How to Become a Millionaire

Just about everyone wants to be a millionaire but most believe it is an impossible goal. Actually, becoming a millionaire is a realistic goal that can be reached quite easily by just about anyone. And it isn't necessary to participate as a contestant in a game show or win a lottery to do it. You can become a millionaire easily by simply saving and investing a reasonable amount of your income each month.

Real median household income in the United States in 2007 according to a report released by the U. S. Census Bureau in August 2008 was $50,233. To show you how easily the average American can become a millionaire, let's use a hypothetical person who makes well below the national median and earns only $20,000.00 annually. Do you think that person can become a millionaire? Actually the answer is yes, with only a couple of caveats. They need to be young enough to stay invested for 30 years and they must commit to saving ten percent of their income each month.

How much does saving $2,000.00 per month over a thirty year period amount to? Well $2,000.00 per month for 30 years amounts to $60,000.00. That's a respectable sum of money but it isn't even close to a million dollars. But this is just the principal, or amount the person actually saved. Now assume that person was able to find an investment that yielded an annual return of 15 percent. How much then could the person expect to have after 30 years? $150,000? $250,000? Maybe even $500,000? If you guessed one of those suggested amounts, you would be wrong. That person who saved and invested $2,000.00 per year for thirty years at 15 percent would in fact have one million two hundred five thousand, five hundred sixty dollars ($1,205,560), well over a million.

Unbelievable? Just perform the calculation yourself which you can do quite easily by visiting Bankrate.com which offers an easy to use compound interest calculator. Thus is the "miracle" of compound interest which really deserves to be counted among the "wonders of the world".

The younger a person is the more easily they can become a millionaire. They need save and invest only a small monthly amount to achieve the goal. Let's take another hypothetical person who decides to start saving a paltry $25.00 per month at the age of 18 and continues to save and invest that amount at a 15 percent annual rate of return until age 65. That amounts to $300 per year for 48 years or $14,400.00. Again, by using the Bankrate.com calculator we discover that at age 65, this person's investment, thanks to the power of compound interest, will have grown to two million two hundred thirty two thousand six hundred eighty-seven dollars ($2,232,687.00).

That is all well and good you may be thinking, but where can someone find an investment that returns 15 percent, especially in this day and time. Good question and I have an answer. I offer only one example, the T. Rowe Price Global Large Cap Stock Fund (NYSE: RPGEX). This is just an example and I'm not suggesting that you buy this particular fund. I use it only for two reasons. First, I personally own this fund and am familiar with it. Second, it is a global fund meaning the fund is invested in a blend of both foreign and domestic large cap stocks. These types of funds usually yield higher returns than one invested only in domestic stocks. Since inception (the date the fund was started) is has returned an average of 15.67 percent, based on the information published on the T. Rowe Price website. Actually this is just one of hundreds or perhaps thousands of mutual funds you can easily find that meet our criteria of offering a 15 percent annual return.

Do you have 30 years or more to go before retirement? If so, consider saving 10 percent of your income and investing it where you can receive a 15 percent annual return. No later than age 65, you too can be a millionaire.

Sources:

"T. Rowe Price Global Large Cap Stock Fund (NYSE: RPGEX)". T. Rowe Price website: June 30, 2009

"Compound Interest Calculator". Bankrate.com. June 30, 2009