“Who wants to be a millionaire?” When Terry Crews asks this question, everyone in his audience thinks “I do,” yet few expect to achieve such wealth. Aside from tech geniuses, hedge fund managers, quiz show winners, and a handful of high-paid professionals, even the most frugal people rarely come close to amassing seven figures, regardless of how much education or training they have. Baskets Under Armour The million dollar mark looks like an unattainable ideal. In fact, a million dollars is well within the reach of most middle-income families. Through increased savings, careful spending practices, and good investment strategies, there are few obstacles to turning a modest salary into a seven figure retirement fund. As the economy recovers and employers plan to raise wages, now is the perfect time to begin building your fortune. You can steadily build wealth by:
Step 1: Soup Up Your Savings
According to CNN’s Millionaire Calculator, if you invest $200 a month and earn an average of 5% interest a year, you can be a millionaire in less than 50 years. Many investors find this inspiring, but for some, especially those who didn’t start saving until later in life, it can seem depressing. Regardless of how old you are, however, saving a million dollars by retirement doesn’t have to be difficult; you just have to boost savings by adopting the right strategies. Nike Air Max Dames The first step to boosting your savings is to practice good debt management. This does not necessarily mean paying off your debts immediately. Rather, you should compare the money you could save by paying down your debts to the money you could make investing your income while remaining in debt. If investing your income will yield higher returns than you lose paying interest on your debts, invest now and pay down your debts later. The goal should be to maximize your assets relative to your debts, not to eliminate debts automatically. If you decide it’s better to pay down your debts, pay off individual debts one by one, starting with the debts that have the highest interest rates. It’s also good to get variable interest rate loans out of the way early, especially if interest rates are predicted to rise in the near future (as they currently are). Every time you eliminate a debt, take the money you had been spending to pay interest on the debt and save or invest it. Nike Air Max BW Femme This will allow you to gradually increase the portion of your income that you save each year. Similarly, if you get a pay raise or a higher paying job during this time, commit to saving at least half of your extra income. This will cause your assets to grow more quickly as you age. The next step is to take full advantage of tax-qualified savings and pension plans. The more of your money you place in IRAs, 401(k)s, and 403(b)s, the less of your savings you have to pay in taxes, allowing you to accumulate wealth more quickly. It pays, then, to be aware of the nuances of the tax code. If you have a 401(k), for example, you’re probably aware that you can’t contribute more than $17,500 to it each year, but you may not know that once you reach age 50, this rises to $23,000. Likewise, you can contribute only $17,000 a year to a 403(b) before age 50, but $22,000 after. Assuming you save enough money each year for this to apply, make sure to take advantage of these policies as soon as you can. Besides general savings plans, there are also tax-exempt plans for specific purposes. If you are in a high-deductible health plan, for example, you can put your money in a health savings account. You can put up to $3,300 a year, or $4,300 a year if you’re over 55, into this plan on the condition that you use the money to pay healthcare deductibles. Considering that healthcare costs are one of the biggest sources of spending for retirees, and can quickly deplete their savings, putting as much money in a health savings account as possible is a good investment. When calculating how much money you have to save each year to accumulate a million dollars by retirement, make sure to take inflation into account, especially if you start saving at a young age. Historically, the value of the dollar decreases at a rate of 3.22% each year, meaning a million dollars in 2065 will be worth less than a quarter million in 2015. Online savings calculators like Bankrate and CNN’s Millionaire Calculator both take projected inflation into account when determining how long it will take for you to become a millionaire; use these projections rather than doing the math on your own.
Step 2: Cut Spending Without Suffering
Besides increasing the absolute amount of money you put away each year, it’s also important to increase the percentage of your income that you save if your employer offers a retirement plan percentage match. Many employers agree to match a certain percentage of employee savings as a form of alternative compensation. If you work for a company or organization that offers a 50% match, for example, then if you save 4% of your income, your company will pay you another 2% for savings; if you increase this to 6%, your company will give you 3%. Essentially, your employer is encouraging you to save by agreeing to pay you more if you save more. To get the most out of such plans, you must increase the percentage of your income that you save whenever possible. Many employees don’t think they can afford to save any more than they already do without downgrading their lifestyles. In fact, most consumers spend considerably more money than they have to on necessities and entertainment. If given time to adjust, you should be able to reduce your spending substantially without sacrificing quality of life. One popular way to encourage this is auto-escalation, a savings option that over half of modern employers offer. Auto-escalation allows you to gradually raise your rate of retirement fund contributions by a few percent a year. Each year, you’ll to make due with a little less of your paycheck; this won’t require you to make drastic spending cuts, but it will encourage you to look for bargains and make small changes in your daily life to compensate. After a few years of auto-escalation, many employees are able to raise their savings rates by double digits without noticing any different in living standards. Cutting spending isn’t always possible. If you have children, for example, you’ll obviously incur a large number of short- and long-term costs that you can’t avoid. Likewise, if you or a family member becomes seriously ill, your medical bills and insurance premiums will rise regardless of how frugal you are. Even if you can’t stop spending from rising, however, you can still take steps to make sure that you only spend more when you need to. One tip is to commit to saving the added income from all future pay raises unless you absolutely cannot afford to do so. If you make this commitment, you won’t be tempted to spend more money on non-essentials just because your income rises. Besides these general strategies, the following tips will help you reduce specific bills:
- Leaning Toward Libraries- Besides lending books, most public libraries have a broad selection of TV shows, movies, and video games on DVD. For a $50 library card fee, you can save over a thousand dollars a year in cable bills.
- Turn On the Tap- Tap water is virtually free, and contrary to popular belief, it is healthier and more rigorously tested that bottled water. Drinking tap water will thus save you both from short-term bottled water costs and long-term health costs.
- Combine Services- If you still have a landline telephone, you may be able to save money by purchasing landline service from the same provider who offers you Internet service.
- Carry Cash- Consumers often spend less money if they leave their credit cards at home and pay for small items in cash. By having a set amount of money with you, you’ll be less tempted to buy things on impulse.
- Exercise More- Besides the physical and psychological benefits, exercising regularly will also lower your insurance premiums. Your insurance company may even reimburse you for the cost of gym memberships and exercise equipment.
- Savvy Shopping- Plan out which groceries to buy each time you go shopping, and eat a small snack right before you go to the store. new balance 996 homme bordeaux This will make you less likely to buy food on impulse.
- Just Ask- Utilities can often make a profit even if you don’t pay full price; if you ask them to lower your water or electric bills, they’ll usually be happy to do it.
Step 3: Invest Ingeniously
However much money you put away, there’s no substitute for high interest rates. According to the Millionaire Calculator, If you invest $200 a month, it will take you 47 years to become a millionaire if you earn 5% interest, but only 26 years if you earn 10% interest. A good investment strategy will thus drastically reduce the time and privation it takes to attain 7 figures. At the same time, bad investments can destroy decades of savings in a matter of hours, forcing you to start all over. It’s thus essential that you master risk management, taking advantage of opportunities to earn high returns while keeping a large portion of your money in safer ventures. The stock market is one field in which it pays to be cheap. Actively managed stock funds often charge 1% or more of your assets a year, which can add up to a large portion of your returns. Active stock managers claim that they will more than make up for these charges through higher returns; your share of the returns may be smaller, but the absolute amount of money you make will increase. In fact, there is no evidence that actively traded funds earn higher returns. Passive funds, or stock funds that invest money according to a predetermined strategy, have actually done better in recent years than their active competitors despite having lower fees. You also won’t have to pay as much in capital gains taxes if you choose a passive funds. Nike Air Max 90 Homme By sticking to cheap passive funds, you’ll be able to keep a larger portion of your returns without sacrificing growth. Another tip for stock market success is to focus on value stocks instead of growth stocks. Growth stocks are investments in new companies, small companies, or old companies that have recently regained profitability. These look like good investments at first, but because the people selling growth stocks have more information than those buying them, it’s very difficult to tell companies that are actually worth their share prices apart from those that are not. On the other hand, value stocks are investments in well-managed companies that have become temporarily unprofitable due to market forces. Because the share prices for such companies is so low, it’s less likely that you’ll end up buying them for too little, and you stand to make a large profit once the company returns to profitability. A good rule of thumb for investing is to pay attention to indices like Morningstar, which compares different stock funds during periods when the stock market as a whole has lost value.