In Your 20s? Here's How to Become a Millionaire Before You Hit 40

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  • Becoming a millionaire earlier in life isn't easy, but it is within the reach of some twenty-somethings.
  • You'd need to aggressively cut costs and chase high-income jobs so you can invest a lot each month.
  • Even if you can't become a millionaire, every dollar you invest in your 20s could be worth a lot more in your 50s and 60s.

Becoming a millionaire before age 40 isn't as impossible as it sounds.

We recently interviewed Steve Adcock, a self-made millionaire who achieved financial independence in his mid-thirties. He was able to retire from his information technology job at age 35 and now spends his time following his passions. One of the most striking things about his journey is that with a lot of effort, a number of Americans could do the same. Especially those who are still in their 20s.

The idea of becoming a millionaire may sound implausible if you're currently living paycheck to paycheck and wondering how to cope with rising living costs. It's certainly an ambitious goal, and not a path that everybody will want to follow. We all have different incomes, attitudes toward money, and financial priorities. Nonetheless, it could be possible. Here's how.

1. Invest aggressively

Investing is about putting your money to work. The idea is to build a portfolio of assets that will increase in value over time. These might include things like stock market holdings, real estate, or bonds. Investing is different from leaving money in a savings account, where it might be safer but won't generate the same returns.

Bear in mind that there are no guarantees and there may be years when your investments perform badly. But if you invest with a long-term perspective, you can wait out any short term dips and benefit when markets are good. Historically, stock market investments have averaged decent returns over time.

Investing aggressively doesn't mean chasing risky assets either. You can get there with relatively safe investments such as index funds that give you exposure to a range of stocks. Where you'll need to be aggressive is the amount you invest: If you want to become a millionaire before you hit 40, you'll need to put a lot of cash into your brokerage account.

2. Let compound interest do the heavy lifting

Compound interest is a powerful tool, and all it really needs is time. Historically the S&P has delivered average annual returns of 10%, so let's see what happens if you put $500 a month into an investment account and it generates an average return of 8%.

Invest $500 a month Total invested Value of portfolio
In 5 years $30,000 $35,000
In 10 years $60,000 $87,000
In 20 years $120,000 $275,000
In 30 years $180,000 $670,000
In 40 years $240,000 $1,500,000
Data source: Author calculations based on average 8% annual interest rate.

The table above shows how effective compound interest can be. Over 40 years, $240,000 of total investments could be worth $1.5 million. Those calculations show it might take around 35 years to become a millionaire with a $500 monthly investment. If you want to become a millionaire before you're 40, you would need to invest around $1,800 per month. Let's look at how you might find that cash.

3. Live within your means

The bigger the gap between what you earn and what you spend, the more money you can sock away for the future. Embrace frugal living and keep costs as low as possible. That doesn't mean never having any fun, but it might involve letting go of the idea that you have to spend money to enjoy yourself. Use a budgeting app to analyze your spending and look for areas where you can cut back.

One trick I use to stop myself spending on unnecessary things is to look at what that money would be worth if I invested it instead. For example, I'm looking at some amazing noise-canceling headphones that cost $50 online. If I instead invest that money, it could be worth over $500 in 30 years' time (assuming that same 8% rate). Would I rather have new headphones today or more financial security in the future?

Avoid high-interest debt such as carrying a credit card balance. Not only do the payments eat into your monthly budget, the interest you pay on your debt is money you're giving to the bank instead of investing for your future self.

4. Focus on your earnings

There's only so much you can do to reduce your costs, but there are a number of ways to earn more. Sure, we can't all land high paying jobs. But it's OK to set yourself ambitious salary goals and ask for raises if you think you deserve them. Work hard and look for ways to contribute to your company's bottom line.

If your company isn't paying you as much as you want, consider looking for a new role. You don't want to damage your career by switching jobs too often. All the same, if you're focused on earning as much as possible, a new job can bring a hefty salary increase.

Another way to increase the amount you invest is to max out any 401(k) contributions, especially if your employer will match your contributions. It's essentially free money. Looking into other tax-advantaged investment accounts can mean you pay less taxes on the money you invest, either now or in the future.

It may take you longer -- and that's OK

Becoming a millionaire before you hit 40 is an ambitious goal that involves investing a lot of money every month. Adcock and his wife saved 70% of their earnings. The bigger takeaway is that you could become a millionaire eventually if you consistently invest a percentage of your income.

It isn't a competition and a million is only a number. What's important is that you think about what financial independence might mean for you, and how you might build strong financial foundations. If you're already debt free, are living within your means, and make regular contributions to your investment accounts, that's already a great start. If you're not, perhaps you can set some goals and start working towards them in 2023.

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