Yes, You Can Reach Your First $1 Million—The Practical Steps That Can Help You Get There

Hitting $1 million in net wealth may come from landing a windfall like the lottery or inheriting it from a rich relative. Let’s face it, though, most of us aren’t that lucky. But that doesn’t mean you can’t reach this milestone. It just takes time and a little hard work involving planning, investing, and developing smart financial habits.

Develop a Budget Plan to Reach Your Goals

The first thing you’ll need is a financial plan. Without a plan, your goal of making $1 million can seem like an unachievable dream. But having one in place can go a long way. It serves as a road map, letting you know what you’ll need to do to reach your goal, including how much you’ll need to save each month, and how long it will take to get there.

Before you start saving, though, you’ll need a budget. Kyle Playford, financial planner with Freedom Financial Partners, suggests using a reverse budget. This is a concept where you set aside money for savings before expenses.

“Decide on how much you would need to save to get to $1 million in retirement using a conservative yet reasonable rate of return, like 5% to 7% per year,” he says. “Then you can always adjust down if you achieve a greater return.”

Begin Your Savings Journey

After budgeting, the next step is to start saving. Here are some options you may want to consider exploring to get you to your goal:

• High-yield savings accounts: These accounts pay a higher interest rate than traditional savings accounts and give you access to your money whenever you need it. This makes them a great option for an emergency fund to cover unexpected expenses if and when they arise. You should put aside about three to six months of living expenses in your emergency fund.
• Employer plans and matches: Saving in a workplace retirement account lets you save money through payroll deductions, which means you don’t have to do anything to save for the future. Many employers provide a contribution match, giving you free money in your account.
• Maximize retirement account contributions: You’re allowed to save up to a certain limit each year. Make sure you save as close to the limit as possible, if not the maximum. Saving in tax-advantaged accounts, like a 401(k) or traditional individual retirement account (IRA), can give you additional benefits, including lowering your tax bill at the end of the year.
• Increase savings contributions: Use pay increases, bonuses, tax refunds, and other windfalls as a way to increase the amount of money you’ll save toward your $1 million goal.

Be mindful of the annual contribution limits (including income limits for Roth IRAs if you qualify) so you don’t face any penalties. Playford also suggests opening a brokerage account so you can buy and sell different investment options. He warns to invest in vehicles and companies you understand, instead of chasing trends you think are doing well.

“Private assets, crypto, etc., may get a lot of attention, but if you don’t understand what you are investing in, then you may be speculating with something as important as your retirement,” Playford says.

Smart Ways to Capitalize on Growth and Build $1 Million

Focus aggressively on growth to help you reach your target of $1 million. One way to do so is to diversify your portfolio. Spreading your money across different asset classes, industries, and companies can smooth your returns and reduce the amount of risk you experience. You’re also better able to withstand losses because the gains from your winning investments will outweigh the poor performance of the others.

Invest in different types of equities:

• Growth stocks: These are companies that reinvest their profits back into their businesses rather than paying out dividends. As such, they grow at a faster rate than the overall market and other companies.
• Index funds: These are funds that mimic the returns of a market index like the Dow Jones Industrial Average (DJIA) or the S&P 500. These funds give you broad exposure to a wide range of assets by purchasing one unit.
• Exchange-traded funds (ETFs): ETFs trade just like stocks on exchanges and hold a basket of assets like stocks or bonds, among others. Like mutual funds, though, they pool money from multiple investors to buy a collection of securities.

Take a long-term approach. By resisting the urge to respond to short-term market fluctuations, you can benefit from the power of compounding. This allows your gains to build, creating a snowball effect, accumulating more wealth over time.

Automate Your Savings

Saving can seem like a chore if you have to do it yourself. But there are options out there to help you automate the process, thereby taking the guesswork out of saving.

Take advantage of recurring transfers to savings accounts, using direct deposit splits to divide your paycheck into different accounts, and using apps that round up your purchases to the nearest dollar, using the additional cash to transfer to your savings account.

Tips to Manage Your Money

Now that you’re on your way to making your million dollars, you’ll want to protect it. This involves taking steps to mitigate the risks to your investments.

Rebalance Your Portfolio

Markets are unpredictable, which can cause your asset mix to fluctuate. That’s why you’ll have to rebalance your portfolio regularly. This requires selling assets that overperform and buying ones that are underperforming. This not only controls the level of risk, but also gets you back to the desired asset allocation to keep you on track for your goals.

Use Dollar-Cost Averaging (DCA)

The dollar-cost averaging (DCA) strategy allows you to invest a fixed amount of money over a regular schedule rather than a lump sum all at once. This means you reduce the risk of buying assets all at once when they’re really expensive.

Hedge Your Bets

Don’t forget to hedge your bets. Once you get more experienced as an investor, you can incorporate more complicated investments, such as options and even gold, to protect yourself against price movements and inflation.

The Bottom Line

If you stay focused and keep your head in the game, you’ll be able to attain your target of $1 million. As long as you start sooner rather than later, stay consistent with your contributions, and keep saving consistently, you’ll notice that hitting that goal may come faster than you think.