What is “Savoring” and How Can it Help You Build Wealth?
People continue to buy lottery tickets even though the chances are small, because everyone wants their chance at winning that million dollar payout. After all, even though they say money doesn’t buy you true happiness, it helps to have that cushion to relieve stress and not worry about your bills or your future.
Fidelity recently released a report this November citing that they had a record number of 401K and IRA millionaires as clients (or 187,400). Even though a lot of this wealth was likely created during the bull stock market, a potential downturn in the future could present another opportunity for those who continue to invest slow and steadily. For the rest of us that can’t win the lottery there’s a true and tried method to becoming part of the millionaires club!
You should start contributing to retirement as soon as possible (just make sure you are in a solid financial position where you have an emergency savings account and have paid off all of your high interest debt). The key to getting to the million dollar mark is being able to start early and contribute often and in increasing amounts. Fidelity says that by age 67 you should have 10 times your final annual salary in retirement savings - to get to that magic number they suggest:
Compound interest can also be your best friend and help you grow your portfolio. Every dollar you contribute and invest today can continue to grow on itself to hundreds of dollars in the future.
Employer matching is your best return because it could potentially double your money. Make sure you learn if your employer has a matching plan and maximize it if it’s available. It’s also important to make sure you “pay yourself first”. This means contributing to your retirement account before you spend money on food, clothing, or friends and family and regularly increasing your contributions every year as your salary grows (think 1% or 2% each year at a minimum). After all, your best investment is in yourself.
Make sure that you reduce fees as much as possible. This includes making sure you don’t withdraw money from your retirement early (where you can get racked with lots of potential tax consequences) and pay attention to how and where your money is invested and what fees are.
Fees are actually a big part of the success in building out to be 401K millionaire - for example expense ratios (or annual fees charged by mutual funds) can dig into your annual returns. If possible, try to keep fees as low as possible with expense ratios under 0.5%.
It’s important that you diversify your retirement account across different assets to ensure that you will be able to weather unavoidable economic and market volatility. You should also be investing appropriately for your age group (e.g., if you are younger make sure you aren’t investing too conservatively or your money won’t grow). This could mean investing more heavily into stocks (through a stock ETF or mutual fund) at an earlier age.
Investment accounts like Betterment can help you diversify while investing appropriately for your age group. If you have a retirement account with your employer, it could be held at an investment account such as Fidelity which can also offer you mutual funds that have target retirement dates or different investment options.
Growing your money will take time, so make sure to be patient to reap the benefits over the long term. That power of compounding interest starts out slow but can quickly snowball into large amounts - the bigger the balance, the bigger the effect of your compound interest. For example, a $5,000 contribution to a 401K could get a 6% return or $5,300 by the end of the year. However, a 6% return on $200,000 in 15 years could get you to $216,000 by the end of the year.
Also make sure that you are kind to yourself and don’t beat yourself up if you can’t contribute the right amount each month or by the time you are 30 or 40. Life doesn’t always fit into an exact equation and formula, and there will be ups and downs. No matter when you start, you can still be on your way to building a future nest egg.
By following these 5 key steps you can be on your way to joining the 401K millionaires club. The most important thing is that you take the first step and realize that it’s not impossible.