For a lot of people it is time to face the facts. We all do not make millions of dollars every year, and there isn’t much of a chance of hitting the lottery jackpot either. Although, that doesn’t necessarily mean that you do not have the opportunity to build up your wealth and afford an exciting retirement. If you are relatively young, then retiring as a millionaire is not a far fetched dream; you just have to know which direction to push yourself in.
Read on for a few tips that can give you the start you need and help you ensure that the wealth you need is attainable.
Cut Down on Frivolous Spending
It is quite common to form bad habits when it comes to spending, and a lot of people cannot prevent themselves from spending their money on frivolous items. Even small purchases such as coffees from Starbucks every day can add up over time, while luxury buys can really put a dent into savings accounts. While it is important to cut down on spending, changing one habit or cutting out one purchase is not going to be the difference needed to build up sizable wealth. In many cases you are going to need to change your entire lifestyle and create an affordable budget. This means sacrifices need to be made if you want to really put together a nest egg.
No, you do not have to stop having fun or spending altogether, but adjusting spending in a few ways and creating a budget can mean hundreds of thousands of dollars later on down the road.
Start Investing in Retirement Plans
Your first responsibility after being paid each week or month is to cover your expenses such as food, rent and so on. However, the second step should always be to invest money into a retirement plan or stash it away in your savings. The problem is that retirement planning is rarely a priority for younger people, and this is what leaves people scrambling in their later years.
If you make the decision to fund an IRA at a young age, then it actually means that you have to invest less money overall and will still end up with far more money in the long run.
How much of a difference you ask?
If you begin depositing around $3,000 a year into a Roth IRA at the age of 23, and average about 8% in annual return a year, then you will have over $985,000 a year in savings by the age of 65. Switch things up here and there, and a million dollars is easily in reach, and that only equals saving $250 a month. That is about the cost of a coffee and a newspaper each day for many people.
Now, imagine that you wait until the age of 33 to start contributing and have the money to start investing $5,000 a year. With the same average return you will have $725,000 in your IRA, even though you paid more into your savings in the long run.
Make the Most out of Taxes
It is quite common for people to think that they can save money by completing their own taxes, and sometimes that is true. However, in many cases, you can save a lot more money by having a professional look at your situation, as you may be failing to take advantage of a number of deductions available to you. If you own your own business, are self employed, or have other tax complications, then it can definitely save a lot of money to invest in educated tax filing, especially if you do not have the time to educate yourself.
Own a Home and Stop Renting
Many of us end up renting a house instead of buying because it can be hard to afford to purchase a home. That is completely fine, as long as you understand that renting is a terrible long-term investment, while purchasing a home is an excellent way to build up assets. If you know where you want to live and have a steady job, then it is commonly a good idea to lay a down payment on a home.
In the end, you do not have to strike oil under your home or win the lottery in order to one day see a million dollars in your bank account. For many, the only way this is going to happen is to start saving, but that also doesn’t mean you have to live in a paper bag. Start saving early, be smart with your spending, and stay focused on a financial goal, and your dream of one day being a millionaire is within reach.