How Much Do You Have to Save and How Long Will it Take To Get To a Million Dollars?

Troy Sharpe: 1  How long will it take and how much do you have to save to get to a million dollars, and the three things you need to focus on to help you get there.

Hi, I’m Troy sharp, CEO of Oak Harvest Financial Group. CERTIFIED FINANCIAL PLANNER™ Professional (CFP®), and host of The Retirement Income show. We always hear,  “I want to make a million dollars, I want to have a million dollars in the bank.” We all want to be millionaires, but it doesn’t happen by accident.  You have to focus on three key things to get there, and I’m going to show you in this video what those are, and how much you need to save, how much you need to earn in order to make this happen.

So what we have here is a time  value of money calculator. So TVM stands for the Time Value of Money. The basic concept with Time Value of Money is that,  $1 today is worth more than $1 in 10 years or in 20 years. One because of inflation or erosion of purchasing power, but also the concept of if I was going to give you $1, would you rather have it today,  or would you rather have it in 10 or 20 years? Of course, you’d rather have it today because you could invest that money and earn interest. So Time Value of Money is a critical piece of understanding  when it comes to building wealth and investing and making money and getting to that million dollars.

So when we look at this calculator here, and you can Google it, just google the TVM calculator,  and I want you to play around with one of these yourself. So the present value, is how much we’re starting with. I’m saying $1, the future value, we’re trying to get to a million.

The annual rate, this is the percentage of interest that we earn on an average each year. Periods is the number of years, 20, and the compounding is annually,  interest,

we want that to always compound annually. All we have to do is hit this button right here, payment. If we have 20 years to save, and we  want to get to a million dollars, and we can earn 7% interest, we need to save $24,000 per year. That sounds like a lot of money, but if we back this up to 30,  hit payment again, it goes down to $10,500 per year.

The only thing we changed there is the number of years. So the first thing,  the most important thing, when it comes to investing, to saving, to getting to a million dollars is time. The sooner you start, the more quickly you’ll be there and the less money you’ll have to save.  So very, very important concept here. Time is the number one component when it comes to investing, the more you have time, the more money you’ll have down the road. So start soon start saving today  and investing.

Now, let’s say we only earn 3% and we have 30 years.

Now we have to save more than double. We have to save $21,000 a year if we’re only earning 3% interest. What does this tell us, this means we can’t keep the money in the bank, we can’t put the money  in CDs, we can’t put the money underneath the mattress, if you want to get to a million dollars. Let’s bump it up to 9%. Now  if we have 30 years, and we earn an average of 9%, all we have to do is save $7,336 per year. That’s a lot better than $24,000 or $21,000, or even the $10,000.

The next thing that we need to focus on is the rate of return, the annual rate of return. We can’t put the money in places  that aren’t going to earn interest. We can’t keep it in savings, we can’t keep it in checking, we need to get the money invested. So the first thing we need to know is time. The second thing is  the annual rate of return.

Now, where can you make 7%, 8%, 9%? Well, historically, the best place to do this is the stock market. Of course, the stock market comes with risks,  there are fluctuations up and down, but if you have 20 years or 30 years, and you’re saving, there’s no reason you shouldn’t have money in the stock market growing to help you achieve these longer-term rates  of return.

Historically, after inflation, the stock market has posted returns of about 7% per year. So these are not unrealistic returns if  we have 20 or 30 years, and you start saving today. Now, the third thing that we need to focus on is the amount of money that we save.  So time, the annual rate of return, and the amount of money we save. If we don’t save money, we’re never going to get to a million dollars.

Heck, we’re never going to get to $40,000 or $50,000 or $100,000,  much less a million. So we need to focus on what we can save. You have to know your numbers, you have to know how much you’re bringing in after taxes and how much are you, contributing  either to your 401k, your retirement accounts, or just an investment account outside of your retirement accounts.

If we look here, let’s say let’s look at this again  at 9% over not 30 years but 20 years. If we have 20 years at 9% now we have to save $19, 546.  Time is the most important, annual rate of return is extremely important, and saving money is also very important when it comes  to helping you get to a million dollars.

All right so to recap, the three things we need to focus on, number one, time. We need to start sooner rather than later. Number two, the rate of return  we’re earning on our investments, we have to get that money invested. Number three, the amount of money we’re saving. So know your numbers, start saving money, get it invested. The sooner you start, the more quickly  you’ll be to a million dollars.

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