How to Become a Millionaire on a $30k Salary

Becoming a Millionaire used to seem like this totally unrealistic goal that would never happen unless I won the lottery or inherited a bunch of money from some distant relative.   As it turns out becoming a millionaire is not all that unrealistic of a goal.  It is achievable on almost any salary if you do it the right way.  There are over 8 million Millionaire households in America.  That’s more than 1 in every 20 households.  1. 

Is it Possible?

This is my 3 step guide to reach the status of millionaire: 1. Saving/investing at least 10% of your income, 2. investing prudently while taking proper risks, and 3. starting young.

1. Saving 10% of Your Income

I will show you an example of how a person making $30,000 a year can be a millionaire by the time they retire.   A 25 year old, let’s say his name is Bayden, just graduated from college and got a job making $30k year.  He decides to put 10% of that into a Roth IRA, which is $250 a month.   As it turns out he stayed at that same job for his entire life and never got a raise, but continued to invest the 10%.   When he retires at age 67, with growth rate of 8%, he will have $1,058,593 in his Roth IRA.  And the best part of that is the money is all tax free!  Obviously with a higher salary and/or frequent raises you could end up with much more than a million if you follow the 10% rule.

2. Investing Prudently While Taking Proper Risk

Time, and growth rate are the two most important factors in that equation.  An 8% growth rate is not anything too crazy, but you have to be invested long term, and have a vast majority of your money in stocks.  You cannot panic and take your money out if there is a crash.  You must trust in the market, and understand that stocks are the greatest wealth creation tool in the world. 

3. Start Young

Starting young is a principle that everyone knows, they just don’t follow it.  The power of compounding interest is amazing, and the younger you start the more powerful it is.  Even if you can’t reach the 10% goal, if you have an income source, you should be contributing to a retirement account.  For those of you who don’t have 40 years till retirement, you will need to save more than 10% to reach a million. 

Do you  really need $1 Million Dollars?

Going back to the example of Bayden, when he retires at age 67, he will literally need every cent (and more) that he saved and earned while investing.   Just to live on the equivalent of today’s $30,000 a year ($103k assuming 3% inflation) for 20 years in retirement, he would need $1.1 million.   And that is assuming a 6% growth rate on the money for those 20 years.   If you don’t have a pension at work, and you want to live on more than $30k a year in retirement, then you better get to saving!

If you can apply discipline in your finances and in your investments, you can become a millionaire by the time you retire.    That is my plan.

By Jimmy Hancock

References

1. Boston Consulting Group. “Millionaire.” Wikipedia. Wikimedia Foundation, 17 June 2015. Web. 9 Feb 2017. <https://en.wikipedia.org/wiki/Millionaire>.

Matson Money. Who Wants to be a Millionaire Powerpoint. Mason, OH: Matson Money, 16 Jul. 2015. PPT.