Ever think about what you’d do with a million dollars? Travel? Buy a vacation property? Finally get that boat you’ve always wanted? It’s a lot of money, and the options are seemingly endless.
In rare circumstances, you might find yourself with an unexpected sum of money (say you win the lottery or stumble into an unexpected inheritance). In most cases, you likely won’t become a millionaire overnight.
But what if you were to save a million dollars? It might sound like a tall order, but it’s totally possible. Exactly how to save a million dollars might change depending on your personal financial circumstances.
There are plenty of reasons to save, maybe you want to buy a house, save for your child’s education, have big vacation dreams on the horizon, or want to boost your nest egg.
On the surface, a million dollars sounds like an exorbitant amount of money, but it might not be that far off from what you’d want to live comfortably in retirement.
A variety of factors will influence how much you’ll want to save for retirement, including income, lifestyle, and when you plan to stop working. Everyone’s lifestyle is different, and as such, retirement savings goals will vary too.
On the bright side, ideas for saving a million dollars can be used to save more or less depending on your circumstances.
Getting Started: The Journey to a Million
With the hustle and bustle of life, creating a financial plan for the future can sometimes fall to the bottom of the priority list. Budgeting might seem tedious, investing can be confusing, and sometimes at the end of the day, the last thing you want to do is look at financial statements.
If you’re not in tune with your current finances, now could be a good time to check in. Think of your spending habits and current financial situation as the baseline. These factors will likely inform how you start (or continue) saving for the future.
Getting a Handle on Your Spending
If you’re not sure exactly what’s going on with your money, tracking your spending could be a good place to begin.
Budgeting and money management gets a bad rap. At its worst, it can feel restrictive and limiting. You might want to consider a new perspective.
Instead of looking at a budget like it’s telling you what you can’t spend, you could think of it as a tool that’s helping you spend money on what’s important to you. Sure, you might have to skimp or skip a few things now, but just imagine the feeling of accomplishment you’ll likely have when you reach that financial milestone.
As you continue living your life, circumstances might change and so should your budget. You might want to set aside time for regular checkups so you can make adjustments to whatever isn’t working for you.
Setting Financial Goals
If you’re socking money away for an unspecified, foggy future, it can be easy to get off track. Setting financial goals could help you define your financial plan and keep you on track by giving you something to work toward.
Saving a million dollars is an admirable goal, but the sum is so large that it can feel lofty and unattainable. Instead, you might consider setting smaller, incremental goals so you can easily track your progress. Plus, reaching small milestones can give you cause to celebrate (within reason, of course).
Navigating Your Way to a Million
By creating a budget and setting financial goals, you’ve filled in a few critical pieces of the financial puzzle. You might consider outlining a financial roadmap that you can use to help guide your financial decisions. Life is full of competing (and frequently changing) priorities, and having a plan in place could help keep you and your financials on track.
This map doesn’t have to be set in stone. Instead, you could consider it a flexible guideline that is readily adaptable to life’s curveballs. Here are a few suggestions for causes worthy of inclusion in your overall financial plan.
Preparing for the Unexpected
Uncertainty is (unfortunately) one of life’s certainties. Even our best-laid plans sometimes get thrown off course.
But being prepared for unexpected expenses can help you get through uncertain waters.
You may want to consider saving an emergency fund that you can rely on in the event that urgent unexpected expenses come up. Common knowledge suggests saving anywhere between three and six months’ worth of expenses.
Having this financial buffer could help protect you in the event of a financial emergency. If you are suddenly laid off or are faced with unexpected medical bills, an emergency fund might help you stay afloat while you find your footing again.
Instead of relying on credit cards or other alternatives, your emergency fund might give you a safety net to help you be better able to take care of yourself and your family without falling into debt.
Creating a Debt Repayment Plan
Not all debt is created equal. Some debt, like student loans or a mortgage, can help you further your goals. Other types, like high-interest credit card debt, might constrict your financial independence.
Creating a strategy to control and repay your debt could be a helpful step on your journey to save a million dollars. Having a plan in place for eliminating debt might help you keep your finances on track and allow you to continue working toward your savings goals.
There are a few schools of thought when it comes to creating a debt pay-off strategy. The fireball method combines debt repayment strategies and suggests prioritizing bad debt while actively making the minimum payments on all of your debts.
This way, you can focus your energy on the high-interest debt that isn’t serving you while simultaneously working toward other financial goals.
Investing for the Future
You might consider taking your million-dollar savings plan one step further through investing. When you save, you’re incrementally adding money to a bank account. This strategy is often used for short-term financial goals. When you invest, you buy assets, like stocks or mutual funds, with the goal of growing your wealth.
The main difference between saving and investing is that saving is less risky. Your money is in an FDIC-insured account, but generally earning a relatively low interest rate that might not outpace inflation.
Investing offers the potential to earn a greater return than a traditional savings account, but there is no guarantee that the investment will pay off. Even considering the inherent risk, investing could be a great way to grow your wealth in the long-term.
And it’s worth noting that it’s never too early to get started. When it comes to investing, time in the market can be advantageous.
One of the most impactful predictors of an investor’s returns is the length of time they’ve been invested in the market. The stock market fluctuates, which is completely normal but unpredictable. Giving your investments time means they have a chance to weather some of the ups and downs of the market.
One way to start investing is through an employer-sponsored 401(k). This is a tax-advantaged account that allows both you and your employer to contribute. Many employers offer matching contributions up to a certain dollar amount or percentage. It can make financial sense to participate in the 401(k), at least up to the matching limit.
Another savings vehicle is an individual retirement account, or IRA. There are two types, Traditional and Roth, that differ mostly based on when the account holder pays taxes.
For a Traditional IRA, the contributions are typically made pre-tax, which reduces the current taxes paid, and are taxed at the time of withdrawal. For a Roth, contributions are made post-tax, which means they do not reduce current taxes paid but are withdrawn tax-free assuming certain criteria are met.
Both 401(k) accounts and IRAs have limits on contributions and regulations on when withdrawals can be made. For investments you might need or want to access before retirement, you could consider a brokerage account.
Staying on Track
Saving a million dollars will likely take some dedication and will power. Sure, you’re feeling inspired now, but what about in a month, a year, 10 years?
Staying committed to your savings goal can be difficult. You might want to be mindful of what you’re working toward. Does envisioning retired life at your lake house help you stay on track? Whatever it is, you could keep that picture front and center so you can easily remember why you’re working so hard to save.
You could consider automating contributions to your savings and investment accounts—instead of having to remember to transfer money each month, the process will happen automatically.
Another move? Automate bill payments. Consistently paying your bills on time can help you avoid pesky late fees (which slowly eat away at your million-dollar goal).
As you work toward saving a million dollars, you might want to remember to be kind to yourself. One treat-yourself dinner isn’t going to ruin your budget. A month of dining out might. Finding balance could allow you to enjoy your life while also saving money for the future. Here are a few ideas that could help you maintain your savings goals:
Paying Attention to Small Expenses
When it comes to finances, attention to detail matters. You might want to pay attention to the small expenses, which can quickly add up.
Tracking your expenses and budgeting could help give you insight into your spending vices, so it can be helpful to maintain an accurate record. Empowered with that information you might be able to trim your expenses as needed.
Earning More Money
Want to boost your savings without cutting your expenses? You could consider taking on a side hustle. According to a 2017 report, nearly 44 million Americans have added a side hustle to boost their income.
You could take a look at your skill set and see if there is any side hustle potential. Is there a market for freelancers with your skills?
Are you a certified lifeguard who could take on a part-time job? Can you rent out a spare room in your house?
When you find the right side hustle, you could consider directing that money directly to your million-dollar savings goal.
Living Within Your Means
As you continue in your career, you’ll likely get plenty of raises and promotions. Earning more money is exciting, but it can also lead to increased spending, also referred to as lifestyle creep. The more money you earn, the more tempting it can be to spend.
Before you splurge on new furniture or move into a more expensive apartment, ask yourself: Is it worth having the added expense affect your goals? Then you might check in with your financial goals and plan accordingly. You could adjust your budget and see what is sustainable in the long-term.
Reevaluating Your Financial Goals
As you age and life changes, you might want to check in with your goals. Did you just welcome a grandchild? How are they going to factor into your plans. Going through a divorce?
That might affect your financial plan too. You could adjust your goals and financial strategy so it fits the life you are living in the present, not the life you were living 10 years ago.
Refining Your Financial Plan
Sometimes, life can be overwhelming. If your finances are anxiety-inducing, know you don’t have to go it alone. There are plenty of resources out there to help you understand and manage your finances.
SoFi Invest® gains you access to the opportunity to chat one-on-one with a qualified financial planner who can help you refine your financial goals and clarify your financial plan all at no cost.
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