A millionaire by the time you turn 40? It sounds unbelievable, right? But if you are in your early 20s, fresh out of college, starting a new job, and have the will to become a millionaire as soon as possible, you can make that happen before you turn 40. If you’re not in your early 20’s and want a million dollars by 40, you’ll need to save, earn and invest more, than if you started earlier. Becoming a millionaire by 40 is achievable, and here’s how.
Contents
- 9 Strategies to Help You Make Your First Million by 40
- 1. Start a 401(k) Early and Make Maximum Annual Contributions
- 2. If You’re Self Employed – Open a Solo 401(k) or SEP IRA
- 3. Buy Real Estate
- 4. Maximize Your Savings
- 5. Diversify Your Investments
- 6. Start a Side Hustle
- 7. Find a Higher Paying Job or Ask for a Raise
- 8. Live Modestly
- 9. Track Your Net Worth
- FAQ
- Related
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The first step in how to become a millionaire in your 40’s is mental. Set the goal, create a plan, decide the financial tradeoffs you’re willing to make, and you can be a millionaire at 40. You may have to give up certain experiences and possessions that many young people enjoy early in their lives.
You can train yourself to stay the course until you reach the goal.
The steps are clear – minimize your living expenses, maximize your savings, get a side hustle, and invest.
9 Strategies to Help You Make Your First Million by 40
1. Start a 401(k) Early and Make Maximum Annual Contributions
Begin investing in your 401(k) or 403(b) as soon as you land your first job. Contribute as much as possible to your retirement savings account. If your employer offers a matching contribution, make sure to contribute the maximum possible to receive the employer match. For 2024, the 401(k) contribution is $23,00 with an additional $7,500 if you’re older than age 50.
Let’s see how this strategy works to make you a millionaire by 40:
Sign up for the company 401(k) plan immediately after landing your first job. Max out your annual 401(k) contribution at $23,000. With an employer matching contribution of up to 5%, you can easily achieve $1 million by age 40.
Here’s an example of how to become a millionaire (almost) by age 40 if you start investing at age 23 and contribute the maximum amount every year.
These assumptions include an employer contribution of 5% or $1150 per year.
Assumptions:
- Contribute $23,000 plus $1,150 employer contribution per year starting at age 23. this equates to $2,012.50 per month for a total of 204 months or 17 years.
- Earn an average of 8.0% annual return – by investing in a diversified portfolio of stock and bond funds.
- You’ll have close to $1 million net worth by 40.
image/data credit: calculator.net/future-value-calculator
First step in the “how to become a millionaire by 40?” journey is to contribute the maximum amount of money allowed by law, to your 401k. We assume that your employer will contribute 5% as well. This gets you to roughly $900,000 by age 40. Read on for more “how do I become a millionaire?” strategies.
For a sophisticated, free retirement calculator, plus investment management tools, check out Empower. Link or manually input your financial data, test out various scenarios to calculate how to be a millionaire by 40.
2. If You’re Self Employed – Open a Solo 401(k) or SEP IRA
If you are self-employed, you won’t have an employer-sponsored retirement plan, but that should not stop you from being a millionaire by 40.
There are two retirement plans designed for self-employed individuals: Solo 401(k) and SEP IRA.
A solo 401(k) is a 401(k), but it’s designed for a single participant (spouse can be included). In this plan, you are both the employer and the employee, so you can make contributions as an employee and as an employer. Just like the employer-sponsored 401(k) plan, you can make the ’employee’ contribution of up to $23,000 for 2024. And an ’employer’ contribution can be up to 25% of your income. Contributing the maximum can surely propel you become a millionaire by 40.
The other option for a self-employed individual is SEP IRA. You can contribute up to 25% of your self-employment income to the plan
In most cases, the solo 401(k) is a better option to make a million quickly. You can also add an IRA to increase your total retirement contribution.
3. Buy Real Estate
One of the best ways to become a millionaire is through buying real estate. You can even buy real estate in a self-directed retirement account.
One of the best ways to become a millionaire by age 40 is through making 401(k) real estate investments. Real estate investing promises a high ROI with little risk.
You generally cannot invest directly in real estate through an employer’s 401(k) plan, unless there’s a real estate investment fund on the plan’s investment offerings. But youcanchoose to roll over your 401(k) account into Self-Directed 401(k)/Solo 401(k), Roth Solo 401(k), or Self-Directed IRAs and make 401(k) real estate investments.
You can even buy real estate like you purchase a stock through a REIT. A REIT is a type of investment that deploys your money into a wide range of real estate investments. Sample REITs:
- VGSIX-Vanguard U.S. REIT Index Mutual Fund
- VNQ-Vanguard U.S. REIT Index ETF
- RWR-SPDR Dow Jones Index REIT ETF
- VNQI-Vanguard Global ex-U.S. Global Real Estate ETF
- FGL-iShares Developed Real Estate (ex-U.S.) ETF International Fund.
- RWX- SPDR Dow Jones International Real Estateexchange-traded fund
There are also scores of sector REITs that invest in office buildings, storage units, university housing, nursing homes and more.
One of the newest ways to invest in real estate is through real estate crowdfunding. Like the name suggests, you’re able to partner with other investors to invest in large real estate projects of various types.
And of course there’s the old fashioned way of investing in real estate through buying real property. You can then rent the real estate out or fix it up and resell it.
We also like Groundfloor Investing, a platform where you can lend to others who are buying real estate and receive higher than average returns.
4. Maximize Your Savings
Most financial experts recommend saving 10% to 15% of your income towards your retirement. But, here we are not talking about retirement. We are talking about becoming a millionaire before turning 40 (25 years before a typical retirement age). We are talking about saving 30%, 40%, or 50% of your income. This can be painful.
Here’s how much you would need to save and invest each year from age 24 to age 40 if you want to get rich and reach a million.
Using the same 8.0% return assumption, you’d need to invest $28,180 per year to become a millionaire within 16 years.
That means, not only would you invest within your retirement account, but you would also need to invest in a traditional brokerage investment account or with a robo-advisor like Wealthfront (sign up bonus).
Let Wealthfront Manage Your Money – Get Sign Up Bonus
5. Diversify Your Investments
If you want to become a millionaire before 40, you need to keep adding to your savings and investing the money so that it grows. Since the financial markets fluctuate, it is wise not to keep all your eggs in the same basket, so that when one investment stumbles, you’ll have others to boost your returns.
The best way to build wealth while protecting your assets is to build a diversified investment portfolio. Put your money not only in stocks and real estate, consider different asset classes to balance the risk.
There are folks who invest in websites, mobile home parks, collectibles, currency, private equity and more. These might be riskier than typical stock, bond, and real estate investing.
Reinvest your investment dividends and profits back into the market and let the returns compound. This allows your money, to work for you. Actually, reinvesting your dividends is one of the few, truly passive income ideas.
Bonus: 10 Best Alternative Investments
6. Start a Side Hustle
One of the secrets of the wealthy are that they have multiple streams of income. That way, if one source of income dries up, you’ll have others to offset the loss.
There are many creative ways to make extra income. The gig-economy has made it very easy to pick up extra cash, on the side. Driving for Uber, Lyft, Door Dash and other sites is an easy way to make money on your own terms.
Task Rabbit, Etsy, and Fiverr allow you to sell your services on busy websites that match up sellers and buyers.
Then there’s the old fashioned way of selling by setting up a booth at a swap meet to sell baseball cards, crafts or water.
It’s also easy to advertise locally through Craigslist. There was a guy with a truck that picked up junk and transported it to the dump for big bucks.
The key with any side hustle, is to make sure that you save and invest the extra money.
7. Find a Higher Paying Job or Ask for a Raise
So many of you are afraid to ask for a raise. How to get a raise involves tracking your accomplishments and value add to the organization. Use that information, comparative salary statistics, and the promise of added initiative and detailed contribution to advocate for yourself. It’s not useful to claim that “you need a raise,” and best to stress what you bring to the organization that substantiates your value.
If asking for a raise doesn’t work, or if you’re ready for a change, seek out a higher paying job. Be prepared to document your accomplishments and skills. Stress what you can bring to a new employer. Don’t be afraid to negotiate for a higher salary, after an offer is made.
If you don’t ask for more money, it’s rare to receive it. The worst a prospective or current employer can say is “No.”
Don’t be afraid to ask for help. WiserAdvisor vets fee-only financial advisors and matches you with three in your area.
8. Live Modestly
It’s unrealistic to live large and save a lot simultaneously if you want to be a millionaire in your 40s. It doesn’t work.
The Millionaire Next Door details the stories of average men and women who have amassed a million dollars, while living a simple life.
If you want to amass a million dollars fast, you need to live well below your means. That means, making the conscious decision to live simply and forgo many of the luxuries and “perceived necessities” of today.
You may even wish to surround yourself with friends with a similar mindset. It makes it easier to become a millionaire by 40 if you’re in the company of others with similar goals.
9. Track Your Net Worth
Your net worth is the value of your investments, savings accounts, house, and other assets, less your liabilities or what you owe.
Why is it important to track your net worth? It allows you to track your progress. Tracking your net worth is also motivating. When you see that your wealth-creation strategies are working, you’re more likely to continue. Even when the financial markets suffer a periodic decline, you’ll be able to study your overall progress. This will help you stay on track with your goals.
The Empower free investment management tools are an easy way to track your net worth.
FAQ
What is the average age to make first million?
As you can imagine, this is a tough statistic to uncover. Yahoo reported that the Visual Capitalist found that the wealthiest people earned their first $1 million at age 36. Be aware that this is not a representative sample of all millionaires.
To make $1 million by age 40, you’ll need to delay gratification, a disciplined saving and investing plan, and likely your own business in addition to a typical job.
How to become a millionaire in a year?
Get really lucky. But, in the process of becoming lucky, you may take on too much risk and loose an excessive amount of money. Ways that people have become a millionaire in a year are to buy into a stock or cryptocurrency at the right time and experience a million dollars of capital appreciation. Very lucky and/or skilled day traders might become millionaires in a year. But it’s more likely that they will lose their initial investment, than it is that they will end up with $1 million.
In general, those seeking to become a millionaire in one year are looking for an easy way to wealth building, and that is very unrealistic.
How can I become a millionaire?
There is more than one way to become a millionaire. With the power of compounding, and regular investing, is not out of reach for most working people. Over 40 years, if you invest in the financial markets regularly and earn approximately 8% per year, you can become a millionaire with an annual $3,574 investment. Open an IRA at age 24 and contribute at least that amount every year in a diversified portfolio of stock and bond funds, and it’s likely that at age 64, you’ll be a millionaire. Other ways to become a millionaire faster are to invest more money, take on a side-hustle, cut expenses and divert the savings to an investment account, and invest in real estate.
How to become a millionaire in 5 years?
While not impossible, becoming a millionaire in 5 years requires earning a lot of money while saving and investing most of it! Here’s a viable path to becoming a millionaire in 5 years:
-Get a degree in a high paying field like cyber security or software development. Get a job paying $200,000 or so.
-Start a side hustle, consult and make more money.
-Eliminate all debt, cut expenses to the bone, and live on 25% of your income.
-Invest the rest in an aggressive stock market portfolio (and hope your timing is good!). Contribute to 401k and/or IRA.
-Consider investing in undervalued real estate, upgrading it and reselling it for a large profit.
Statistically, about a third of 1% of the population are millionaires by age 40. But if you want to be in that group, you have to be ready to commit time, effort and lots of money to reach the million-dollar mark. And it’s not going to be an easy journey.
Related
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- Become A Millionaire In One Step
- How To Save For Retirement At 30 And Become A Millionaire
Disclosure: Please note that this article may contain affiliate links whichmeansthat – at zero cost to you – I might earn a commission if you sign up or buy through theaffiliate link. That said, I never recommend anything I don’t believe is valuable.
Author Bio: Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning firm based in Goodyear, AZ. He has over three decades of experience working with investments and retirement planning, and over the last 10 years has turned his focus to self-directed accounts and alternative investments. Rick regularly posts helpful tips and articles on his blog at SD Retirement as well as Business.com, SAP, MoneyForLunch, Biggerpocket, SocialMediaToday and NuWireInvestor. If you need help and guidance with traditional or alternative investments, email him at [emailprotected].
