If I was a rich guy handing out money and I asked a person if they wanted a million dollars, do you think they would say yes or no? My guess is that they would say yes. I mean, who doesn’t want a million dollars? Just think of everything that you could do with a million dollars. Or, consider this for a second, the average annual return on the S&P 500 since its inception has been more than 10%, so a 7% return shouldn’t be that unreasonable. This would mean if you had a million dollars and you were able to get a return of 7% per year, you would essentially be making $70,000 per year. And what is it that you would be doing to make $70,000? Nothing, except letting your money set in a mutual fund. In other words, your money would be working for you so you don’t have to work for money. Well, you might say “That would be great if I had a million dollars, but I don’t. So, what use is that information to me?” Well in this post, I’m going to share with you steps to save a million dollars. I’m going to tell you the things that you need to do in order to be a long-term wealth builder. By sharing these steps with you my hope is first that you realize that even though a million dollars is a lot of money, you can save a million dollars. My second hope is that you actually start saving. Most Americans these days are living paycheck to paycheck and have very little if anything saved.
So, you might be wondering to yourself “Who are you to give advice about saving a million dollars? Have you saved a million dollars?” And the answer to that question is no. I haven’t saved a million dollars, yet. But, I am using these steps to work towards my financial goals. And guess what, they’re working for me! So, that’s how I know they work, because I’m putting them into practice right now. I not only have experience with these steps to save but I have also seen others use these steps to save as well. As someone who works in the finance industry, I’ve had the opportunity to look deep into successful people’s finances. I’ve worked with numerous folks who had a net worth over a million dollars and I’ve been able to see how they’ve grown such a large chunk of wealth. And you know what, if I had to sum up how they did it, I would say they did it slow and steady. They did it by having a plan. None of these people accidentally found a million dollars in their bank account. They were intentional about saving and they were diligent over a long period of time about putting money away. Alright, lets look at the steps to save a million dollars.
Step one: The first thing that you need to do is to create a budget also known as a spending plan. There are lots of free budgets that you can download off the internet. Find one that works the best for you. If you’re an Excel nerd like me then you can just make your own which is what I’ve done. The biggest reason to create a budget is so you know where your money is going. A ton of people live paycheck to paycheck and I think this is because they don’t manage their money well. A budget helps us to manage our money so that we can be intentional about where our money is going. See, there’s that word intentional again. Hmmmm sounds like we’re on the right track. The second biggest reason to start living on a budget is to give yourself a pay raise. That’s right, you’re going to give yourself a raise by living on a budget. When people start living on a budget, they realized they’re spending money on things that they don’t really need. They are able to avoid spending money on these things in the future and this leaves the person with more money at the end of the month to do with whatever they please. So, in essence, it’s like giving yourself a pay raise. Now, the smart thing to do with the extra money at the end of the month is to add it to your investment contributions and not spend it on something that’s just going to do down in value.
Step two: Open a savings account if you don’t have one already. Once you have a savings account open, you’re going to set up automatic transfers from your checking account to your savings account, assuming that your income is deposited into your checking account. Set up your automatic transfer to happen right after you get paid, so that you are paying yourself first. If you get paid weekly, then you will set up 4 automatic transfers per month, if you get paid on the 10th and 25th of the month, then you’ll have two automatic transfers per month. If your income changes on a regular basis then set up the auto pay for a conservative amount, an amount that you know will not cause you to be overdrawn. Then those times when you get larger paychecks, you’ll need to manually transfer money from your checking to your savings.
Once you’re living on a budget, you’re paying yourself first, and you have an auto transfer set up going to your savings account, you’ve reached a huge milestone. Be proud of yourself because most people don’t make it even this far. They don’t even make it past these two steps. Ok, on to the next step.
Step three: Once you have about $5,000 saved open up an investment account if you don’t have one already. If you’re wanting to open up an online account, you might consider investment companies such as Fidelity Investments, Vanguard, or Charles Schwab. These guys make it really easy to do you investing online. Now, if you want to be able to meet with someone face-to-face do a quick internet search for local financial advisers. Investment companies may have a minimum investment amount that you need to have before you can open up an account with them. For example, the online investment companies may require a minimum of $3000 to $4000 to open up an account, that’s why you need to save $5,000 in a savings account first. Some investment companies like Stash for example, don’t have the high minimums like other online investment companies do. However, companies like Stash can have a higher fee percentage then some of the other companies. So, do your research on the fees that investment companies charge and minimums that investment companies charge. Once you transfer your $5,000 to an investment company then choose your investment. I like balanced mutual funds that are made up of a wide range of stocks and bonds. Mutual funds that are diversified in my opinion are generally less risky than any one stock. Set up auto transfer to transfer money to your investment company. Keep your savings account as an emergency fund. In this emergency fund save up 3 to 6 months of expenses in your savings account, keep it there and only use if for emergencies.
Step four: Once you have your investment account set up, you have money in it, and your auto transfer is in place, it’s time to maximize your investment contributions. Take some time to really squeeze your budget. For example, look at what things can you do without. If you go out to dinner fairly often can you instead grab some inexpensive take out instead, like getting a teriyaki chicken bowl that you eat at home instead. Just by doing this you could save $50 bucks. If you have any debt, pay it off so that you can start making those payments to yourself instead. If you’re not making a car payment, you could be putting that money in your investments. Think about that, that could be a lot of money! In order to increase your contributions to investments you can also look at ways to increase your income. Is there a side hustle you can do to earn some extra cash? Can you help a family friend with something around their home as a handyman? Is there a part time job that you can pick up? Can you cash in your vacation time at work? What do you have laying around the house that you just don’t use anymore that you could sell? Focus on being diligent about putting money away towards your investments.
All-in-all it’s going to take some time for you to save up a million dollars but these steps will eventually get you there. By doing the right things and moving in the right direction, no matter how slow you’re going, you will eventually get there. And you know what, you will have setbacks but you have to do your best to get back on track. Make sure that you’re using auto transfer to contribute to your investments. This way you can set it and forget it. When you get little bonus here or there or come across extra money, make it a priority to stick that money in your investment accounts, or at least a majority of it. Remember, slow and steady wins the race. And if you want to reach a savings of one million dollars, going slow and steady will eventually get there.