Could you join the world’s 47 million millionaires? It is surprisingly doable if you adopt certain financial habits.
20th May is Be a Millionaire Day which celebrates the idea of being a millionaire. Of course being a millionaire doesn’t quite have the cachet it once did – Wikipedia estimates that there are nearly 47 million millionaires worldwide. Nevertheless, if you’re starting out on your financial journey and looking for a financial planning goal, working towards a million by the time you retire might be a suitably challenging, yet achievable, objective.
Don’t believe us? Read on.
How to save a million before you retire
Thomas Edison, he of lightbulb fame, once said:
‘The three great essentials to achieve anything worthwhile are, first, hard work; second, stick-to-itiveness; third, common sense.’
Let’s take a look at Edison’s essentials in the context of achieving the worthwhile goal of millionaire status by the time you retire.
1. Hard work
Although being a millionaire sounds extremely alluring, the route to getting there is a lot less sexy. It involves paying off debt, saving and investing. The steps sound deceptively simple: stop wasting money paying off unnecessary interest on unsecured loans, make a habit of saving each and every month and then invest your money wisely so it is making a decent return. But achieving them can be hard.
Fortunately, you can make the job a whole lot easier by working with a professional financial adviser. They can help you gain an overview of where you are at financially and help you set goals in terms of how much you need to save each month and how this should be invested to achieve your specific goals (in this case, 1 million by the time you retire). If you are serious about becoming a millionaire, find yourself a great adviser.
A great word for the boring part of the process. Fortunes are rarely made overnight. They take time and perseverance. The vast majority of Infinity’s millionaire clients have accrued their wealth by investing over the long term. That means saving month in, month out over a period of many years to build wealth slowly and surely.
Compound interest will give your investments a serious boost but it needs time to work its magic. That’s why starting to invest early is important.
Consider the following two examples:
Lois saved $1,000 per month from the age of 25 to 35 and then stopped investing altogether (we don’t recommend this by the way but for the sake of comparison we’re taking a ten year investment period). With an average return of 7% per year, by the time Lois retired at 65 she had almost $1.5 million saved. Well over the millionaire target we’re aiming for.
Contrast that with Dan who also invested over a 10 year time period but didn’t start until he was 45. He also invested $1,000 per month so the total investment made was exactly the same as Lois’s – $120,000. However, although he earned the same average return of 7%, Dan retired with a pension pot of just $373,407.
The only difference between the two examples is that Lois’s money had thirty years to accrue compound interest whereas Dan’s only had 10. And just imagine how much Lois would have accrued if she had kept on investing for another 30 years!
The moral of the story: start investing early and stick to it.
3. Common sense
Once you’ve set your financial targets and made a regular habit of saving you need to invest with common sense. When it comes to investing, the perfect common-sense phrase which we all learn early in life is ‘don’t put all your eggs in one basket’.
Given that investment always involves some degree of risk (and that’s all investments, even bank deposits) you need to spread your nest egg around in different investment baskets. Diversify across different asset classes – cash, stocks, bonds and property – to give your assets a degree of protection. When market conditions send the value of one asset class crashing, the others should compensate. Your financial adviser can talk you through the options.
Gaining millionaire status by the time you retire will enable you to live out your years in comfort with the luxury of choice as to where you live and how you spend your time. Who could wish for more than that? But the hard work needs to start NOW.
Infinity provide expert advice on all aspects of financial planning from saving to become a millionaire to protecting the wealth you have accrued and the best way to pass it on to your loved ones. Why not get in touch to discuss how we can help you become a millionaire retiree?