How to Make $1M in 3 Simple Steps
Becoming a millionaire is a goal that everyone has dreamed about at some point in their life. However most give up on the dream due to not having an idea of how to get there. In this article, I want to show you how you can become a millionaire in 3 simple steps.
When we think about millionaires, we often think about athletes, celebrities, or people who have sold their businesses. While that is true, a higher percentage of people become millionaires through simply investing money into the stock market for over 40 years or more. In his book, The Millionaire Next Door, Thomas Stanley demonstrates that ordinary people can also become millionaires by simply spending less money and consistently investing over many years.
The most important factor of whether or not you'll become a millionaire is the length of time your money has been in the stock market. That is why is it so important to start as early as possible to give yourself the best chance of becoming a millionaire.
Let's take a look at how long it might take you to reach the $1M goal, depending on how much you are able to invest into the stock market each month.
At the top of the table, if you were able to invest only $100 a month into the stock market, it would take you about 54 years to reach $1M. The really cool thing about this is that your total contributions only total $65K, however the total interest you will accumulate will be $935K. That is pretty amazing and highlights that it is very important to start as early as you can.
- $250 a month will take 43 years
- $500 a month will take 34 years
- $1,000 a month will take 26 years
- $2,000 a month will take 19 years
The more money you invest each month will allow you to reach the $1M goal sooner.
Do you think you could possibly cut out some unnecessary spending each month in order to put that money into the stock market and start your journey to becoming a millionaire?
Let's now talk about the three steps you need to take in order to start this journey.
Step 1: Set Up your Investment Account
In order to invest money into the stock market, you will need an account to place the money into. The two accounts that I suggest using would be a 401(k) or Roth IRA. These are tax advantaged accounts. You can learn more about the differences here and here.
If your employer offers a 401(k), then I would suggest starting out by using that account to make things simple. With the 401(k), you can have your employer take money out of your paycheck automatically which prevents you from having to setup a transfer to another account like an IRA. You could also get an employer match if they offer it. An employer match means that they will match whatever you put into your 401(k) up to a limit. This means that it will take you even less time to become a millionaire.
If your employer doesn't offer a 401(k), then I would setup a Roth IRA. There are plenty of great places to setup this account, my favorite is Vanguard. One downside of an IRA is that there is a maximum contribution limit of $6,000 per year, which means you could only put in $500 a month.
Step 2: Choose your Fund
Once you have your investment account setup, you will now need to choose which fund you want your money going into. Most people who become millionaires in the stock market, don't buy and sell individual stocks. Instead, they prefer to choose index funds, which contain hundreds or even thousands of companies. By investing in an index fund, your money is being diversified across all those companies, thus reducing your risk of total loss.
The most popular index fund that investors choose is a Total Stock Market Index Fund. This fund contains all of the publicly traded companies in the U.S. Historically, the stock market in the U.S. has returned 8%. I would recommend you keep things simple and start by selecting a total stock market index. [If you want some more investing advice, check out this article.]
Step 3: Fund the Account
Now that you have your account setup and chosen the fund you want to invest in, you will now need to start funding the account. Look back at the table from earlier in the video and think about how much money you think you can invest each month. At a very minimum, I would start trying to invest $100. If you don't currently have an extra $100 a month to invest, then you will have to take a hard look at where your money is going each month and cut back in order to get there.
The ultimate goal is to become a millionaire, therefore you will need to dig deep and motivate yourself to save as much money as possible in order to accomplish this goal. If you are not willing to reduce your spending in order to invest money, then unfortunately this will not work for you and you will have to go back to dreaming about winning the lottery.
Conclusion:
Becoming a millionaire is easier than most people think. All it takes is determination to follow these simple three steps and never stop until you hit your goal of $1M.
*Disclaimer: I am not a financial advisor. The ideas presented in my articles and videos are for entertainment purposes and not to be taken as financial advice.