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How to Save $1 Million Without Breaking a Sweat

Rob Berger



“A journey of a thousand miles starts with a single step.”  –Lao-tzu

The wisdom of Lao-tzu is as relevant to money as it is any difficult journey. The thought of saving $1 million is, for most, an impossible dream. So impossible, in fact, that most do not consider it a realistic goal. But is it really that difficult?

What if accumulating a cool million by retirement was not only realistic for most, but also downright easy? In this article, I’m going to do my best to convince you that such a goal is achievable.

How $250 = $1,000,000

The first step in our journey requires some simple math. Because most of us can’t snap our fingers and magically conjure up $1 million, we must do it the hard way (yes, we have to earn it). And that raises the following question — how much do we have to save and how long do we have to save it to reach our goal?

For our calculations, we’ll assume that our investments will earn 7 percent annually.  Given that assumption, the following list shows how long it will take to reach $1 million given different monthly contributions (this Bankrate calculator was used for the calculations):

  • $100/month:  60 years
  • $250/month:  47 years
  • $500/month:  37 years
  • $1,000/month:  28 years
  • $1,500/month:  23 years

Of course, inflation will eat away at the purchasing power of the investment. These figures, however, give us a good idea of just what it takes to reach $1 million by retirement. For many, this is doable. The key, of course, is to start early and save as much as reasonably possible. Easier said than done, I know.

How to Take the Proverbial First Step

Like a journey of 1,000 miles, you can’t reach your financial goals without taking the first step. In the case of saving and investing, there are a lot of lies we tell ourselves that keep us from taking that first step. Here are some of most prevalent misconceptions:

  • I don’t have enough money: The truth is that investing doesn’t require a lot of money. Employees with access to a 401(k) can begin contributing very small amounts each month. For those without access to a retirement account at work, they can open an IRA or Roth IRA with very little money. Vangaurd requires just a $1,000 deposit to open a retirement account. You can do even better with a service like Betterment, which takes your money and invests it in Vanguard and other funds with a minimum initial deposit of just $250.
  • I have too much debt: Consumer debt is a big obstacle to reaching just about any financial goal. For those with such debt, getting out of and staying out of debt should be a top priority. That doesn’t mean, however, that one needs to put investing on hold for years while chipping away at credit card debt. Particularly if the interest rate on the debt is low, one can begin to invest small amounts while paying off debt. This is a particularly important strategy when an employer matches retirement contributions.
  • I have plenty of time: As the calculations above demonstrate, the more time you have to save, the more you’ll accumulate. Compound interest is a powerful tool. Like a car needs gas, however, compound interest needs time. Furthermore, the longer one waits to invest, the more they must save to meet the same financial goals.
  • Investing is too complicated: Smart investing is easier today than it’s ever been.  Mutual fund companies like Fidelity and Vanguard have single lifetime funds that enable investors to create a diversified portfolio with just a single mutual fund. For those that want a little more control over how their money is invested, it’s easy to create a diversified nest egg with just three or four mutual funds.

Tips to Saving More Money

For some the big hurdle to investing is the lack of money. As noted above, it doesn’t take an enormous amount of capital to generate $1 million in savings over a lifetime. Still, for some saving $250 a month seems as impossible as saving $25,000 a month.  While there is no silver bullet to this challenge, there is an important mindset that many fail to adopt.

When it comes to cutting back expenses, most immediately think of changing their lifestyle. It’s common to hear of folks eating out less, foregoing vacations, and so on. While these lifestyle changes can save money, there’s a much more effective approach called the painless way to save money.

It’s very simple. Examine each of your monthly bills, including all of your debts, utilities, and monthly services like cell phones and Netflix. Look at everything.

For each monthly bill, ask yourself two questions:

1. Can I get rid of it? You may be surprised just how many services you pay for that you don’t really need or use. We recently got rid of an old car we weren’t using, and we ditched the DVD option with Netflix because we hadn’t watched a DVD in over a year.

2. Can I get it for less? For those monthly bills you can’t get rid of, see if you can lower the cost. With debt, look at refinancing the mortgage, student loan, or car loan. Even even credit card debt can be refinanced to a lower rate, often 0 percent, with a card offering a balance transfer feature.  For everything else, see if you can get a better price with your current service provider or one of their competitors.  Sometimes a simple phone call can result in a lower monthly fee.

The beauty of this approach is that it’s “one-and-done.” Once you eliminate or lower the cost of one of your monthly bills, you save money each and every month thereafter without lifting a finger.

Rob Berger is an attorney and founder of the popular personal finance and investing blog doughroller.net. He is also the editor of the Dough Roller Weekly Newsletter, a free newsletter covering all aspects of personal finance and investing.

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