Many people dream of becoming a millionaire. For most people, it stays a dream. Why?
A million dollars is certainly a lot of money, but despite how impressive it sounds it’s a target which is well within reach if you take into account the three key factors:
- Savings Capacity
- Rate of Return
The most important of the three factors is time. If you’ve got enough of it, it’s not too difficult to have a million dollars by the time you retire. Knowing how important time is should give you the motivation to get started as soon as possible!
The table below will give you an idea of how long it will take you to become a millionaire, based on how much you’re able to save each month and the rate of return you’re able to earn.
|Years to $1M with 9% Annual Returns||Years to $1M with 7% Annual Returns||Years to $1M with 4% Annual Returns||Years to $1M with 2% Annual Returns|
Over the last 30 years the Australian stock market has been delivering returns of about 9.1% annually. While these returns are certainly not guaranteed, if you can achieve a similar return over time you may be able to achieve millionaire status by investing as little as $100/month over a 45-year career.
As your career progresses and your lifestyle changes you may be able to afford to put a little bit more away each payday, which gives you a better chance of having a million dollars that much sooner.
Don’t forget that if you’re employed you’re already putting away 9.5% of your ordinary earnings annually through compulsory employer Super Guarantee (SG) contributions! Of course, most employed people are also able to make personal deductible superannuation contributions on top of their employer’s contributions up to a combined total of $25,000. Converting these numbers into monthly savings amounts will show you how the larger savings amounts in the above table were achieved:
|Monthly Amount||Where it come from|
|$2,083.00||Single person, maxing out their $25,000 concessional cap (Including any SG received from employer)|
|$4,166.00||Married couple, each maxing their $25,000 concessional cap (Including any SG received from employer)|
If there is one thing to take away from this, it’s that there is a clear trade-off between time and money. The longer time frame you have the more you benefit from the effects of compound interest. Even if you’re only able to save $100 per month, there is almost a whole century’s difference between how long it takes to earn $1 million depending on whether you earn a return of 9% versus 2%. On the $4,166.66/month line the difference is only about 5 years.
The shorter your timeframe the more you have to rely on saving from your income to get you over the line to millionaire status, so take advantage of the time you have and start saving now!