Many retirement experts recommend saving 10 times your current salary before retirement, and then planning to live on 80% of your current income upon retirement. So by this math, if you make $100,000 a year, you should try to save $1 million. But who knows how to become a millionaire by age 65?
Socking away that much money is no small feat, but it’s not impossible. According to career data provider Zippia, 22 million adults in the U.S. are millionaires, and 33% are women. And while many of these millionaires work in accounting, engineering, finance and law, others are teachers or managers.
How To Become A Millionaire
So how does someone save hundreds of thousands or even a million dollars? First, you simply have to get started. This may require denying yourself small daily purchases and coming up with a strict budget to control unnecessary spending. Then, you can use this money to make investments.
“Smart Couples Finish Rich” author David Bach told Business Insider that the key is to begin investing as early as possible. The amount you should aim to put away every day, month or year largely depends on your current age as well as the rate of interest on your investments.
Crunching The Numbers
As an example, Bach created a chart with starting ages ranging from 25 to 55 assuming a 12% annual return. Based on his calculations, a 25-year-old needs to save $3.57 a day, or $1,304 a year, while a 40-year-old should put away $20.55 a day, or $7,500 a year.
If you’d like to work out the amount for yourself, Bankrate offers an interactive financial calculator to help you figure out how to become a millionaire. When you enter information like your age, monthly savings and assumed interest rate, it will calculate when you could expect to hit millionaire status.
Make Smart Investments
No matter how much you can save, you’ll probably need to do more than just keep it in a piggy bank or your traditional savings account. Consider putting that cash into a 401(k) plan, an IRA or another investment account.
“You have to have this money invested for growth,” Bach told CNBC. “You cannot put this money in a money market or a CD, where it grows at 1% or 2%. You’ll never build wealth.”
By Tricia Goss, for Newsy.