How to save $1 million by the time you're 67
HOUSTON – How much money do you hope to have when you retire? $50,000? $100,000 or more? The website Nerd Wallet is revealing how much you need to save each month to accumulate a million dollars by the time you're 67 years old. Assuming you are 30 years old, you haven't saved a penny, you make $40,000 a year and you can earn 6 percent compound interest on your savings, Nerd Wallet says you would need to save a 18.3 percent of your salary. It comes out to about $600 a month.
"In real life, that might not work for you... depending on what you make, how you live," said certified financial planner Richard Rosso with Clarity Financial.
Rosso says not many people are making 6 percent interest in the current market, so he would actually recommend a 30-year-old save closer 20 percent of their $40,000 salary. That is $660 a month. Rosso says the easiest way to save successfully is to pay yourself first.
"You want to set your savings on auto pilot," explained Rosso. "You want to pay first so it comes out of your paycheck initially. If you're gonna wait to budget, and then wait for money to be left, and then save that money, most likely you're going to fail."
He says the best place to put your savings is your company retirement plan. Make sure you are getting all of the money available if your employer matches your contributions. If you have outstanding student loans, look at the numbers to decide whether to pay those down or save.
"What am I paying in interest versus what am I gonna make on investments?" Rosso said you should ask yourself. "Might be better for you to direct more of your cash to your loans."
While skipping that $5 latte may help you save, Rosso said you need to think bigger, like buying a smaller home.
"Maybe you rent a little longer until you have a bigger down payment. Maybe your purchase a used car versus of a new car," he said. "There are ways for you to save and make a bigger impact versus just cutting out what you enjoy."
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