Uncle Sam wants people to save. In fact, the government provides some pretty big incentives to encourage savings. The best way to get to millionaire status is saving money in your retirement account.
To get to $1 million in your retirement account, it’s important to save on a regular basis. Putting a few bucks aside here and there will not usually get you to the desired level of wealth. Starting earlier in life will usually get you closer to the magic $1 million number because of the power of time and compounding interest.
People are more likely to do things when they don’t have to make a decision. President Obama and other powerful people have admitted that they have very limited work wardrobes. The decision-making process takes quite a bit of energy so many successful people wear a clean version of the same thing every day. They effectively make this automatic. Saving automatically for retirement will help you ensure that you actually get around to saving. By putting money away before you have a chance to spend it, you’ll be less likely to miss it, and it will start to grow over time.
Invest Your Money
Saving is good, but over time, investing your money will lead to better returns. Over the past few years, the return on simple savings accounts has been less than 1% per year. That will not compound very rapidly, and stashing money in a savings account will actually cause you to lose purchasing power because of the power of inflation. Instead, after stashing a decent emergency fund, you’ll want to invest your retirement savings. By investing in a good stock mutual fund, you could expect to get anywhere between 7% and 10% over the long haul because of business growth and dividend payments. This will allow your money to work for you and grow to a healthy sum.
By starting early, you can build your nest egg with small sums. Investing around $300 a month over a 40-year working career should get you in the neighborhood of $1 million as long as you get an 8% average return. If only have a 10-year period left, you’d need to save a little more than $5,500 a month to reach the same level of retirement savings. Using tax-advantaged retirement accounts is a important key to building your retirement savings. All of the money stashed can grow without any immediate tax liability. If you invest in a taxable account, you’ll have to pay taxes on capital gains and dividends. This is on top of your regular income taxes. Starting early and saving automatically will help you grow your savings. Eventually, you might even wind up with a retirement account worth $1 million.