6 Simple Steps To $1 Million


Let's face it; we all don't make millions of dollars a year, and the odds are that most of us won't receive a large windfall inheritance either. However, that doesn't mean that we can't build sizeable wealth - it'll just take some time. If you're young, time is on your side and retiring a millionaire is achievable. Read on for some tips on how to increase your savings and work toward this goal.

Step 1: Stop Senseless Spending

Unfortunately, people have a habit of spending their hard-earned cash on goods and services that they don't need. Even relatively small expenses can really add up. Usually, in order to become wealthy one must adopt a disciplined lifestyle and budget. This doesn't mean that you shouldn't go out and have fun, but you should try to do things in moderation - and set a budget if you hope to save money. (For related reading, see Squeeze A Greenback Out Of Your Latte.)

Step 2: Fund Retirement Plans ASAP

Unfortunately, retirement planning is an afterthought for many young people. Here's why it shouldn't be: funding a tax deferred plan early on in life means you can contribute less money overall and actually end up with significantly more in the end than someone who put in much more money but started later. If you deposit $3,000 per year from the age of 23 to 65 at 8% interst you will have $985,749. But if you wait 10 years and contribute $5,000 per year, this number will be reduced to $724,749. Even higher contributions can't make up for the lost time.

Step 3: Improve Tax Awareness

Sometimes, individuals think that doing their own taxes will save them money. In some cases, they might be right. However, in other cases it may actually end up costing them money because they fail to take advantage of the many deductions available to them. Try to become more educated as far as what types of items are deductible. You should also understand when it makes sense to move away from the standard deduction and start itemizing your return. (To learn everything you need to know about filing your tax return, check out our Income Tax Guide.)

Step 3: Own Your Home

At some point in our lives, many of us rent a home or an apartment because we cannot afford to purchase a home, or because we aren't sure where we want to live for the longer term. And that's fine. However, renting is often not a good long-term investment because buying a home is a good way to build equity. Unless you intend to move in a short period of time, it generally makes sense to consider putting a down payment on a home. (At least you would likely build up some equity over time and the foundation for a nest egg.) (For more insight on weighing this decision, read To Rent Or Buy? The Financial Issues.)

Step 4: Avoid New Luxury Wheels

Individuals who buy new vehicles are doing themselves a disservice - especially since this asset depreciates in value so rapidly. Obviously, this depends on the make, model, year and demand for the vehicle, but a general rule is that a new car loses 15-20% of its value per year. So, a two-year-old car will be worth around 70% of its purchase price. Consider buying something practical and dependable that has low monthly payments - or that you can pay for in cash. In the long run, this will mean you'll have more money to put toward your savings - an asset that will appreciate, rather than depreciate like your car.

Step 5: Don't Sell Yourself Short

Some individuals are extremely loyal to their employers and will stay with them for years without seeing their incomes take a jump. This can be a mistake, as increasing your income is an excellent way to boost your rate of saving. Always keep your eye out for other opportunities and try not to sell yourself short. Work hard and find an employer who will compensate you for your work ethic, skills and experience. (For more insight, read Under 30 And Financially Secure In 10 Steps.)

Step 6: Don't Rely On Luck

You don't have to win the lottery to see seven figures in your bank account. For most people, the only way to achieve this is to save it. You don't have to live like a pauper to build an adequate nest egg and retire comfortably. If you start early, spend wisely and save diligently, your million-dollar dreams are well within reach.
Related Articles
  1. Budgeting

    How To Save Money When Moving

    Moving doesn't have to be as expensive as you think. Here are some great ways to save money on moving costs.
  2. Investing

    10 Ways to Effectively Save for the Future

    Savings is as crucial as ever, as we deal with life changes and our needs for the future. Here are some essential steps to get started, now.
  3. Investing Basics

    Investing $100 a Month in Stocks for 30 Years

    Find out how you could potentially earn hundreds of thousands of dollars by just investing $100 a month in stocks during your working years.
  4. Budgeting

    Key Questions to Ask Before Moving in Together

    Moving in together is a big step. Here are some key financial questions to ask your partner before you make the move.
  5. Savings

    Passing Down Values and Money to the Next Generation

    Amassing wealth to pass down to your kids is great unless your values don't come with it. A priceless gift is teaching them to be financially responsible.
  6. Investing Basics

    What Does Plain Vanilla Mean?

    Plain vanilla is a term used in investing to describe the most basic types of financial instruments.
  7. Options & Futures

    Pick 401(k) Assets Like A Pro

    Professionals choose the options available to you in your plan, making your decisions easier.
  8. Fundamental Analysis

    Use Options Data To Predict Stock Market Direction

    Options market trading data can provide important insights about the direction of stocks and the overall market. Here’s how to track it.
  9. Budgeting

    How to Save Money on Your Disney Vacation

    Understand why Disney Parks are attractive vacation destinations and why they are expensive. Learn five money-saving tips for Disney vacations.
  10. Investing

    The Best Strategies to Manage Your Stock Options

    We look at strategies to help manage taxes and the exercise of incentive and non-qualified stock options.

You May Also Like

Hot Definitions
  1. Section 1231 Property

    A tax term relating to depreciable business property that has been held for over a year. Section 1231 property includes buildings, ...
  2. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
  3. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  4. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  5. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  6. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!