“I want to be a millionaire, so freaking bad.” You might have been thinking it, but Bruno Mars sang it first. Many people strive to become a millionaire. In fact, there is even a day dedicated to those people. This year Be a Millionaire Day is May 20th. On this day we answer the question, “Who wants to be a millionaire?” with a resounding shout, “Me! I do!” While it may seem difficult to save a million dollars, there are a few tips you can use today to make it to millionaire status sooner rather than later.
Steps to Become a Millionaire
Start a Savings Account
If you plan to reach the Millionaire’s Club by saving money, then you must first open a savings account. In order to accumulate one million dollars within 30 years, you will need to save around $750 per month at a 4% interest rate.
Use this calculator to determine your required savings rate.
Lately, interest rates have been pretty low on traditional savings accounts. Instead of simply shopping at your local bank, try an online bank. Then, look into a certificate of deposit. A certificate of deposit or CD is a way for your money to earn more. CD’s sometimes have higher rates than traditional savings accounts. A Discover Certificate of Deposit is great option with flexible terms from 3 months to 10 years and you can open your FDIC insured CD account with as little as $2,500.
Let your money work for you. Investing your dollars gives each dollar a job and that job is to earn more money. When you invest, each dollar has the ability to earn a return. If you decide to invest by purchasing 100 shares of stock in a company, and those shares rise in value, your money just earned more money!
However, you have to be careful because if those shares drop in value, then so does your investment and you could lose money. Investing is not as safe as saving in an FDIC insured savings account. However, over the last ten years, investments in the broad market index, as measured by the S&P 500 have averaged 8.3% per year.
Mind the Gap
The gap separates a potential millionaire from a person that will never make it. What’s the gap? The gap is the difference between how much you earn and how much you spend. That unspent portion is available for saving and investing. Growing the gap will allow you to accelerate your millionaire status. How large should that gap be? Well that depends on how soon you want to become a millionaire. A larger gap means faster millionaire status.
“The amount of money you have has got nothing to do with what you earn... people earning a million dollars a year can have no money and... People earning $35,000 a year can be quite well off. It’s not what you earn, it’s what you spend.” -Paul Clitheroe
Here are a few examples.
Patrick and Jenny are 25 and both earn $50,000 per year. After taxes they each earn a take home pay of $3,000 per month.
Patrick keeps his expenses low and saves $1,500 per month or 50% of his take home pay.
Jenny enjoys shopping, dinners out, traveling, and attending concerts. She saves $300 per month or 10% of her take home pay.
In ten years, Patrick has saved a total of $220,876 with an interest rate of 4%. If he maintains the same saving rate he will become a millionaire by the time he is 55.
In the same ten years, Jenny has saved a $44,176 at a rate of 4%. If Jenny lives long enough, she will become a millionaire by the time she is 88.
Ultimately, becoming a millionaire is a simple process that requires diligence and persistence. Ready to become a millionaire? Open a savings account, begin investing, and create a budget that allows you to spend less and save more.
This post was created as part of the Discover partnership program.