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It's okay to start saving late
Naturally it's best to start saving when you're young. As an example of this, if you start saving $5000 a year at age 25 you would have $1 million by the time you reach 65. However, you could start saving when you’re 50. Of course, you will have to save a lot more every year. As you may know, beginning at age 50 you can start setting aside $23,000 a year in your 401(k) instead of the normal $17,500. But don’t stop at this. If you're 55 or older you can also sock away $4300 pretax into a Health Savings Account towards your medical costs. This can turn into $1 million very quickly in retirement as you could invest the money and then spend it tax free for qualified health costs. As an example of this, if you and your partner contribute the $7550 max annually to a Health Savings Account starting at age 55 you would have $112,000 saved by 65 and would be more than halfway towards the $220,000 an average couple spends on health care in retirement. If you spend that on medical bills when you're older, you would avoid having to take money out of your 401(k) that much longer and this will help you stay on your $1 million goal.
Remember the tortoise and the hare
You've undoubtedly heard the Aesop’s fable about the tortoise and the hare. It's when a hare challenges a tortoise to a race. The hare takes off like it had been shot out of a cannon and soon leaves the tortoise behind. However, the hare becomes so confident of winning that it stops and takes a nap midway through the race. When the hare wakes up, it sees that the tortoise, which has been crawling slowly but steadily, has reached the finish line. What this translates into if you’re working to become a millionaire is that the best way to reach your goal is by saving money and investing slowly and steadily, rather than trying for that "big idea" that will yield a fast payoff.
Be an "average" investor
While some experts will say that you have to be a great investor in order to reach that million-dollar goal, this is not necessarily the case. A better answer is to invest in what are called value stocks. If you're not familiar with value shocks they are the shares of overlooked companies that are trading at a discount. These stocks not only beat the shares of fast-growth companies by about 1.4 percentage points a year over the long run but also outperform them in 73% of the rolling 10-year periods since the year 1979. If you buy a total stock market fund you'll be evenly split between value and growth. When you get new money to invest, add funds like the Vanguard Windsor II until value gets to around the 60% to 65% of your equities.
If you'd like to learn more about value investing and value stocks, watch this video courtesy of National Debt Relief ..
Have a few rental properties
It's not necessary to be a full-time landlord to reach that $1 million goal. You can do it with just a few rental properties. If you begin with a single rental now and add two or more as you can, you will boost your net worth by seven figures in just a bit over 20 years. Plus, you will not only enjoy rental income, you will also get increased equity. The rule to remember is to make your profit when you buy but then realize it when you sell. Make sure the rent you get from any property you buy will exceed your mortgage, taxes, insurance and maintenance. You also need to realize that you will have a vacant month every year or two. If you hire a property manager, this will eat up 5% to 10% of the rent. Buy multiple properties that are near each other or buy a multifamily unit to increase your return. You would then be able to use a single maintenance team or property manager, which would cost less than hiring someone for each house. The expenses on duplexes and triplexes can be 10% to 15% less than if you had two or three single-family residences. It's also a good idea to buy locally because that puts you in a better position to help with repairs or spot changes in the market. If you can pay cash for those properties you would be a stronger buyer. But if like many people you must borrow the money, get a mortgage rather than tapping into the equity in your home.
Build a business
If you sweat the small details, owning even a boring business can make you rich. The fact is that about 25% of all millionaires run their own firms. Most of them say that the secret of their success was not the fact that they had a big idea. The majority of seven-figure businesses are pretty run-of-the-mill. The secret is in managing your other Cs – credit, cash flow, customers and inCorporation. If you handle these correctly this will help you save as much as you can while you're running the company and make your enterprise more appealing to potential buyers when it comes time to sell. Experts say that it may also be better to set up the company as an S corp, rather than a C corp. If you choose for your business to be an S corp and end up selling the business for $1 million, the money would pass through to shareholders and be taxed as ordinary income. If you're in the highest tax bracket you would pay $466,000 in taxes but this would be a savings of $118,800 vs. the taxes you’d pay if the company were a C corp.
Get a significant boost in your income
If you're an employee and not a business owner, you've probably seen how hard it is to get a big raise or promotion these days. What probably seeing instead is an increase in your income of just 2% to 3% a year. While this is okay, it's the big career boost that can help you get to that $1 million. As an example of this, if you earn $100,000 and can get a 15% jump in your paycheck, this will keep paying off even if you then go back to the annual 2% or 3% cost-of-living raise. Bank the extra money every year and in 10 years you’ll have another $200,000 saved. What can you do if the prospects for getting this kind of a boost in your income are not great? Then aim for a lateral move into another department that generates revenues. Staff roles in some companies are held to a lower cap than those closer to the customers. The fact is the closer you are to sales and marketing, the better are the chances that you can earn that turbo boost in your salary. Failing that a recent study showed that hiring is up and 25% of all companies are looking to add executives in the next six months so your best move might be to a new employer.
There are a lot of myths attached to the idea of becoming a millionaire before you retire. But the six tips you have just read are not myths. They are the keys to retiring with $1 million to have a happy and stress free life after work.