Building a portfolio that hits the million-dollar mark might sound like a lofty goal, but it's simpler than you think. The sooner you get started, the more time you'll have to allow the power of compound growth to work in your favor. But even if you start your millionaire journey later in life, it's still possible to crush your goal if you're willing to level up your saving and investing.
Although the steps toward a million-dollar nest egg are simple, it isn't always easy staying the course. Your patience and diligence will most likely be tested, but if you follow these three steps, they can take you closer to your goal.
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1. Check on your net worth
You may be closer to becoming a millionaire than you think. But you'll have to run the numbers and determine your net worth to find out. Your net worth is simply your assets, like your 401(k), Roth IRA, and savings accounts, minus anything you owe, like credit card debt, mortgages, and student loans.
Your net worth will show you what areas you're crushing and where you need a tune-up. It's a good idea to check on your net worth at least once a month so you can track your progress and make adjustments as needed. So if you're looking to boost your net worth this year, here are a few tips to get you started:
- Build your emergency fund: The more money you have saved for emergencies, the less tempting it will be to dip into your retirement accounts or other investments to cover unexpected expenses.
- Start saving more: Cut unnecessary spending and start saving more of your paycheck. If you're used to saving 10% of your income, try to save at least 20% this year. Consider tucking away money in a high-yield savings account if you want your money to grow quicker.
- Learn valuable skills: Make sure you watch out for in-demand skills in the marketplace if you want to keep growing your income. Your skills can set you up for a bonus, promotion, or side gig. This can help you pay off large amounts of debt that may be weighing down your net worth.
2. Contribute to an employer-sponsored retirement plan
You might not be head over heels in love with your job, but your employer perks can help you get closer to the retirement you've dreamed of. Check with your job to find out if they offer an employer-sponsored retirement plan like a 401(k). Fidelity reported an increase in the number of 401(k) millionaires from the third to the fourth quarter of 2023, so it isn't farfetched to reach your goal in a retirement account alone if you contribute to the account long enough.
In 2024, you can contribute up to $23,000 to a 401(k). But if you are 50 or older, you can tuck away as much as $30,500. If your employer offers a 401(k) company match, you'll end up with more money in your account at the end of the year. With contributions, employer match, and investment growth, you could easily have a six-figure 401(k) balance in three years if you are 50 or older.
3. Create your own investing plan
Putting all your eggs in one basket can pose a huge risk, so it's best to diversify your retirement investing plans by also opening a brokerage account and an individual retirement account (IRA).
If you're just getting started on your investing journey, you'll want to look into the best investing apps for beginners. With a brokerage account, you can invest as much money as you want. You'll just have to pay taxes on any profits you receive or income you earn in the account, but you can save money on that front if they qualify for the long-term capital gains tax rate or the qualified dividend tax rate.
Individual retirement accounts are another way to spruce up your investment plan. For 2024, you can contribute up to $7,000 to traditional or Roth IRAs if you are under 50, or a maximum of $8,000 if you are 50 or older. If you haven't made contributions for 2023, there's still time to set aside money in an IRA that applies to last year. But you'll need to act fast -- your deadline to make 2023 contributions to an IRA is April 15, 2024.
The time it may take you to reach millionaire status will depend on many factors, such as your contributions and investment returns. It isn't uncommon to run up against some pitfalls, so it's important to keep a long-term view. But if you remain disciplined and keep growing on your journey, you'll be surprised how simple it can be to become a millionaire before retirement.
