How Much To Invest Each Month To Become A Millionaire If You're 30

How Much To Invest Each Month To Become A Millionaire If You're 30

How much money do I need to start investing?

Fortunately, you don’t need much money to get started investing.

In fact, many of the best investment apps have no minimum investment at all. You can literally get started with as little as $5!

Some investments, like mutual funds, have a higher minimum investment (often $1,000 or more). Fortunately, exchange traded funds (ETFs) typically have no minimum.

If you want to invest in individual stocks, it’s wise to invest in several different stocks to help diversify your portfolio. For this reason, it’s best to have a bit more money available to invest before you start buying shares of individual companies.

Investing regularly is the most powerful strategy — regardless of how much you get started with. The power of investing really kicks in when you invest regularly. Even if you can only afford to invest $50 or $100 right now, that’s a perfect start.

Simply open a brokerage account with a brokerage firm, invest what you can afford, and set up an automatic investment every month.

Video

What Investing Does

Investing lets you take money you’re not spending and put it to work for you. Money you invest in stocks and bonds can help companies or governments grow, and in the meantime it will earn you compound interest. With time, compound interest takes modest savings and turns them into serious nest eggs. So long as you avoid some investing mistakes.

You don’t necessarily have to research individual companies and buy and sell stocks on your own to become an investor. In fact, research shows this approach is unlikely to earn you consistent returns. The average investor who doesn’t have a lot of time to devote to financial management can probably get away with a few low-fee index funds.

How long will it take?

The chart below shows how long it will take you to amass 25 times your income based upon the percentage of your income you save. (We assume a 5% average annual return to account for a more aggressive asset allocation while you’re saving.)

% of Income SavedTime Required To Save 25x Annual Income
1%100 years
2%86 years
5%67 years
10%54 years
15%46 years
20%41 years
25%37 years
50%26 years
75%21 years
90%19 years

As you can see, by saving 20% of your income you’ll hit 25 times your annual income in just over 40 years. That means a 30-year-old who starts saving today (assuming no prior savings) will hit this target by 71. If you save less than 20%, it will simply take too long for your money to grow to a point where it will allow you to live off just interest.

It’s not that scary, we promise!

Remember that you only need 25 times your annual expenses, not your income, to become financially independent. The lower you keep your expenses, the sooner you’ll achieve your personal savings goal. Also, our savings chart doesn’t take taxes into account.

Tax-advantaged accounts can help

For simplicity, our chart looks at before-tax money going in, assuming that you’ll pay taxes on the money coming out. But tax-sheltered retirement accounts like 401(k)s and IRAs change that equation for the better.

If you take advantage of these accounts, you can get away with saving 20% of your net, or after tax, income.

If you qualify for a Roth IRA, use it! Money you contribute to a Roth IRA now comes back to you tax-free when you’re older, so the more you save in a Roth, the less you’ll need to save in total because you won’t have to pay taxes on the Roth withdrawals in retirement.

Contributions to a 401(k) will also help ease the pain of reaching a 20% savings rate, according to a TIAA-CREF blog focused on Millennials.

TIAA-CREF assumes you can take advantage of at least a 5% match from your employer when you put money into a 401(k). This means you’ll really only need to save 15% of your paycheck.

Plus, if you are putting money into a 401(k), this money will be deducted from your paycheck before taxes which means that each dollar you deduct will save you some after-tax cash.

Years to Accumulate

The last factor to consider is your investment time frame. Consider the number of years you expect will elapse before you tap into your investments. The longer you have to invest, the more time you have to take advantage of the power of compound interest. That’s why it’s so important to start investing at the beginning of your career, rather than waiting until you’re older. You may think of investing as something only old, rich people do, but it’s not. Remember that most mutual funds have a minimum initial investment of just $1,000?

2. Emergencies

You should also consider establishing an "emergency fund" that can cover 3-9 months of your living expenses.

How can you save such a large sum? First, calculate your monthly cost-of-living. Assume that if you lose your job, you’ll sacrifice luxuries such as pedicures or your premium cable TV package. How much do you need to survive?

Divide that number in half. Can you save this monthly? If so, you’ll build a six-month emergency fund within the next year.

3 Steps To Take Before Investing Your Money

When determining how much money you should save every month, there are a few key steps you should take before making investments:  

Write Down Your Financial goals

Start with your financial goals. Write down what you want to accomplish. Are you saving for a lifelong nest egg, to start a business, trying to reach a million dollars or building an emergency savings? Knowing these numbers will help determine the amount you want to save each month in addition to what you can invest.

Calculate Your Monthly Expenses

The other key point is how much money you have for investing after you pay your bills. The first step on the road to investing is being able to pay all your monthly bills on time and having money left over at the end of each month. Once you reach that point, then you have the funds to create an investing strategy you can stick to.

Learn How To Invest

Lastly, learn how to invest. It doesn’t matter how much you invest, if you aren’t doing it wisely, you may be throwing money to the wind. Educate yourself on the terms, how to read the financial news and learn what your investing personality is – risky versus conservative.

2. You end each month with extra money

Your emergency fund is looking good. You pay all the bills and any high-interest debt. You have enough to cover your expenses. Still some left over? It doesn’t have to be a lot. Investing is all about starting small and growing those dollars over time (more on that below). The key is to stick with it so the money invested can work for you.

Having trouble balancing your budget? Read “3 steps to allocate a paycheck when you want to get ahead with your money.”

Choosing the right investments

There’s no one-size-fits-all approach when it comes to choosing investments, as each individual will have unique preferences and tolerance for risk. However, one type of investment that could be well-suited to many investors is the S&P 500 exchange-traded fund (ETF).

An S&P 500 ETF is a fund that tracks the S&P 500 index itself, so it includes the same stocks as the index and aims to mirror its long-term performance. All 500 companies within the fund are some of the largest and strongest corporations in the U.S., including big names like Apple, Amazon, and Microsoft.

In addition, because this fund only includes corporations that are behemoths, it’s more likely to survive stock market volatility. While it will still experience short-term dips, the S&P 500 has a decades-long history of recovering from even the worst crashes. While there are never any guarantees in investing, it’s very likely an S&P 500 ETF will recover from future downturns, as well.

Motley Fool Returns

Market-beating stocks from our award-winning servi

Market-beating stocks from our award-winning service.

Stock Advisor Returns
396%
396%

S&P 500 Returns 129%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 04/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Join Stock Advisor

Cumulative Growth of a $10,000 Investment in Stock Advisor Calculated by Time-Weighted Return since 2002. Volatility profiles based on trailing-three-year calculations of the standard deviation of service investment returns.

Invest in Rental Properties

Buying rental properties is a popular real estate investment strategy used to generate passive income.

For rental properties, the rate of return will depend on your specific area, vacancy rate, whether you are taking out a mortgage to buy the property, and many other factors. In general, most real estate experts agree that the expected yearly return in rent will be around 10% of the property’s value in the USA.

We then have to take into consideration maintenance costs, so let’s assume that apart from the maintenance costs, you make a yearly net profit of 8%.

In this case, you’ll need to invest roughly $450,000 in a few properties to make $3,000 a month. Here’s how we calculated this number:

  • If we want $3,000 a month, then we want $36,000 per year ($3,000 x 12 months).
  • If we invest $450,000 in rental properties that generate 8% annual returns, then we can get that $36,000 per year (8% of $450,000 is $36,000).

On top of the rent that you’ll be collecting each month, your properties could continue to appreciate in value, so if you decide to sell them in the future, you would also make a profit on the sale.

Alternatively, you could buy properties with mortgages, paying less upfront. That means you also generate less profit, as you have to pay for your mortgages. The upside here is that someone else is paying your mortgage for you – your tenant. A good strategy to consider in this case would be house hacking – investing in a larger property, keeping one part of it for yourself to live in, and renting out the remaining space.

Why 20%?

According to our analysis, assuming you’re in your 20s or 30s and can earn an average investment return of 5% a year, you’ll need to save about 20% of your income to have a shot at achieving financial independence before you’re too old to enjoy it.

Here’s the thing: if you want to work like a dog every day until you die, maybe you don’t need to save all that much. Sure, you’ll still want an occasional vacation and something in an emergency fund in case your car coughs up a radiator.

Beyond that, however, we save so that one day we no longer have to work for the money. For most of us, that day won’t come for many decades, but there are regular working people who reach it as young as 40 or even 35.

Read more: Financial Independence In Your 30s: How Realistic Is It?

What If I Have Debt?

Begin to eliminate debt before you invest heavily. Many people want to invest before they are ready. If you have debt and want to pay it off while investing, start with contributing a small percentage in your 401(k) or other company retirement account as mentioned above. Do not try to max it out until you have paid off more of your debt. Investing is part of your overall financial strategy, a piece of the pie.

For Example: Rob has $30,000 in total debt and no 401(k). He has $350 left over monthly after paying bills. He should focus on using that surplus on paying down his debt but could also put 3-5% of his income in his employer’s retirement account. He can set a goal to increase the amount once he has paid off half the debt ($15,000) and max out his contribution when it’s paid off. He can also consider mutual funds or other investing each month now that he has more disposable income.

Many of the barriers to investing have been long gone with the elimination of account minimums and development of easy, online brokerage accounts. You can invest at any income level from the comfort of your home. The amount is really determined by your financial goals. Don’t be intimidated by the terminology, educate yourself little by little and ensure your personal finances are in order so you can build wealth strategically with investing.

For more articles on saving money and building wealth, visit our personal finance and credit resource centers.

Paula Pant

Paula Pant is a personal finance journalist who has been featured on MSN Money, Bankrate, Marketplace Money, AARP Bulletin, and more.

TIAA has sponsored this post for information purposes only. Paula Pant is not affiliated with TIAA, and TIAA makes no representations regarding the accuracy or completeness of any information on this post or otherwise made available by her. Ms. Pant’s statements are solely her own and are not endorsed or recommended by TIAA.

Create a Spending Plan

The mistake many people make when creating a personal spending plan is they determine their savings amounts around their monthly expenses, which means they save what they have leftover after expenses.

This invariably results in a sporadic investing plan, which could mean no money is available for investing when expenses run high in a particular month. People who are intent on achieving their goals reverse the process and determine their monthly expenses around their savings goals. If your savings goal is $500, this amount becomes your first expenditure.

It is especially easy to do if you set up an automatic deduction from your paycheck for a qualified retirement plan. This forces you to manage your expenses on $500 less each month.

Final thoughts

There are a variety of ways to potentially make $1K per month or more, depending on how much risk an investor is willing to take as part of their portfolio. 

In addition to focusing on how much money per month an investment could generate, an investor may also wish to consider how much the asset could appreciate over time. For example, according to the Federal Reserve, the median sales price of houses sold in the U.S. has increased 81% over the last 10 years (Q3 2011 to Q3 2021). 

If home prices continue to appreciate at that rate, in just a few years an investor could pull money out of one rental property to buy a second one, potentially turning $1K per month into $2K per month or more. 

Tags

Leave a Reply

Your email address will not be published.