As I was checking the damage for the day from the stock market, I stumbled upon an interesting article detailing 10 steps to retire a millionaire. The ten steps provide a good outline for retiring as a millionaire, which is something I would love to do sooner rather than later. The steps are as follows:
- Set the goal
- Start saving
- Get aggressive
- Prepare for rainy days
- Save more
- Watch your spending
- Monitor your portfolio
- Max out your options
- Catch-up contributions
- Have patience
Set the Goal
Setting a goal is the first step towards accumulating a million dollar nest egg. Just like you can’t run before you walk, you can’t successfully retire with a million dollars if you do not make it a goal. From my cross-country experiences, my best seasons came when I set realistic goals and then worked hard to achieve them.
Half of the battle is starting. If you don’t start saving, you will not have money to invest. If you don’t invest, you will miss out on a huge portion of your possible nest egg. Due to the power of compounding, most of your retirement money will come from interest. Don’t be afraid to start with as little as $25 a month. You have to start somewhere.
This step refers to the fact that keeping money in a savings account or in bonds will not generate large enough returns to achieve the goal of retiring a millionaire. Investing in stocks, both foreign and domestic. Diversify your portfolio with riskier small cap stocks and emerging market funds.
Prepare for Rainy Days
An emergency fund is crucial for accumulating savings. High interest debt will erode your savings and severely diminish your overall returns. Emergency funds provide a cushion in case a rainy day emerges.
Do not be content with your current saving pace. When you make more money, save more money. If you want to save more, try to find other ways to supplement your income. Take up some self-employed work like tutoring kids in your area of expertise. Who knows, you may even stumble upon a successful and satisfying full-time line of work.
Watch Your Spending
Watching you spending goes along with saving more. If you spend less, there is more to save. Creating a budget is a great way to track spending and reduce unnecessary spending.
Monitor Your Portfolio
Rebalance your portfolio to maintain an acceptable level of risk. From everything I have read it is a good idea to rebalance your portfolio every year or two. It prevents your portfolio from becoming too risky and forces you to sell high and buy low.
Max Out Your Options
The best options to grow a nest egg are in tax advantaged accounts like IRAs and 401k’s. If your savings allow it, maximize your contributions to your tax advantaged accounts and if there is any money left over dump it into taxable accounts. If utilizing taxable accounts is a reality for you, make sure you invest the correct funds in the correct accounts. For example, bonds that are exempt from federal and state taxes should not be kept in tax advantaged accounts.
After surpassing the golden age of 50, contribution limits increase. Take advantage and continue maximizing your tax advantaged accounts.
Becoming a millionaire does not happen over night. Most of us will not win the lottery. A lot of us will never make $100,000 in a year. A million dollars sounds like a lot of money and it is. The only way to achieve this goal is to invest as much as you can as early as you can. Compounding is your best friend and time can be your worst enemy.
Overall, the best advice I can give you regarding saving towards retirement is to start as early as possible. Let time be your friend and not your enemy.