Here’s How Much You Need to Invest by Age to Become a Millennial Millionaire
If you start investing early and contribute more, you will get to retire with more money and way before 67. Becoming a millionaire sounds like a daunting task, especially if you do not have a plan of action. However, it might be in reach. Remember that over 80% of millionaires are self-made with no financial support from their parents.
This means, if you are reading this and taking notes, you have a shot!
90% of Million-dollar Investing is All Mental
A Harvard professor stated that a windfall of $20 million will not make you happier. Respectively, I wholeheartedly disagree and ask for his cancellation via social media. Let us do our absolute best to ruin this professor’s life.
Moving forward. While it is true that some people do not have the drive or goal of having a million dollars, everyone still needs money to survive well into their old age. Based on inflation, the average American household expenses will exceed $80,000 by 2040.
Given that the 2020 average was $61,334, this might come as a shock. Before you go insane with the numbers, it is important to understand that America is regional. Some places cost less to live in and others will be almost unlivable if you are not clocking in over $250,000 annual income.
You can always geo-arbitrage the game and move to somewhere cheaper in retirement to stretch every dollar. As such:
- Understanding where your personal finances are, and
- Where your finances should be by retirement is extremely important.
For future retirees who plan to live off $80,000 a year, will need between $1.5 million and $2 million. At least I didn’t say $2.4 Million, what I think it will cost most millennials intending of listing comfortably.
Try not to cancel me just yet, let me close. You can do this. Breathe it in. The goal is to invest as much and as soon as possible. For some people this will be harder said than done. Why?
Ninety percent of the first step is mental. The rest is all willful action.
Your first investment will feel like the weight of the world
If you are 22 years old and fresh out of college, you might feel that retirement is way out there. However, turns out it is just around the corner. Life happens. Five years in, you will be looking at your social media, thinking the Great Resignation is an option.
For clarity, the fast life is fast. Those who are burning brightest on social media will turn into burnouts. If you don’t believe me, think back to all the cool kids in high school and look them up to see what they are up to today. It is a crap-shoot.
Your best option is to invest for the long haul.
Alainta Alcin, a Globe Trotter, YouTuber and Financial Enthusiast said it best, “ I spend 4 years deciding if investing was for me. I spent one week realizing that I wasted 4 years. “
You will overthink your first investment like your first candy purchase.
I ran this experiment with my little cousins. I gave them $20 for five of them to purchase candy. Over 30 minutes later, zero resolution. I watched them turn into the US congress — debt ceiling level disaster.
Your first investment will feel like the weight of the world. You will run around trying to listen to self-proclaimed gurus and experts, doing qualitative and quantitative analysis and drinking coffee at 6 am in a business suit.
It is unnecessary.
Here is a quicker route. Budget and then set an annual amount. Make monthly contributions to Vanguard Total Stock index $VTI and learn by seeing the changes on a quarterly basis. Why? It’s often important to just see how it works first.
Every Million-dollar retirement starts with a Plan and $1
While $1.5 million from 22 to 67 sounds like witchcraft, you only need to invest as little as $228.43 per month, assuming a 9% yearly rate of return. This means that you will only have to invest less than $2,750 per year or a total of $123,352 for 45 years.
Place your investments on auto and voila. All of a sudden, it does not sound so crazy.
92% of your total portfolio is comprised of $1,376,648 in interests paid to you. We are not even including any dividend reinvestment (#DRIP). This is definitely in reach. No need for an OnlyFans account just yet.
Turns out, the S&P 500 has historically returned an average of 10% annually for the last 20 years. While past performance is not an indicator of future performance, it is fair to say that investing is better than the bank savings rate of 0.01%.
Even VTI Year to Date as of October 15, 2021 is pushing 20.36%.
According to Alainta, the four most important components of investing are (1) contributions, (2) rate of return, (3) time and (4) a bit of luck. This is pretty much the magic formula. While you can’t control luck, the rest is up to you.
Check out the investment table by age, calculating $1.5M by 67 at 9% yearly rate of return:
Investing Until 67 at 9%
Aha! Moments when it comes to investing
If you haven’t noticed, waiting to invest from age 25 to 30, cost you an additional $167 per month. On top of that, by age 67 it ends up being an extra $56,391 in contributions.
Is waiting worth about $11,000 per year? I think not.
It gets even worst if you wait until 50. you would have to invest almost $40,000 annually just to keep pace. Besides if you think it’s hard now to get $10,000, how easy will it be to get $40,000.
May as well start now. Let your investments work for you.
I think not. Time to ETF the Game!
While it might be difficult to guess which stock will outperform each year, just remember to ETF your way to success. John C. Bogle, founder of Vanguard once said, “Don’t look for the needle in the haystack. Just buy the haystack.” The ETF strategy diversifies your investments and takes the dummy work out of the market.
The goal is to get you in the game quicker. If you are wondering where you can find more money in your own budget, please read these articles:
The Actionable Goal of Investing
Turns out, it’s not about the money. The end goal of investing in yourself is to buy back your own time. The faster you come to the realization that you don’t have to spend every dollar on lifelong indebtedness, the easier it will be to just live your life instead.
We still need to cancel the Harvard professor, don’t forget to take the steps that matter every day to get you from point A to living financially free.
Disclosure: This post is brought to you by the Neighborhood Finance Guy. We highlight financial literacy information, resources, and more on your way to money management goals and personal wealth. Our goal is to help you make S.M.A.R.T decisions with our money. We do not give investment advice or encourage you to adopt a certain investment strategy. Your personal finance is up to you. If you take action based on one of our recommendations, we don’t earn a dime as of 5.2021. We operate independently.
Receive a selection of my favorite finds every week by subscribing to the newsletter. Make the Neighborhood Finance Guy website your trusted source for great content that will audit your life and rebalance your happiness wealth.
Originally published at https://theneighborhoodfinanceguy.com on October 15, 2021.