The definition of a millionaire varies based on who is using the term. The federal government refers to millionaires as people who have more than $1 million in income each year. Some people consider individuals who have more than $1 million in assets as millionaires, but a more conservative approach would be to use $1 million in net worth, which is assets minus liabilities.
Three primary factors determine how much money you need to save each week to become a millionaire; time, rate of return and taxes. The more time you have to attain your goal, the less money you need to save per week. The higher the rate of return you can get for your savings, the faster you will achieve your goal. The higher your tax rate, the more money you'll have to save to compensate.
The amount you must save to accumulate $1 million depends on how much time you have to save. Assuming an interest rate of 2.75 percent, the rate on 30-year U.S. Treasury Bonds as of August 15, 2012, you could be a millionaire by saving just over $179 per week for 50 years. If you wanted to retire a millionaire after 40 years, you'd need to save $264 per week. If you only have 30 years to save, you'll need to set aside $413 per week.
Rate of Return
The power of compound interest is a powerful tool, and the higher your rate of return, the sooner you can get to the $1 million mark. If you saved $179 per week and could get a rate of return of 4.33 percent, you would reach your goal in 40 years. If you save $264 per week at 5.88 percent you would hit the $1 million mark in 30 years. You could become a millionaire in just over 20 years if you saved $413 per week at 7.53 percent.
If you invest in tax-free municipal bonds, you get to keep all of the interest you earned, but if you put your money in a bank certificate of deposit (CD), you have to pay income taxes on the interest. Taxable investments must typically pay higher interest rates than comparable tax-exempt investments to attract your business. For example, if you were in a 28 percent federal income tax bracket, and you saved $264 per week, you would need to earn a taxable interest rate of 8.17 percent to equal the same tax-free return of 5.88 percent.
Mike Parker is a full-time writer, publisher and independent businessman. His background includes a career as an investments broker with such NYSE member firms as Edward Jones & Company, AG Edwards & Sons and Dean Witter. He helped launch DiscoverCard as one of the company's first merchant sales reps.