If you've always aspired to become a millionaire, or just thought about it from time to time, there’s a helpful chart that can turn your dream into a reality.
Financial blogger Lyn Alden published the following chart on her website that reveals how much you need to save every month, plus the annual rate of return, in order to reach millionaire status in 25 years.
How much money to save every month to become a millionaire
According to the chart, a conservative investor would need to save $3,000 a month to end up with $1 million in 25 years, given a 4% annual rate of return. However, assuming a 9% rate of return, one would only have to invest $1,500 a month to accumulate $1 million after a quarter-century.
To give you some context, the average annual rate of return on a 401(k) is typically somewhere between 5% and 8% -- although the exact numbers depend on a variety of factors. Assuming you're earning an average of 7%, then you would need to contribute $2,000 a month to reach $1 million after 25 years.
It's important to note that this chart also takes inflation into account.
“I made the matrix inflation-adjusted, using an assumption of 2.5% annual currency inflation over the period,” Alden wrote on her blog. “So when you see a million dollars on the table, it means a million dollars in terms of today’s purchasing power rather than like, the less-valuable inflated Monopoly-money of the future.”
12 easy ways to build wealth fast
Alden said that in order to build wealth quickly, you must increase the difference between your income and expenses, save the difference and grow it exponentially over time (by investing the money).
Here are a few ideas to increase your earnings and reduce expenses:
1. Follow these steps to get a promotion or raise at your current job.
2. Switch to one of the 25 best jobs of 2017 that pay over $60K a year.
3. Pick up a side job working from home (See Clark’s Work From Home Guide: A list of legitimate, work-at-home job opportunities.)
4. Use one or more of these 40 ways to sell your old stuff for cash!
5. Download these three cash back apps. They’ve helped me earn more than $1,500 so far!
6. Switch to a better bank that won’t charge you fees.
7. Negotiate lower monthly bills with current service providers, including TV, cell phone and internet.
8. Switch to a low-cost cell phone provider. Here are the best cell phone plans and deals for 2017.
9. Drop traditional pay TV in favor of Clark’s TV bundle, which will cut your monthly bill in half!
10. Shop at Aldi to save up to 50% on your grocery bill.
11. Use an app to reduce your prescription drug prices substantially. Here’s how I cut my costs by 75% on top of those savings!
12. Create a budget. Here’s a step-by-step guide.
It's never too early to start investing
Speaking strictly about retirement savings, the key is to save early and often!
Years ago, we popped a chart on Clark.com that showed how a 15-year-old could invest just $2,000 a year for seven years. And then, never saving another penny again, the money would grow to be $1 million at 65.
If you're getting a late start, don't panic -- but do plan on delaying Social Security for as long as you can.
One thing that can make saving for retirement easier is contributing to a 401(k) plan offered by your employer, and always contribute up to the company match if that's an option.