Everybody wants a magic formula to become a millionaire. The reality is that there are no secret formulas, there is just plain and simple math. How much do you need to save each month to become a millionaire by the time you are 65? That depends on a lot of different variables. For example, if you had $50,000 saved and you turned 65 in two months, then you would need to save $425,000 a month.
However, if you started saving when you were 18, then the numbers are quite a bit different.
Before you do the simple division, let’s address the power of compounding and time. If you put $5,000 into an investment tool that drew 8 percent interest, your money would double in 9 years. If you left it in for another 9 years, it would double again. In short, if you started saving when you were 18 and only invested $5,000, your money would be worth around $160,000 when you retired. If you put that same $5,000 in an 8 percent invest when you were 45, you would only end up with about $20,000. This is the power of compounding and time.
To illustrate this in another way, if you started at 20 years of age and invested $2 a day, just $61 a month, until you were 65 (considering a 12 percent interest rate and no taxes), you would have a cool million dollars to retire on. Not bad for cutting out a $2 snack each day.
If you waited until age 30 to start your daily contributions, however, the daily amount would now need to be $6.35, or $193 per month. Still not too bad. A million dollars just by cutting out your Starbucks fix.
Things get more serious the longer you wait. Your daily savings goes up to $20.55 at 40 and $73.49 at 50 ($2,235 a month).
The short of it is this: if you want to retire as a millionaire, write a viral app, or invest early, often, and at the highest interest rate possible.