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Part of the Series Retirement Planning GuideDefining Your Retirement Goals
Types of Retirement Accounts
Retirement Strategies by Age
COVID-19 and Your Retirement
Building wealth to become a millionaire can appear unattainable for many people. However, becoming a millionaire can be a reality. The six steps to making a million dollars include finding extra income through starting a side hustle online, a second job, or investing in yourself by learning new skills.
Also, start saving early and invest your money to allow for compounding, while good spending habits and managing your debt can help you control unnecessary purchases. Read on to discover the six steps to making a million dollars.
To begin your journey of becoming a millionaire, start saving early in life. Building your savings gradually allows you to take advantage of the incredible power of compounding over the years. Compounding means you earn interest on your interest by reinvesting your interest or capital gains.
Say you’re 20 years old. If you contribute $6,000 to an individual retirement account (IRA) every year ($500 a month) for 40 years, your total investment would be $240,000.
However, with the power of compounding interest, your nest egg would be worth much more. Assuming a 7% return, with monthly compounding, it would total more than $1.32 million. You would be a millionaire by age 57 just by saving $500 a month. Granted, you’d rather be a millionaire by age 30. If that’s your goal, try to put more money away each month. Consider the other steps below.
Create a savings plan, which reviews your monthly debts, income, and financial goals. Next, automate your savings by setting up a direct deposit for a small amount from your paycheck to a savings account. If you don’t see the money in your checking account, you’re less likely to spend it.
Stop buying things you don’t need, especially if you use a high-interest credit card for the purchases. Before buying anything, ask yourself the following:
Every dollar you spend on something you don’t need is one less dollar that can make money for you.
Here’s a reality check: If, instead of spending an extra $25 a week, you save and invest it for 40 years, you will end up with $263,000 (assuming 7% annual return and monthly compounding). Can you cut $25 of unnecessary spending out of your weekly budget?
If you can, that effort alone will go a long way toward helping you reach your goal of becoming a millionaire.
The personal savings rate is the percentage of income left over after people spend money and pay taxes. That rate for Americans on average was 3.4% in June 2024, according to the U.S. Bureau of Economic Analysis (BEA).
According to experts, that’s not enough for a comfortable retirement, let alone for anyone aiming to become a millionaire.
Exactly how much should you save? Although there’s no correct answer, most financial planners say that, depending on your age, you should save at least 15% of your annual gross income for your retirement.
That figure is ambitious but not necessarily unattainable. For example, if your employer matches contributions of up to 6% of your salary in your 401(k) plan, you need to save only 9%.
Making more money is easier said than done, but if you don’t earn enough to save 15% of your income, it will be challenging to become a millionaire.
You do have a few options available to you, including:
Additional training pays off the most in the long run. Let’s say that you’re a licensed practical nurse (LPN). The median income for LPNs was $59,730 per year in 2023. Registered nurses (RNs), on the other hand, earn about $86,070 a year.
It takes one to three years of additional education to qualify to be an RN. However, the extra money you’d take home every year can help you reach your financial goals and, eventually, become a millionaire.
Lifestyle inflation is a common consequence of career advancement. You spend more money just because you have more money to spend.
You may decide your apartment is too small and need a house in the suburbs. You realize that you can come up with a down payment for a much fancier car. Your vacation plans get more ambitious and expensive.
If you want to become a millionaire, resist the urge to give in to lifestyle inflation. Instead of spending more—just because you can—save and invest more. Imagine the pleasure of watching your financial account balances grow. And you’ll reach your financial milestones faster.
The percentage of people who say they’re “very confident” that they’re doing a good job of preparing for retirement, according to the 2023 Retirement Confidence Survey.
Planning for retirement can be stressful. That’s because you know you’ll need a substantial amount of money when you no longer work, all of the investment options available, and the knowledge and experience it takes to invest successfully. In one survey, only 18% of Americans said they’re very confident that they will be able to retire comfortably.
Unless you’re a financial rock star or someone willing and able to make an effort to research investment opportunities, it’s worth the money to work with a qualified financial advisor to come up with a personalized and workable retirement plan.
An advisor can help you choose investments, create a budget, and make plans to reach your goals. And once you’re ready to spend some of that money, they can help you make it last.
Here’s a quick look at how retirement savings accounts can help you reach your goals:
If you have a job that offers benefits, you can probably open an employer-sponsored retirement plan such as a 401(k) or a 403(b). About 69% of private company employees and 92% of government workers now have access to one of these plans in March 2022.
The combination of tax advantages and easy payroll deductibility make these the best retirement savings vehicles available to workers. Better yet, many employers match a portion of the employee’s contribution, which is invaluable to jump-starting your account’s earnings potential.
You can deduct your contributions up to an annual limit. The earnings in the account grow tax deferred if it is a traditional 401(k) account (rather than a 401(k) Roth account).
For the 2024 tax year, the maximum contribution is $23,000, increasing to $30,500 if you’re age 50 or older. This is a $500 increase from tax year 2023.
People with a retirement plan at work may also open individual retirement accounts (IRAs) and save even more.
People who are self-employed or are freelancers can open retirement accounts on their own. They are available at almost any bank or brokerage.
You can choose between a traditional or Roth IRA. The major difference between the two IRAs is when the taxes are due on the income deposited.
No matter which type of IRA you have, the contribution limit is the same. For 2024, you can contribute up to $7,000 ($8,000 if you’re 50 or older). This is a $500 increase from tax year 2023.
Beyond that, the choice is yours. Any bank or brokerage firm will give you access to a wide range of investments to help you build your nest egg.
The Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) IRA is a tax-favored retirement plan that certain small employers, including the self-employed, can set up for the benefit of themselves and their employees.
Simplified Employee Pension (SEP) IRAs can be established by the self-employed and those with few employees in a small business. The SEP lets you make contributions to an IRA on behalf of yourself and your employees.
Both SEP and SIMPLE IRAs are popular with small business people because they’re easy to set up, require little paperwork, and allow investment earnings to grow tax deferred.
For 2024, you can put away up to $69,000 in a SEP IRA and $16,000 in a SIMPLE IRA.
Taxable brokerage accounts provide a way to invest additional funds after you max out the amounts you can invest in your retirement accounts. Be aware that you may need to pay taxes on the income generated in these accounts in the year you receive it.
If you start early and save regularly, you can make a million dollars or more by contributing to your retirement savings accounts. To take full advantage of your savings opportunity, try to contribute the maximum limit.
For example, let’s consider Joe, who wants to reach the $1 million mark by the time he retires at age 67. Let’s assume Joe:
We’ll assume his investments earn a 7% return.
Joe takes full advantage of the employer match and defers 5%, or $2,500, of his salary each year. His employer contributes $2,500 each year as the match. Of course, in real life, he’d probably get raises over the years, but for the purposes of this example, we’ll assume his salary will remain the same over the decades.
Here’s the breakdown of his savings over 34 years.
| 401(k) | Roth IRA | |
|---|---|---|
| Annual Contribution | $5,000 | $4,000 |
| Rate of Return | 7% for 34 years | 7% for 34 years |
| Balance at Retirement | $698,000+ | $550,000+ |
That’s a grand total of $1.25 million. Welcome to the Millionaire Club, Joe!
If Joe had started saving at a younger or older age, here’s what his results would look like:
| Starting Age | Total Annual Investment (401(k) + Roth IRA) | Annual Return | Approximate Value at Age 67 |
|---|---|---|---|
| 25 | $9,000 | 7% | $2.2 million |
| 30 | $9,000 | 7% | $1.6 million |
| 35 | $9,000 | 7% | $1.08 million |
| 40 | $9,000 | 7% | $722,000 |
| 45 | $9,000 | 7% | $472,000 |
| 50 | $9,000 | 7% | $295,000 |
| 55 | $9,000 | 7% | $170,000 |
Saving and investing your money can help you make a million dollars. By investing, you use the power of compounding by earning interest on your interest to build wealth. Saving money early in your working career means more interest can accumulate. Also, aim to save 15% of your income, cut out unnecessary spending, upgrade your skills, get a second job, and hire a financial professional to create a financial plan for your goals.
The amount you’ll need to invest to become a millionaire depends on your age when you start saving. When you’re young, you may make less money, but you have more time to accumulate wealth, and you can tolerate more investment risk for higher potential returns. If you put off saving until you’re older, you’ll have to put away more money every month to achieve the same results.
Unless you come from a very wealthy family or win the lottery, there’s little chance of becoming rich by doing nothing. You’ll need discipline, a plan, and, if necessary, good advice from a registered professional who can help push you in the right direction to reach your goal of becoming a millionaire.
How to get rich? The key to becoming a millionaire is to start saving regularly when you’re young, stay disciplined, and make and keep a long-term financial plan. You’ll be pleased with the results. Making your first million won’t be easy, but isn’t impossible.
How much wealth you accumulate depends on how much you save and how well your investments do. At younger ages, you have the time to take more risk with your investments and seek out choices that have the potential to provide a higher return.
That means investing less of your money in low-earning certificates of deposit (CDs) and money market securities and more in higher-yielding choices like equities to achieve returns that exceed inflation and grow your savings.
Article SourcesDefining Your Retirement Goals
Types of Retirement Accounts
Retirement Strategies by Age
COVID-19 and Your Retirement
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