“How Much Do I Need to Invest to be a Millionaire in 5 Years?” This was the question I set out answer when I first started to invest. It took me 6 years of investing, starting with $5,000 initially, to get to $1M in investments. Along this journey I noticed that all the financial advisors existing online used slightly different formulas for their millionaire calculators (spoiler alert, all the formulas are wrong/misleading).
How much money do you need to invest to be a millionaire in 5 years? This is one of the most common questions I am asked by people after they read my book. After helping thousands of people, I have recently decided to answer this question more specifically on the blog.
Becoming a millionaire in five years is an extremely aggressive goal, but it could happen. Although hitting a home run with an investment is what dreams are made of, the most realistic path is to put aside big chunks of money every year. The historical average return for the S&P 500 index is 8%. With that return, you’d have to invest $157,830 each year for five years in order to reach $1 million.
| Account balance | Cumulative amount invested | Earnings per year | Total earnings | |
| Starting balance | $157,830 | |||
| After one year | $170,456 | $157,830 | $12,626 | $12,626 |
| After two years | $354,549 | $315,660 | $26,263 | $38,889 |
| After three years | $553,370 | $473,490 | $40,991 | $79,880 |
| After four years | $768,096 | $631,320 | $56,896 | $136,776 |
| After five years | $1,000,000 | $789,150 | $74,074 | $210,850 |
Obviously investing almost $160,000 each year is not much of an option for the average American household, which makes $78,500 before taxes and living expenses. High-income earners are the most likely people to be able to invest this much on a regular basis. Their professions might include doctors, business owners, and corporate executives.
Just because you may not have a job making this much money doesn’t mean you can’t achieve the goal of having $1 million in five years. There are other ways to make a lot of money:
- Become a real estate investor. Start with wholesale real estate to make quick money, then start buying your own properties to either rent or flip.
- Start your own business. Business ownership can be risky, but the rewards can also be massive. There are a lot of small businesses you can start for $1,000 or less.
- Work for a startup. Companies that are just starting out often give shares of stock to early employees instead of large salaries. If that company goes public or gets bought, your shares could be worth a lot of money.
How to become a millionaire in 10 years
Becoming a millionaire in 10 years is much easier than doing it in five, but it still takes sacrifice and dedication to make it happen. With an 8% average annual return, you’d need to invest $63,916 each year for 10 years to reach your millionaire goal:
| Account balance | Cumulative amount invested | Earnings per year | Total earnings | |
| Starting balance | $63,916 | |||
| After one year | $69,029 | $63,916 | $5,113 | $5,113 |
| After two years | $143,581 | $127,832 | $10,636 | $15,749 |
| After three years | $224,097 | $191,749 | $16,600 | $32,349 |
| After four years | $311,055 | $255,665 | $23,041 | $55,390 |
| After five years | $404,968 | $319,581 | $29,998 | $85,387 |
| After six years | $506,395 | $383,497 | $37,511 | $122,898 |
| After seven years | $615,937 | $447,413 | $45,625 | $168,523 |
| After eight years | $734,241 | $511,330 | $54,388 | $222,911 |
| After nine years | $862,010 | $575,246 | $63,853 | $286,764 |
| After ten years | $1,000,000 | $639,162 | $74,074 | $360,838 |
It would be hard for most households to put aside approximately $64,000 each year. The majority of people would need to supplement their income with a side hustle to contribute that much to their investments.
People in the FIRE movement (financial independence, retire early) set lofty savings goals in their pursuit of financial freedom. Some families choose to save one spouse’s entire income and live off the other paycheck, and others focus on saving 50% of their household income.
Assume you’re an average family making a combined $78,500. If you’re able to save half of that income, you’re putting away a little over $39,000 each year. To reach the target of roughly $64,000 per year, you’d need to earn an additional $25,000 after taxes. For a monthly goal, that’s about $2,000 each month.
Earning $2,000 a month from side hustles is something a lot of people could do. Potential side hustles that could earn you that extra money include:
- Driving for Uber Eats or Lyft
- Making deliveries for Postmates or GrubHub
- Freelance writing
- Private tutoring
- Teaching community college classes
- Handyman work
- Selling on Etsy or eBay
- Wholesaling real estate
How to become a millionaire in 15 years
To become a millionaire in 15 years, you’ll need to put aside $34,101 per year for 15 years while earning an average return of 8%. That means reaching millionaire status in 15 years is something most of us could do through maxing out our retirement savings by hitting the annual 401(k) contribution limits and IRA contribution limits.
A single person under 50 years old can contribute a combined $25,500 per year by putting $19,500 into a 401(k) and $6,000 into a Roth IRA. If you’re 50 or older, catch-up contributions can add another $6,000 and $1,000, respectively, for a total retirement contribution of $32,500 per year.
| Under 50 | 50 and over | |
| 401(k) | $19,500 | $19,500 |
| 401(k) Catch-up | $0 | $6,000 |
| IRA | $6,000 | $6,000 |
| IRA Catch-up | $0 | $1,000 |
| Maximum Yearly Retirement Contributions | $25,500 | $32,500 |
Couples can contribute double these amounts because each person can contribute these maximums to their own personal accounts. For spouses who don’t work or have very little income, they can contribute the full amount to an IRA through what is known as a Spousal IRA.
If your company offers a matching contribution to your 401(k), you could be saving even more. If you made a salary of $60,000 per year and your employer offers a match of 3%, that’s another $1,800 per year toward your investment goals that you could take advantage of.
But let’s assume you’re single, under the age of 50, and your company does not offer a matching contribution. You can invest a total of $25,500 per year into your retirement account. In this scenario, you’ll need to invest another $8,600 per year into a taxable brokerage account to reach your million-dollar goals.
| Account balance | Cumulative amount invested | Earnings per year | Total earnings | |
| Starting balance | $34,101 | |||
| After one year | $36,830 | $34,101 | $2,728 | $2,728 |
| After two years | $76,605 | $68,203 | $5,674 | $8,403 |
| After three years | $119,563 | $102,304 | $8,857 | $17,259 |
| After four years | $165,958 | $136,406 | $12,293 | $29,552 |
| After five years | $216,064 | $170,507 | $16,005 | $45,557 |
| After six years | $270,179 | $204,609 | $20,013 | $65,570 |
| After seven years | $328,623 | $238,710 | $24,342 | $89,913 |
| After eight years | $391,742 | $272,811 | $29,018 | $118,931 |
| After nine years | $459,911 | $306,913 | $34,067 | $152,998 |
| After 10 years | $533,534 | $341,014 | $39,521 | $192,519 |
| After 11 years | $613,046 | $375,116 | $45,411 | $237,930 |
| After 12 years | $698,919 | $409,217 | $51,772 | $289,702 |
| After 13 years | $791,662 | $443,319 | $58,642 | $348,343 |
| After 14 years | $891,824 | $477,420 | $66,061 | $414,404 |
| After 15 years | $1,000,000 | $511,521 | $74,074 | $488,479 |
If your income doesn’t allow you to max out your retirement plans, look for promotion opportunities within your company, consider switching jobs, or start a side hustle. Also, take a deep look at where you’re spending your money. You might be able to reduce your expenses to find extra cash to invest in your future. With a time frame of 15 years, anyone can reach the millionaire goal with a little focus and effort.
5 steps to becoming a millionaire
Get paid what you’re worth
“The number one thing that will dictate your future earning potential and get you to $1 million the fastest is how much money you are being paid today,” Grant writes. “Unfortunately, you probably aren’t being paid what you are worth.”
The simplest way to boost your earning potential is to ask for a raise. Grant recommends looking at the salary range for someone with your level of experience in your industry, which will help you understand what you’re worth.
Then take that information to your boss and emphasize what you bring to the company. Remember, “it doesn’t hurt to ask,” he tells CNBC. “A lot of people are ultimately afraid that people are going to say no, and so they undervalue themselves and they undervalue their services.”
Develop multiple streams of income
After you’ve maximized your earning potential and are saving a good chunk of your salary, focus on increasing your revenue streams, by finding a part-time job, starting a side hustle or establishing passive income.
“If your goal to build wealth you need to master the side hustle and make money other ways than just your full-time job,” Grant writes. “This can really be anything, including driving for Uber, consulting, or building websites on the side.”
Once you start making money from your side gig, invest 100% of the profits, says Grant: “Once you find a great side gig, you will be tempted to spend that money in your everyday life as your bank account grows — but I strongly recommend you think of your side hustle as a key to building wealth (over the long term) instead of just being rich today.”
Monitor your net worth
“I look at my net worth every day when I wake up in the morning and have my morning coffee,” Grant writes. “There are few greater motivations than seeing this number rise over time. No matter where you start from. I have been tracking my net worth for the past five years and my first balance was $2.26.”
He monitors his net worth using Mint.com, which allows you to link all of your financial accounts and displays your assets and liabilities. (Personal Capital does something similar.) Plus, it tracks your spending. “At the end of the each year I take a deeper dive into this data and track what I have spent the past year on everything so I can work to improve my spending,” he writes.
Invest in what you know
While Grant is a big believer in simple index fund investing, he allocates 20% of his investment capital towards individual companies like Apple, Amazon and Google.
If you’re going to invest in individual companies, go with what’s familiar, he says: “Look at the products you use and consume every day; then research the fundamentals of those companies so you can learn more about their investment potential.”
It’s a strategy that investing legend Warren Buffett lives by. The billionaire only invests in companies that are within his “circle of competence,” a concept he first described in his 1996 Shareholder Letter.
Simply put, stick to what you know. “Defining what your game is — where you’re going to have an edge — is enormously important,” Buffett says. Once you’ve done that, buy and hold.
Save a ton of money … and put it to work
“In order to build wealth you need to be making as much money as possible on your money,” Grant writes. “Because you can only make so much money at any career, investing is truly the key to wealth.”
During his five-year journey to seven figures, Grant saved 50% of his income. Today, despite his financial success, he still focuses on living simply and sets aside 40% to 50%.
The key, Grant says, is to make things automatic: “Talk to your HR company and have them start depositing at least 20% of your income directly into an investment account before you even see it. This is 20% of your income AFTER contributing to your 401(k). I have mine automatically deposited directly into my Vanguard investment account and the money then gets automatically invested into a mixture of index funds.”
Conclusion
Rome wasn’t built in a day and a millionaire isn’t made in a day either. Actual data from the US Census bureau has been used to determine how much you need to invest to be a millionaire at age 35. A great article for people who want to retire early.