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How to Become a Millionaire-Investment Advice for 30 Year Olds

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5 Tips to Become a Millionaire

“You only have to do a very few things right in your life so long as you don’t do too many things wrong.” ~Warren Buffett (source; BrainyQuote.com)

Get the specific, actionable steps to become a millionaire if you are in your 30s. Use this financial advice for 30 somethings as a step-by-step guide for wealth building.

If you haven’t started investing for your future, don’t stress, now is the time to start understanding and implementing how to plan for retirement at 30.

How to Become a Millionaire - 5 Investment tips for millennials in their 30s

Investment Strategies for 30-year-olds – Backstory

My husband and I started out with financial challenges. In our first year of marriage, I quit my job to get a graduate degree. Despite living on one income, we managed to save. The next year, I went to work and my husband began his 4-year graduate studies at a private university with sky-high tuition costs. Fortunately, before going back to school we built up our savings accounts.

When we had our daughter, I quit work to become a full-time Mom. In fact, we lived on one income for much of the time that our daughter was growing up. Throughout our daughter’s formative years, despite living on one income for much of the time, we aggressively saved and invested. Here are the best investment planning strategies that worked for us.

Read on for tips to become a millionaire for 30-year-olds – that work:

1. Max out your 401(k) to Become a Millionaire in Your 50’s

In 2017, the maximum allowable contribution amount into your 401(k) is $16,000, with an additional $6,000 allowed for those over age 50. This is a lot of money, yet, if you’re in the 25% Federal tax bracket, it’s as if you’re only contributing $12,000, a savings of $4,000.

Behavioral finance shows that if you have this money automatically withdrawn from your paycheck, after a short while, you won’t miss it. You learn to adjust your spending to your available income.  

Here’s how it works:

Thirty-two-year-old Dylan earns $85,000 and contributes $16,000, into his 401(k) account. The first benefit is that instead of paying tax on $85,000, he pays tax on $69,000 ($85,000 – $16,000). Since he’s in the 25% marginal tax bracket, this saves him 25% of $16,000 or $4,000 immediately.

Assume that Dylan’s investments within the 401(k) account grow at a conservative 6% annually.

In 21 years, at age 53, Dylan’s retirement account is worth $1,000,000.

Now, let’s switch up the assumptions. If $16,000 per year is too much to handle, reduce the investment amount to $12,000 per year, which is equivalent a reduction of $9,000 after-taxes. With the $12,000 per year 401(k) contribution, Dylan becomes a millionaire in 23.8 years or a few months shy of age 56.

2. Best Investment Strategy for 30-Year-Olds is to Slash Fees

One reason that low fee index fund investing is so popular is that more of your money is working for you instead of going into the fund manager’s pockets. Whenever you make a financial investment, whether in your 401(k), IRA, Roth IRA or investment account, look at the fees.

Vanguard shows how fees eat up your investment returns. Assume you have a $10,000 investment that earns an average 6% per year. Here’s how various fee amounts will impact your account value 25 years later:

Value of $10,000, Invested at 6.00% Annually After 25 Years

Initial Investment Value

Average Annual Management Fee

Value of $10,000 after 25 years

Amount Paid in Fees

$10,000

0.14%

$94,623

$3,724

$10,000

0.75%

$79,886

$18,461

$10,000

1.25%

$69,422

$28,925

Source; Vanguard

Be assertive and ask your financial advisor the fees charged for your mutual or exchange traded funds. If you’re investing on your own, look at the fund information sheet and check out the average fees.

3. Maximize Returns by Investing in Low Fee Index Funds

Index funds are baskets of stocks or bonds that match a pre-determined index of securities. Some total market indexes mirror the entire U.S. stock market. Others focus on the S&P 500 or small capitalization stocks. There are scores of index funds from which to choose.

Yet, you don’t need to get too fancy when choosing a couple of index funds. To make your choice easy, check out “What Are Index Funds and Asset Classes Investing?” for a handy list of low fee funds.

There are scores of low fee index funds available with Schwab leading the low-fee brigade, at present. Both Vanguard and Schwab offer two index mutual funds that span the total U.S. stock market.

  • The Vanguard Total Stock Market Index Fund (VTSMX) charges a rock-bottom of 0.15%.
  • Schwab’s Total Stock Market Index Fund (SWTSX) hits it out of the park with an operating expense ratio of 0.03%.

Before choosing investments in your brokerage or 401(k) account, be sure to look at the fees.

Bonus; My Best Lazy Portfolio

4. Become a Millionaire With Behavioral Finance Tricks

Just like losing weight, or learning a new skill, saving for retirement at 30 begins with your behavior today. Don’t let your friends, the media, new gadgets or exotic vacations derail you. If this financial path is important to you, here is another step in a wealth-building plan that works.

Think of it this way, you can live like you’re rich today or you can become rich tomorrow. It’s your choice.

If you overspend on the largest expenses – housing, transportation and food – it’s difficult to succeed financially. Fortunately, there are many ways to live well and economically, but you need to train yourself to change!

Thaler and Sustein discuss ways to structure your life and guide you to make the best life choices in their book, Nudge. For example, if you’re watching your weight and you don’t keep treat foods in your house, then it’s easier to resist that bowl of ice cream or chips. The same strategies work in personal finance.

Choose to become a millionaire and then set the path, without veering off into extravagances.

First, decide to life with less. Then choose from these lifestyle tips to slash expenses:

  • Choose to live in a lower cost of living area. We chose to raise our child in the midwest versus in California to slash our living expenses.
  • Live in a smaller home or apartment. My grandmother, grandfather and mom lived in a two-bedroom apartment. In fact, homes used to be much smaller than they are today.
  • Drive an economical car and keep it for a decade or more.
  • Say no to your kids. They can live well without baskets of toys and excess clothing.
  • Plan your meals to include affordable choices and batch cook at home.

By making these fundamental choices on the big expenses, it’s likely that you’ll live within your means and meet your financial goals. For more wealth building and investing tips check out my book, Invest and Beat the Pros.

5. Slash Debt to Become a Millionaire

In the same way that saving and investing positively compounds your money, debt works the opposite way. If you’re paying 10% interest on your debt and earning a 6% return on your investing, then you’re losing 4% by not paying off the debt.

When you finance an expense, not only are you paying the initial cost, but hundreds or thousands more dollars in interest payments. Dedicate yourself to finding ways to eliminate your debt as quickly as possible. Whether you consolidate student loans or cut up your credit cards and go to an all cash system, getting rid of debt will immediately increase your chances of becoming a millionaire.  No matter how much you earn, save and invest, if you’re carrying debt (except your mortgage debt), you’re sabotaging your chance to maximize your financial future.

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