The First Million is the Hardest - No Really

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A penny saved is a penny earned or so Ben Franklin said. Well it is true especially for your next million. If you have ever felt like it takes forever to build up your large nest egg you’re right. It is due to the time value of money. The earlier you save, the better off you are assuming you keep that money working for you. Looking at the above chart, if you saved $1,000/month and earned 10%/year for 22.4 years, you’d have your nest egg grow to $1 million. To get to your next million it would only take 6.4 years.

While 22.4 years may seem like a long time, it shows that it is possible to become a millionaire without inheriting or winning the lotto. If you’re like me you don’t want to wait 22.4 years. So here’s what you need to do now.

• Realize that $1 million 22.4 years from now is not the same as $1 million today. Inflation will bite into your spending power.

• Try to earn more. As you can see earning more interest sooner will get your there faster. For example earning 11% vs 8% will get you to $1 million 3.3 years faster.

• Earn it sooner rather than later. Don’t have a savings plan where you contribute $12K at the end of the year and invest it. Contribute it monthly to your investments or if you can put more up front and defer expenses until later in the year, you’ll be better off. In the above chart one thing is apparent. Your first million works hard for you to get to the second million. The same holds true for the first dollar you save and invest. Save early and invest early.

• Don’t let money sit around. By sitting around, I mean don’t let it sit in an account earning 1% in a checking account. Look around. There are many options such as online money market accounts such as Everbank and HSBC. Direct deposit your paycheck into a high-interest account. If you prefer the convenience of local banks, then just setup an automatic monthly transfer to your brick and mortar bank. That’s what I do.

• Know where you stand. I highly recommend using some personal finance software such as Intuit’s Quicken or MS Money. There are also online tools such as NetworthIQ that help you track your networth and compare against others to see how well you’re doing. They also have good tips on how to achieve your goals.

• Lastly - Believe you can do it and be disciplined. For every person that says you can do it, you will find a hundred that will tell you you can’t, and another thousand that will say you’re crazy. Look at the chart above. It is doable. Keep your eye on your goal and don’t lose sight of it.