from your employer. Compound interest does its thing over time and, before you know it, you are left with more money than you ever […]
[…] With more than 40 million people officially living in California, the great weather and beautiful beaches, mountains, Palm Springs must be doing something right. The hurdles to be financially successful in this state are high. California has one of the highest costs of living in the US and is one of the highest income tax states. Taxation of capital gains in California is no less well taxing on investors’ budgets. The more taxes you pay, the harder it will be for you to build wealth. […]
[…] larger number of citizens can’t even dream about achieving financial independence, let alone becoming multi-millionaires. They would be happy to just escape the living paycheck-to-paycheck hamster wheel, barely scraping […]
[…] or possess astute financial savvy, it’s difficult to get this kind of return on your own. The first million is much harder to accumulate than your second third or […]
Thank you, Sir. I am now 18. I don’t know about being a millionaire but I believe that I will be financially independent someday. Now I am focusing on sharpening my smart financial habits!!
[…] The sooner you get started, the more work compounding interest will do for you. If you want to accumulate $1 million for retirement, it is easy for those of you who start investing at a younger age. If you start at 22, you will […]
[…] The sooner you get started, the more work compounding interest will do for you. If you want to accumulate $1 million for retirement, it is easy for those of you who start investing at a younger age. If you start at 22, you will […]
[…] The sooner you get started, the more work compounding interest will do for you. If you want to accumulate $1 million for retirement, it is easy for those of you who start investing at a younger age. If you start at 22, you will […]
[…] The sooner you get started, the more work compounding interest will do for you. If you want to accumulate $1 million for retirement, it is easy for those of you who start investing at a younger age. If you start at 22, you will […]
[…] The sooner you get started, the more work compounding interest will do for you. If you want to accumulate $1 million for retirement, it is easy for those of you who start investing at a younger age. If you start at 22, you will […]
[…] surprised by stock market volatility. It is the price of admission for the wealth-building magic of compounding interest via stock market returns. You should expect to see at least one stock market correction each year, which means at least one […]
[…] you combine the effect of compound interest and time, anyone can become a millionaire or even a multimillionaire. Try to avoid these 12 common financial moves that will make it even harder to become a […]
[…] you combine the effect of compound interest and time, anyone can become a millionaire or even a multimillionaire. Try to avoid these 12 common financial moves that will make it even harder to become a […]
[…] you combine the effect of compound interest and time, anyone can become a millionaire or even a multimillionaire. Try to avoid these 12 common financial moves that will make it even harder to become a […]
[…] those who mix the impact of compound curiosity and time, anybody can turn out to be a millionaire or perhaps a multimillionaire. Attempt to keep away from these 12 frequent monetary strikes that can make it even tougher to turn […]
[…] you combine the effect of compound interest and time, anyone can become a millionaire or even a multimillionaire. Try to avoid these 12 common financial moves that will make it even harder to become a […]
[…] Array ArrayArray […]
[…] you combine the effect of compound interest and time, anyone can become a millionaire or even a multimillionaire. Try to avoid these 12 common financial moves that will make it even harder to become a […]
[…] you combine the effect of compound interest and time, anyone can become a millionaire or even a multimillionaire. Try to avoid these 12 common financial moves that will make it even harder to become a […]
[…] you combine the effect of compound interest and time, anyone can become a millionaire or even a multimillionaire. Try to avoid these 12 common financial moves that will make it even harder to become a […]
[…] you combine the effect of compound interest and time, anyone can become a millionaire or even a multimillionaire. Try to avoid these 12 common financial moves that will make it even harder to become a […]
[…] When times get tough, you may be tempted to go to cash or stop contributing to your investment accounts until things calm down or the stock market has left a correction or bear market. I hate to sound terribly pessimistic, but there will always be a reason to be negative. Trying to time the stock market is a fool’s journey to the poor house. You just can’t do it, and if you are just buying investments with every paycheck or automatic contributions, you will continue to buy stock on sale and get the long-term benefits of compound interest. […]
[…] When times get tough, you may be tempted to go to cash or stop contributing to your investment accounts until things calm down or the stock market has left a correction or bear market. I hate to sound terribly pessimistic, but there will always be a reason to be negative. Trying to time the stock market is a fool’s journey to the poor house. You just can’t do it, and if you are just buying investments with every paycheck or automatic contributions, you will continue to buy stock on sale and get the long-term benefits of compound interest. […]
[…] When times get tough, you may be tempted to go to cash or stop contributing to your investment accounts until things calm down or the stock market has left a correction or bear market. I hate to sound terribly pessimistic, but there will always be a reason to be negative. Trying to time the stock market is a fool’s journey to the poor house. You just can’t do it, and if you are just buying investments with every paycheck or automatic contributions, you will continue to buy stock on sale and get the long-term benefits of compound interest. […]
[…] When times get tough, you may be tempted to go to cash or stop contributing to your investment accounts until things calm down or the stock market has left a correction or bear market. I hate to sound terribly pessimistic, but there will always be a reason to be negative. Trying to time the stock market is a fool’s journey to the poor house. You just can’t do it, and if you are just buying investments with every paycheck or automatic contributions, you will continue to buy stock on sale and get the long-term benefits of compound interest. […]
[…] When times get tough, you may be tempted to go to cash or stop contributing to your investment accounts until things calm down or the stock market has left a correction or bear market. I hate to sound terribly pessimistic, but there will always be a reason to be negative. Trying to time the stock market is a fool’s journey to the poor house. You just can’t do it, and if you are just buying investments with every paycheck or automatic contributions, you will continue to buy stock on sale and get the long-term benefits of compound interest. […]
[…] When times get tough, you may be tempted to go to cash or stop contributing to your investment accounts until things calm down or the stock market has left a correction or bear market. I hate to sound terribly pessimistic, but there will always be a reason to be negative. Trying to time the stock market is a fool’s journey to the poor house. You just can’t do it, and if you are just buying investments with every paycheck or automatic contributions, you will continue to buy stock on sale and get the long-term benefits of compound interest. […]
[…] millions of self-employed Americans think they are too small to set up their own 401(k) plans. They also […]
[…] The headlines will go to the winner of the Powerball; the multi-state lottery Association has 11.2 million winning some level of cash prize totaling $98.1. This included 22 tickets that each won a million dollars. […]
[…] interest, it will be hard for the average American to save enough to come anywhere close to becoming a millionaire. While the perceived safety of stashing all of your life savings in a bank may be appealing, most […]
[…] interest, it will be hard for the average American to save enough to come anywhere close to becoming a millionaire. While the perceived safety of stashing all of your life savings in a bank may be appealing, most […]
[…] interest, it will be hard for the average American to save enough to come anywhere close to becoming a millionaire. While the perceived safety of stashing all of your life savings in a bank may be appealing, most […]
[…] interest, it will be hard for the average American to save enough to come anywhere close to becoming a millionaire. While the perceived safety of stashing all of your life savings in a bank may be appealing, most […]
[…] interest, it will be hard for the average American to save enough to come anywhere close to becoming a millionaire. While the perceived safety of stashing all of your life savings in a bank may be appealing, most […]
[…] interest, it will be hard for the average American to save enough to come anywhere close to becoming a millionaire. While the perceived safety of stashing all of your life savings in a bank may be appealing, most […]
[…] interest, it will be hard for the average American to save enough to come anywhere close to becoming a millionaire. While the perceived safety of stashing all of your life savings in a bank may be appealing, most […]
[…] interest, it will be hard for the average American to save enough to come anywhere close to becoming a millionaire. While the perceived safety of stashing all of your life savings in a bank may be appealing, most […]
[…] going to be arduous for the common American to save lots of sufficient to come back anyplace near becoming a millionaire. Whereas the perceived security of stashing your whole life financial savings in a financial […]
[…] interest, it will be hard for the average American to save enough to come anywhere close to becoming a millionaire. While the perceived safety of stashing all of your life savings in a bank may be appealing, most […]
[…] interest, it will be hard for the average American to save enough to come anywhere close to becoming a millionaire. While the perceived safety of stashing all of your life savings in a bank may be appealing, most […]
[…] interest, it will be hard for the average American to save enough to come anywhere close to becoming a millionaire. While the perceived safety of stashing all of your life savings in a bank may be appealing, most […]
[…] interest, it will be hard for the average American to save enough to come anywhere close to becoming a millionaire. While the perceived safety of stashing all of your life savings in a bank may be appealing, most […]
[…] interest, it will be hard for the average American to save enough to come anywhere close to becoming a millionaire. While the perceived safety of stashing all of your life savings in a bank may be appealing, most […]
[…] olmadan, ortalama bir Amerikalının yakınlaşmaya yetecek kadar tasarruf etmesi zordur. milyoner olmak. Tüm birikimlerinizi bankaya yatırmanın verdiği güvenlik hissi çekici gelse de, çoğu […]
[…] דריבית, קשה לאמריקני הממוצע לחסוך מספיק כדי להתקרב להפוך למיליונר. בעוד שהביטחון הנתפס של הכנסת כל חסכונות החיים שלך […]
[…] zal het voor de gemiddelde Amerikaan moeilijk zijn om genoeg te sparen om in de buurt te komen van miljonair worden. Hoewel de gepercipieerde veiligheid om al uw spaargeld bij een bank te houden aantrekkelijk kan […]
[…] company that goes public), you could probably quit your job. However, if you have merely won a million dollars in the lottery, your ability to maintain financial freedom will likely depend on the tax […]
[…] Building a $1 million net worth may seem like an impossible feat, but it’s actually easier than you might think. The key is to start investing early and often. […]
[…] that you may find helpful and motivating if you’re looking to improve your health. Like compounding interest can help you build vast wealth over time, making small, healthier choices today could also […]
[…] that you may find helpful and motivating if you’re looking to improve your health. Like compounding interest can help you build vast wealth over time, making small, healthier choices today could also […]
[…] that you could be discover useful and motivating if you wish to enhance your well being. How compound curiosity may help you construct nice wealth over time. Making small, more healthy decisions as we speak may […]