How much should you invest to get 1 million?
For everyone, it is a dream to hit the $1 million mark. Not only will this be a game-changer, but it also ensures that you have enough to live a comfortable lifestyle. Just imagine, having this amount at your disposal can kickstart your journey to financial abundance.
Although it can seem impossible at first, you can reach this goal with persistence and adequate planning. Keep in mind that you don’t need to earn a six-figure salary or inherit large sums of money to become a millionaire. As long as you know how you spend every dollar, you will hit a million dollars in no time.
Compound interest – The secret to becoming a millionaire
Keep in mind is that the amount you invest will grow in value over time. You need to remember that this works on the compounding interest principle. This allows your wealth to multiply as time goes on.
Three elements affect the returns you receive from the compound interest on your investment. The first is the interest rate, which is the profit you make from the amount you put into your financial venture.
For example, you invest $15,000 in assets, which has an interest rate of 4%. By the end of 10 years, this amount will grow to $22,362.49. The second factor you have to consider is the time you allow the investment to increase in value. If you wait for a longer time, the rewards of your efforts will be significant.
From the same example above, where the principal amount is $15,000 and interest rate of 4%, assume you only keep it for five years. As a result, the balance after this period will be $18,314.95.
The last factor which affects the returns from the compound interest is tax rate. It is better to invest in assets that bring down how much you have to pay.
Amount you need to invest to become a millionaire
Now that you know the magic to become a millionaire, the next step is to learn how much you have to invest, to reach this goal. Let’s assume that the compounded annual return in this scenario is 8.5%.
Now, you plan on keeping $5,000 aside every year, to invest in various assets. Assuming you follow this practice annually, it will take you 35 years to hit the $1 million mark. So if you start investing when you are 20 years old, by the time you are 55, you will be a millionaire.
However, if you increase the annual amount you invest to $10,000, it will only take you 27.59 years to reach $1 million. Again, if you were to make the size of the investment to $20,000 every year, you only need 20.32 years to become a millionaire.
The goal is to start investing early, as the amount you need to set aside is small. As you grow older, the size of the investment has to increase, as depicted in the examples above. Remember, the path to becoming a millionaire via personal financial ventures is only possible with patience, as this is a long-term plan!