How to Be a Millionaire

how to make monthly budget

By Paula Pant. Budgeting & Personal Finance Expert

Paula Pant is an award-winning personal finance journalist. She runs the popular personal finance site Afford Anything and she frequently writes, speaks and makes media appearances to discuss money management for ordinary American families.

Think being a millionaire is out of the question?

Guess again. If you avoid consumer debt and start investing when you're in your twenties or thirties, you can be a millionaire.

Here's how:

Let's assume you have $0 in your investment account right now. You have no debt, but you haven't saved anything, either.

Let's assume you put your investments into a tax-deferred account. such as a 401(k).

Let's also assume that your investments, over the long haul, with grow at an annualized average rate of 7 percent.

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(Investing legend Warren Buffet predicts the long-term annualized return of the U.S. stock market in the early-to-mid 21st century will be 7 percent.)

Remember: this is a very, very long-term average (over the span of 20 years or more). In any given year, your investments might be up or down.

Don't fret about that. One year - or three years, or five years - is small-scale when you're talking about a lifetime portfolio.

With those three assumptions in mind - you're starting at $0, you're investing in a tax-deferred account. and you'll get a 7 percent return over the long haul - let's look at how much you need to invest to create a $1 million portfolio.*

If You Save: $100 per month

You'll Be a Millionaire In: 58 years and 6 months. That's a long time - if you're 25 now, you'll be 83 by the time you're a millionaire - so I recommend saving more.

If You Save: $200 per month

You'll Be a Millionaire In: 48 years and 10 months. Notice how simply saving an extra $100 per month ($200/mo instead of $100/mo) shaves a decade off the time it takes you to become a millionaire.

If You Save: $400 per month

You'll Be a Millionaire In: 39 years and 4 months. That

means if you're 25 now, you'll be a millionaire at age 64 - in time for retirement.

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If You Save: $750 per month

You'll Be a Millionaire In: 31 years, 1 month. If you're 25 now, you'll be a millionaire at age 56. Did someone say "early retirement ?"

If You Save: $1000 per month

You'll Be a Millionaire In: 27 years and 6 months. If you have a baby today, you'll be a millionaire by the time you dance at your child's wedding -- or maybe by the time your little grandchild is born. (Based on the rough average age at which Americans get married.)

If You Save: $1500 per month

You'll Be a Millionaire In: 22 years and 9 months. What a huge improvement over the "58 years" we were quoting at the $100/month savings rate!

If You Save: $2000 per month

You'll Be a Millionaire In: 19 years and 7 months. Have a baby today, and you'll be a millionaire when he or she is a college freshman/sophomore.

If You Save: $2500 per month

You'll Be a Millionaire In: 17 years and 3 months. Have a baby today, and you'll be a millionaire before your kid is out of the house. If you're currently 25 years old, you'll be a millionaire by age 42.

I'm guessing your next question is something along the lines of "How on earth am I supposed to save $2,500 per month?"

I can boil that answer down to four words: Earn more. Spend less.

Here are some resources to help you earn more:

Here are some resources to help you spend less:

One final note:

If your employer offers a 401(k) match, take full advantage of it. Otherwise, you're leaving "free money" sitting on the table.

Conversely, if your employer doesn't offer a 401(k) match, or if you're self-employed (like I am), take the reins and start heavily investing your paychecks into tax-advantaged accounts like Traditional and Roth IRAs and Individual 401(k)'s. Remember: just because your job doesn't give you retirement benefits isn't an excuse to forgo saving.

Source: budgeting.about.com

Category: Bank

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