Ways Investing in Money Can Make You a Millionaire

Wondering how to become a millionaire? It may sound impossible to some people, but it doesn’t have to be an out-of-reach pipe dream. With careful planning, patience, and smart savings, you can easily make a million dollars by the time you retire.

You don’t need a six-figure job or family money to become a millionaire. Instead, you need to start saving early and be mindful of every dollar you spend.

Here are some tips for building that million you need to retire in style or to retire early.

1. Start Saving Early

The easiest way to build your savings is to start early. Doing so lets you take advantage of the power of compounding. Say you’re 20 years old. If you contribute $6,000 to an individual retirement account (IRA) every year ($500 a month) for 40 years, your total investment would be $240,000.

But because of the power of compounding, your investment would grow to more than $1.37 million, assuming a 7% return. And you’d be a millionaire by age 57, just by saving $500 a month.

2. Avoid Unnecessary Spending and Debt

Stop buying things you don’t need. Before you tap your card, ask yourself the following:

• “Is this something I really need?”
• “Do I have something similar already?”
• “Do I want this more than I want to become a millionaire?”

Every dollar you spend on something you don’t need is one less dollar you can invest. Here’s a reality check. If you invest an extra $25 a week for those same 40 years, you would end up with an additional $277,693.

Can you cut $25 of unnecessary spending out of your weekly budget? Maybe, maybe not. But if you can, it will go a long way toward helping you reach your goal.

3. Save 15% of Your Income—or More

The personal savings rate is the percentage of income left over after people spend money and pay taxes. That rate dropped to 2.3% in October 2022, according to data from the Bureau of Economic Analysis (BEA).1 According to experts, that’s not enough to save for retirement, let alone for anyone trying to become a millionaire.

Exactly how much should you save? Although there’s no correct answer here, most financial planners say that, depending on your age, you should save at least 15% of your annual gross income if you’re aiming for a nest egg for retirement. This figure may sound unattainable for many, but in reality, it’s not. Suppose your employer matches contributions of up to 6% of your salary, you need to save only 9%.

4. Make More Money

Granted, this is easier said than done. If you don’t make enough to stash 15% of your income, it will be difficult to become a millionaire. But you do have a few options available to you, such as:

• Asking for a pay increase (if you think you’re due for one)
• Working extra hours
• Getting a second job
• Getting training to increase your earnings potential

Additional training pays off the most in the long run. Let’s say you’re a Licensed Practical Nurse (LPN). The median income is $48,070 per year in 2021.2 Registered nurses, on the other hand, earn about $77,600 a year—almost $30,000 more. Of course, it takes one to three years longer to become an RN.3 But that extra money every year can really help you reach your financial goals—especially if one of them is to become a millionaire.

5. Don’t Give in to Lifestyle Inflation

Lifestyle inflation happens when you spend more money just because you have more to spend. Say you live in a comfortable apartment in a great location for $1,000 a month. You get a raise at work and move to a better apartment that costs $1,500 a month. Did you really need to move?

If you want to become a millionaire, resist the urge to give in to lifestyle inflation. Instead of spending more—just because you can—save and invest more. You’ll reach your financial goals a lot faster.

6. Get Help If You Need It

Planning for retirement can be very stressful, partly because of all the investment options available, not to mention all the unknowns that await you. In fact, as many as 60% of working people said they feel uneasy about retirement planning. It’s no wonder only 25% of Americans say they’re confident that they’re doing what they need to when it comes to retirement planning.4

That’s why it’s so important to get help from a professional. Only 29% of Americans reported working with a financial advisor, while 65% said they aren’t getting any financial advice.5 Unless you’re a financial rock star, it’s worth the money to work with a qualified financial advisor.

An advisor can help you choose investments, set up a budget, and make plans to reach your goals. And once you’re ready to start spending some of that money, they can help you make it last.

Retirement Accounts

Here’s a quick look at how retirement savings accounts can help you reach your goals:

401(k), 403(b), and Other Employer-Sponsored Retirement Plans

These are perhaps the best savings vehicles for most workers. It’s a good idea to take advantage of your company plan if one is available—especially if there’s an employer match.

You can deduct your contributions, and the earnings in the account grow tax-deferred. For 2022, the elective deferral limit is $20,500, or $27,000 if you’re age 50 or older. For 2023, it is $22,500, or $30,000 if you’re age 50 or older.6

Traditional and Roth IRAs

Most people with earned income can contribute to a traditional or Roth IRA. The major difference between the two IRAs is when you pay taxes. With traditional IRAs, you can deduct your contributions the year you make them. You pay taxes when you withdraw the money in retirement.78

Roth IRAs work differently. You don’t get the upfront tax break. But qualified withdrawals in retirement are tax-free. Those are made when you’re 59½ or older and it’s been at least five years since you first contributed to a Roth.7

No matter what type of IRA you have, the contribution limit is the same. For 2022, you can contribute up to a total of $6,000, or $7,000 if you’re age 50 or older, rising to $6,500 (or $7,500 if you’re 50 or older) in 2023.9

Simplified Employee Pension (SEP) and SIMPLE IRAs

The SIMPLE IRA is a tax-favored retirement plan that certain small employers (including the self-employed) can set up for the benefit of themselves and their employees.10

SEP IRAs can be established by the self-employed and those who have a few employees in a small business. The SEP lets you make contributions to an IRA on behalf of yourself and your employees. Both SEP and SIMPLE IRAs are popular because they’re simple to set up, require little paperwork, and allow investment earnings to grow tax-deferred.1011

For 2022, you can put away as much as $61,000 in your SEP IRA account and $14,000 in a SIMPLE IRA. In 2023, these limits rise to $66,000 in a SEP IRA and $15,500 in a SIMPLE IRA.1213

Taxable Brokerage Accounts

Taxable brokerage accounts provide a way to invest additional funds after you max out your retirement accounts. Be aware that you need to pay taxes on the income generated in these accounts in the year you receive it.

How to Make a Million Dollars 

If you start early and save regularly, you can make a million dollars by contributing to your retirement savings accounts. To take full advantage, try to contribute the maximum limit.

Let’s take a look at how an average person, let’s call him Joe, can reach this million-dollar goal by the time he retires at age 67. Let’s assume Joe:

• Is single and age 33
• Makes $50,000 per year
• Has a 401(k) plan with a 5% employer match
• Saves $4,000 a year in a Roth IRA

We’ll assume his investments have a 7% return.

Joe takes full advantage of the employer match and defers 5%, or $2,500, of his salary each year. His employer contributes $2,500 each year as the match. For the purposes of this example, we’ll assume Joe’s salary remains the same until retirement. Of course, in real life, he’d likely get a raise and his nest egg would grow even more. Here’s the breakdown of his savings over the 34 years.