Millions of Americans today are overwhelmed by financial stress. For those who are nearing retirement, the fears are even greater. Many just don’t know how it can ever happen.
My colleagues at Wela recently released an e-book that is an inspirational story about a couple who retired as millionaires. They didn't have high paying jobs and they didn't make money in "hot investments." They also didn't inherit money from their parents or win the lottery. But what they did do was live within their means. They saved automatically. In fact, the savings were so automatic that Don, the husband, amassed $1.2 million dollars over the course of 32 years by simply contributing to his 401(k).
There is not a special formula for achieving millionaire status. Just as all millionaires aren’t those people living a fancy lifestyle with the newest sports car in their mega-mansion. Millionaire status doesn’t require a million dollar salary or a huge cash windfall. While it may seem hard to believe, each one of us can achieve millionaire status just like the couple in the story, if you understand these five key secrets:
Secret 1: Make savings automatic.
The "set it and forget it" strategy is exactly how your 401(k) can build up to an amount you may have never thought possible, as in the example above. Remember, your 401(k) contributions are made with pre-tax dollars. If possible, max out your 401(k) every month and be sure to find out if your employer offers a matching contribution. A matching contribution means free money to you. A whopping 25% of employees don't take advantage of this great perk — be sure that you are not one of them.
Secret 2: It’s never too late.
Be sure to remember that it’s never too late to start saving and investing. I see people all the time who are discouraged that they haven’t started saving and want to throw in the towel. But you’re only doomed if you continue to think that way. Investing is powerful no matter when you begin due to the power of compounding interest. If you start saving today versus tomorrow, that’s one more important day of compounding interest. And there’s no going back if you choose to delay. What you can change is to start putting your money to work today and let it build over time.
Secret 3: Live within your means.
Spend only what you make and avoid burdening yourself with mounting debt. How can you do this? One way is to adopt a strategy that I write about often, the TSL Method. TSL stands for taxes, savings and life. Using this method, you will allocate 30% of your income to taxes, 20% to savings and the remaining 50% to everyday life.
Secret 4: Open communication with your spouse.
Discussing finances with your spouse can be a difficult. A lot of couples avoid the subject like the plague, but how can you plan for the future if you don’t discuss important topics like this now? Taking at least five hours a year to talk to your spouse about financial planning can play a major role in later financial success.
Secret 5: Travel the state.
I speak to many people who have dreams to "travel the world." I am a huge proponent of travel and adventure, as long as you can do so within your means. If trips to other part of the country or world are out of your financial grasp, remember that you have your very own state to explore and investigate. Here's a great article from the Travel Channel about major landmarks in each and every state: 50 States, 50 Landmarks. Taking a different approach to traveling and creating memories will keep help keep your debt in check and allow you to have a great time in your own "backyard."
Bottom line
Although it may be hard to believe, achieving "millionaire status" may be more attainable than you think. Remember, you don't need a job that pays a million dollars in order to save a million dollars. If you use a simple combination of automatic savings, living within your means and remembering the power of compounding interest, reaching $1 million can be a reality.
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