The other day I sat down with my calculator to figure out how how long it would take to save $1. It’s crazy. In a non-interest-bearing account, to become a millionaire in 10 years, I’d have to save almost $2000 each week. I also found another online calculator that said if I put away $500 a month I’d save $1 million by age 83. Ha! I don’t want to wait that long. However, I realized that, if I consider additional earnings from interest, dividends, stock growth, and other sources, becoming a millionaire is not necessarily out of reach, and I began to plan accordingly.
A 2017 study by Fidelity Investments revealed that 88% of millionaires are self-made. One thing self-made millionaires all have in common is that they set ambitious goals and act on them. They realize: “Someday” is not a date on the calendar.
So, how do we save $1 million? The first step is to create a plan. Here are some tips and advice I put together when I was creating my own plan.
“How do you eat an elephant?”
Putting aside the grossness of that question, the answer is related to how you might tackle any enormous project: one bite at a time.
In other words, don’t expect to save $1 million overnight or by winning the lottery. Plan on doing it gradually — with diligence and planning.
Write it down.
Put your plan in writing. Start with your long-term goals — where you see yourself in 10, 20 years — and then plot out the short-term goals needed to get there. Think of it as a business plan for your financial future. It doesn’t have to be super formal. It can be handwritten in a notebook. Just put it on paper.
The first track on your plan should be to pay off debts and cut expenses. Notice that I’m calling this a “track” and not a “step,“ because it is not a prerequisite to saving. You can pay off debts and save at the same time.
But what if you’re living paycheck to paycheck? You have to examine two things: Your income and your expenses. Your income should be higher than your expenses. If you can’t increase your income, cut your expenses. And even if you can increase your income, still cut your expenses.
Cut your expenses
Most people overspend, and when they do, it’s usually in their housing, car, and entertainment. Examine your spending — look at where each dollar is going. Do you really need that $5 latte? Do you need to buy a book when you can check it out from the library? Do you really need all the features you’re paying your cell phone company for? Take some time to really examine each and every expense over the last two months to see where you can cut. Any money you save by cutting these expenses should go directly to savings or paying off debts.
Getting rid of other bills, like car payments and mortgage, will make saving even easier. If you’re making a car or a mortgage payment, always pay more toward the principal. Once your car payment is gone, you can put all of that money into savings.
Lay off the credit cards
Next, unless you’re paying your balance every month, lay off the credit cards. Instead of making your lender rich with interest, you should be making yourself rich by investing that money. So stop using those cards — period — and pay off the ones with the highest interest first.
Don’t waste, and get frugal!
When was the last time you threw out old food from your fridge or leftovers? Create a no-waste mindset where, before shopping for new groceries, you use up whatever is in your fridge. You may find yourself spending less money on groceries. Additionally, if you reuse or repurpose what you might otherwise consider trash, you might save yourself money. For example, for personal use, I save printer paper that has been printed on only one side; I flip it over and print on the blank backside. By doing that over the years, I’ve bought a lot less printer paper than I normally would. At the same time, I’m helping the environment.
Stop “feel good” shopping
Have you bought clothes, shoes, or something else just to make yourself feel good? It might work, for a moment, but that feeling is only temporary. Consider other ways to make yourself feel good — like watching your bank account grow as you save $1 million!
Meanwhile, start saving (very important)
There’s a book by Mike Michalowicz called Profit First. Its concept is simple. Most people think of “profit” as what remains after all expenses are paid. But what if, after all expenses are paid, nothing is left? Michalowicz says to think about a new tube of toothpaste. The first time you use that tube, you probably will put a big glob on your brush. But, as that tube flattens, and you realize there is hardly any toothpaste left, what do you do? You still brush your teeth, just with less paste. If you wait to save until all your bills and expenses have been paid, there won’t be any toothpaste left. The profit first theory is to take the profit — or here, the savings — first.
Start with just 1%. On your next pay cycle, calculate what is 1% of that pay, and, before paying any bills, transfer 1% into a savings account. It should be an account that you won’t be tempted to withdraw from — out of sight, out of mind. Then, you have 99% of your pay to live off of. Do this every pay period, and it will become a habit. Once you get used to 1%, increase the percentage.
The best savings accounts are ones that you forget about. For the last several years, I’ve been using an app called Albert and I continue to be a fan and recommend it. It has a lot of cool features, including saving money for you automatically, allocating savings for different goals you set up, examining your expenses, notifying you about unnecessary fees, and if you get “Albert Genius” you can use the app to start investing.
Once you get into the habit of saving, think about having multiple savings goals, and consider using multiple accounts for these goals. The first should be for emergencies, with a minimum of $2000 in case, for example, you need a root canal. Think about your other future needs. Eventually, even, say, five years from now, you’ll need a new car; plan to pay for that car with cash from your savings instead of taking out another loan.
Other savings you can utilize include setting up a Roth IRA. Set up a regular weekly or monthly transfer, and don’t plan to ever withdraw from it. And, if your employer that offers a 401(k), jump on that; it’s free money.
Increase your income
Focus on increasing your income. After spending five years studying wealthy people, Author Thomas C. Corley concluded that most self-made millionaires had three streams of income, while others had more. An extra stream of income could be a part-time job, a side business, or even renting out a room in your house.
Think outside the box. Consider selling, on eBay or other websites, items in your home that are gathering dust. (Plus, you get the added benefit of getting rid of junk and moving closer to minimalism.)
Are you an artist or a crafter? Why not create an Etsy store? These little side projects could eventually springboard into even other opportunities and allow you to turn your hobbies into extra income.
Invest!
Next, learn about how to invest in the market and invest wisely. Consider stocks, bonds, or ETF. Nowadays, brokerages such as TD Ameritrade allow trading without fees. Another brokerage, Robinhood, makes investing really easy through its smartphone app, and even allows for investment in Bitcoin. It also allows you to invest with any amount. If you invest wisely enough, investment gains and dividends can become yet another stream of income. (If you use my link to sign up for Robinhood, you can receive one free share of stock.)
Buy real estate
One of your savings goals can be to use your savings as an investment in real property. Rental properties can be yet another stream of income — while your asset appreciates. Find a niche, like single family homes, and a strategy — either rental, flipping, etc. Focus on that niche, and you’ll get better and better at it as you increase your income.
Check in regularly on your plan to save $1 million
Anticipate checking your personal financial plan and updating it periodically. You might want to consider putting an annual or quarterly review of your plan on your calendar to remind you. Each time you do a review, see whether you met your goal what your next goal is. A concrete goal to strive for by the next review period will give you more motivation.
It’s always tempting to say, “If I won the Lotto,” and consider it a pipe dream to save $1 million. But it’s really not impossible. It just requires planning and a lot of discipline so you can take on that elephant of a task — one bite at a time.
