Once upon a time, a millionaire was a rare thing indeed. But that’s not the case anymore. Of course, money has depreciated over time thanks to inflation, so that a million dollars now does not have the same buying power that it did in the past. But that’s not the only reason that more and more people are able to claim that they are millionaires. Part of the increase in membership into this once highly exclusive category is that people are becoming much smarter about how they use their money. They have come to understand the magic of compound investing and how powerful a tool it is to understand when it comes to getting your money to work for you.
As discussed in other articles, remember that money has time value. While a million dollars captures a certain meaning to us now, it will not have the same meaning in 10, 20 or 30 years when you are ready to retire. So just understand that even if you are able to call yourself a millionaire, that doesn’t mean that you will be living the lifestyle of what you see today’s millionaires doing. By then, it will take multiple millions of dollars to enjoy the same type of lifestyle that today’s millionaires enjoy. All the more reason to begin your wise investing as soon as possible.
So how can you get to the goal of becoming a millionaire? Well, first you need to adopt the millionaire attitude by taking an honest look at your current financial situation. Chances are you can first change some of your spending habits so that you are losing less money. The more money you can invest now instead of spending it on unnecessary items, the more money you will have for your retirement. Where are you currently in debt? There is ‘good’ debt, such as a mortgage, which in most cases means that what you have purchased is appreciating in value. And there is ‘bad’ debt, such as a new car payment, which has you paying for an item that is depreciating in value. And for many of us, the worst debt is also the most commonly held credit card debt. If you are paying for the right to use credit, you are probably living above your means. Not to mention the fact that once you are considered a good risk by a credit card company, you are more readily able to get credit from other companies as well. So all too often, you can end up making minimum payments on a number of credit cards, making it difficult to ever pay off any of them entirely. Of course, you can’t change what you’ve spent in the past, but you can change what you spend in the future. Stop spending what you can’t afford, pay off high interest debts, and invest as much as possible.
The exact investment requirements needed to reach the millionaire mark depend on how much, at what interest rate, and for how long you have to invest your money. But, let’s say that you are 35 years old and you want to retire at 65. You are starting from scratch on your account and want to get to $1,000,000 by 65. At 8% interest, you would need to save $8,826 per year, or $735.50 per month. What if you can earn 10%? Then you need $6,079 per year, or about $506.58 per month to reach $1,000,000 by 65. Of course, if you had 40 years to reach the millionaire mark, you’d only need $321 a month at 8% or an amazing $188.25 a month at 10% in order to hit your goal. The moral is, the sooner you start, the more magic compounding interest can do for you.