It's definitely possible to accumulate $1 million in savings over 30 years. The trick is understanding that you don't actually have to save the full $1 million. Depending on where you put the money you save, you can contribute just a few hundred thousand dollars and wind up with a cool million in three decades' time. Still, getting there will require the discipline to sock away thousands of dollars a year -- every year.
Saving at Zero Interest
Suppose your definition of "saving" is sealing bundles of cash in plastic bags, stuffing them into a shoe box and burying them in the back yard. In that case, you won't be earning any interest on the money, so the calculation is easy: $1 million divided by 30 years comes out to $33,333.33 a year. That's $2,777.78 a month, or just a tad over $641 a week -- every week, for 30 years. (Don't forget to dig up the box and take it with you when you move.)
If you stick your money some place where it can earn interest, your path to the millionaire's club gets considerably easier. The higher the interest rate, the easier it gets. What makes this possible is compounding: The money you save earns interest. That interest gets added to the balance of your savings account, so there's more money there to earn interest. Your interest starts earning interest on its own, and the account grows faster.
Rates Up to 5 Percent
For simplicity's sake, the calculations that follow assume that you'll be saving the same amount every year, in an account that compounds -- that is, deposits interest into your account -- once a year. Accounts that compound more often will grow a little faster, but the difference won't be terribly significant. If you put your money into an account that pays 1 percent annual interest, you'll need to save $28,465 a year to reach $1 million in 30 years. At 2 percent annual interest, you'll need about $24,170 a year; at 3 percent, about $20,410 a year; at 4 percent, about $17,145 a year; and at 5 percent, about $14,335 yearly.
If you're searching for higher rates of return, and thus a quicker path to millionaire status, you're less likely to be saving and more likely to be investing. Saving is depositing money in an account and earning interest on the balance. Saving is generally extremely safe. Investing involves putting money at risk -- for example, by buying corporate bonds. The higher the return, the higher the risk you'll have to stomach. With an account or investment that returns 6 percent a year, you'll need to put away about $11,935 a year to hit $1 million in 30 years. At 7 percent, the magic number drops below $10,000 a year: about $9,895. Here's where you can really see the power of compound interest: $9,895 a year for 30 years adds up to just $296,850. But with a 7 percent annual return, that amount more than triples to the magic million-dollar mark. And if you can find a 10-percent annual return somewhere (good luck finding that return for a 30-year period), you'd need to save just $5,530 a year.
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