How Much You Have to Save Each Month to Become a Millionaire in 10 Years
When it comes to your finances, do you take a head-on or head-in-the-sand approach? If you identify with the latter, then the good news is you're not alone. The bad news? You're not alone. New data suggests that when it comes to managing money, women are not as independent as you'd expect. In fact, 91% of women in heterosexual couples are not participating in financial decisions. But we want to change that statistic. To help you become a master of your own finances, we're debuting a new series called The Paper Files, where we uncover tricks and tips that will help you manage your money and your future. Ready to take it head-on?
Without a plan, any goal can seem out of reach. Running a marathon might sound like an impossible goal until you map out regular workouts, and the thought of securing the corner office can feel like a pipe dream until you set achievable steps. The same concept applies to your finances: Reaching millionaire status might sound like a ridiculously ambitious goal, but when you figure out the path to get there, it seems a little more possible.
If you'd like to be able to afford an A-list lifestyle, CNBC has calculated exactly how much money you need to put away each month to hit six-digit savings in 10 years. According to CNBC's research, you'd need to invest $6000 a month to become a millionaire by 2027. That's assuming that you have no prior savings and earn a 6% annual rate of return.
Don't let that figure deter you, says Alexandra Taussig, SVP of Women Investors at Fidelity Investments. "Six thousand dollars a month is a lot to save for most people, but if you're saving [smaller amounts] consistently over the course of 30 or 35 years, you do have the opportunity to become a millionaire," she explains. "The reason being the power of interest and compounding does so much of the work for you, so you have to contribute much less of your own [money]." In other words, the sooner you start investing money, even small amounts, the more time you have to let compound interest work its magic.
Set on becoming a self-made millionaire by 2027? Follow these three steps to make it a reality.
Don't Just Save—Invest
It's important to save money, but if you're keeping those funds in a no- or low-interest account, you're doing yourself a disservice. "We know that women are great savers. Fidelity's research shows that at every salary level, women contribute a higher percentage of their paychecks to retirement savings," says Taussig. "But taking the next step and making sure that your money is invested—and investing appropriately for your individual goals and the length of time you have to save for those goals—that's the extra step that women need to take to ensure their savings grows."
We hate to break it to you, but simply depositing money into a savings account isn't enough to reach that millionaire milestone. "The reality is that saving alone is not enough to even keep pace with inflation, so if you’re not investing, you're literally losing money over time," she says.
If you're hesitant to start investing, there is good news: It turns out that we're great with money. "Our research finds that when women do take the time to get invested, they get results. In an analysis of more than eight million Fidelity retail customers, we found that women actually earned a higher rate of return on their investments in 2016 by 40 basis points, or 0.4%, she says. "Women need to give themselves more credit for their strengths as investors."
Know Your Money Personality
"How to invest your savings is dependent on a number of variables, including what kind of financial goals you have, how long you have to save (often referred to as your 'time horizon'), how comfortable you are with fluctuations in the market (also known as your 'risk tolerance') and what you might call your 'investor personality,'" explains Taussig.
To determine which investment path is best suited to you, she recommends starting with this question: "Are you a 'do it yourself-er' who wants to manage your investments on your own, or are you looking for a professional to manage your investments for you?" she says. Or perhaps you're searching for a solution that's a mix of both options. "There are numerous tools to help you learn more and determine the best investments for your individual situation, both online or working with a financial professional."
Take Advantage of Compound Interest
If you only take away one lesson, it should be this: No matter how much money you can invest, start now. "We've all heard the advice 'the earlier you start to save, the more time your money has to grow,'" says Taussig. "Even in a standard bank account, your savings is likely earning some sort of interest. Over time, that interest is added to your balance. And over more time, your balance plus interest is earning additional interest. Over the course of years, that interest builds up," she explains.
In short, the earlier you start to save and invest, the more opportunity your money has to multiply. "In today's economy, with interest rates so low, [savings account interest rates] might not mean all that much, but apply the same concept to savings that are invested in a portfolio that offer the prospect of a higher return," she suggests. "Depending on your investments, and activity of the market, your savings could earn a more significant return each year." Yes, if you've got your sight set on hitting six-figure savings, the most important thing you can do is to take action now.