With an average American income – about $50,000/year – you can become a millionaire. Yes, you!
What is a millionaire? Simply, it’s someone who has $1,000,000 in assets or liquid money. This can be in the form of equity in real estate, a retirement account such as a 401(k) or IRA, a savings account, commodities, or paper assets such as stocks, bonds, and mutual finds.
Many people use one million dollars as a benchmark when talking about wealth at retirement. In other words, if you retire with one million dollars, then you are retiring wealthy. Of course, some think this is not enough and some think it’s an impossible goal. The truth is, it IS possible and I’m going to show you how.
Put away $208/month (less than 10% of your take-home pay) for your working career (age 22-67) and you will end up with $1,043,565 assuming your return is 8%, which is what we are calling average these days. Alternatively, if you start at age 40, and put $917/month away until age 67 at the same return, you will have $1,037,727.
Once you have saved one million dollars, the next step is not only to keep it but also to grow it. Here are 5 things you may be doing that are keeping you from building wealth.
1. You aren’t protecting your assets. Assets can be protected with insurance and trusts. If you own a home, make sure you have adequate coverage. If you drive a car, double check your limits with your insurance agent. Losing your home due to fire or flood can be catastrophic for your personal finances if tens of thousands of dollars are needed to restore your home without insurance. And an auto accident without enough coverage could lead to life-long payments or worse – you could lose equity in assets or have your wages garnished. An umbrella policy is a simple solution because it adds additional coverage to what you already have. And a trust protects your assets from creditors and lawsuits, but it must be set up before these problems arise. Lastly, if you rely on a spouse for income, make sure they have life insurance. If they pass you still owe your mortgage so be sure you are prepared for this worst-case scenario.
2. You don’t have adequate health insurance. Medical bills are the number one cause for bankruptcy in the United States. ER visits, prescriptions, accidents, illness… you never know what can happen. Enough said.
3. You don’t save. This is an easy one. If you want to have money in retirement, you have to save it now – while you are working! Figure out when you want to retire and make sure you are putting enough away each month to support your lifestyle when you get there. If you need help figuring this out, shoot me an email!
4. You put other’s needs ahead of yours. Are you supporting your kids and/or parents? If so, be sure you are taking care of #1 first. Do you know why flight attendants ask you to put your air mask on before helping someone else? Because if you aren’t breathing you won’t be able to help! If your expenses exceed your income and you are caring for someone else, you won’t be able to do it very long. Once you have your personal finances in order, then feel free to give back all you want. And we hope you do.
5. You spend more than you earn. There are thousands of things to spend money on and each day we are bombarded with ads on the radio, TV, Facebook, websites, pop-ups, cell phones, email provider, and web searches. Only YOU can keep your spending in check. If your credit card balances are growing or you are carrying your balance over each month, you are spending too much. Figure out your monthly expenses by tracking them for 30 days and create a spending plan. Only spend on what you need until your balances have been paid off.