Everyone likes to imagine what it might be like to be a millionaire. But if having that kind of financial security seems more like a fantasy than a possible reality, we’ve got some good news for you. An investment blogger has outlined a way to save $1 million or more.
How Much Should You Save For Retirement?
While this question may be different for everyone depending on their needs, financial experts’ guidelines show we should put at least 10 percent of our earnings toward the future. The three main areas these retirement savings will go to are healthcare, living expenses and lifestyle.
On average, a healthy couple can spend nearly $400,000 in healthcare alone. So, it’s important to plan for the unexpected.
Still, saving can be a difficult concept for many of us. Financial blogger Lyn Alden shared some tips and a helpful chart as a visual for how to make these big goals seem a bit more manageable.
The Concept Of Wealth Building
Alden’s major points in her financial plan focus on building wealth. This wealth building is accomplished through a combination of adjusting your spending and then saving what you don’t spend. How your savings get compounded over the years is what makes the biggest difference.
Compound growth is also known as exponential growth. When we increase our savings over time and combine that with higher savings or investment interest rates over time, our total money grows higher and faster.
The chart Alden published shows how much a change in the amount of savings and interest rates can affect the speed and amount of wealth growth. You can see that saving $250 each month at 4 percent interest for 25 years will lead to $88,000. However, saving $3,500 a month at the same interest rate for the same amount of time will lead to more than $1.2 million in the end.
“That’s great,” you may say. “But I can’t save $3,500 a month.” You’re not alone. In a recent survey, nearly 62 percent of Americans have less than $1,000 in a savings account. So, where do we begin to start building wealth?
Step 1: Increase The Difference Between Your Income and Expenses
This is where that ugly word “budgeting” comes into play. Sit down and figure out exactly how much you’re spending and how much you are saving. You may be surprised to see where a lot of your money goes. Focus on those services or items you don’t really need, and try to cut some of them out of your life. Maybe you can eat out less often, cut back your phone or TV service or even travel less frequently. Everyone has extra expenses that can be trimmed back.
For those who have already cut back on expenses, look at increasing your income. For example, look at higher-paying jobs in your field. Or, maybe you have something you do for fun (like crafting, photography or writing) that you can turn into a freelance or side job.
Step 2: Save That Difference And Grow It
Once you have identified places in your budget to save and start socking it away, it’s time to invest it wisely. Don’t fall into the trap that many people do once they start budgeting: using that “extra money” for more stuff. This is the money you’ll use to grow your million!
Finding an extra $5,000 per year to save at just 7 percent a year will earn you an additional $100,000 in as little as 15 years, according to Alden.
Talk to your financial institution about higher interest rate savings accounts. It is possible to find investment accounts or funds that can earn you up to 12 to 15 percent annually, if you’re willing to take a risk. More financially conservative people can try to find something between 4 and 8 percent. A bank or financial planner will be able to find the perfect fit for you.
Saving money isn’t easy, but a little time and effort can grow your dollars so you can meet your needs and live a better life in the future.