How to Become a Millionaire

So you want to become a millionaire? Here are a few ways, none of which involve calling an 800 number advertised on late night TV.

1. Save $15,000 a year in a 401(k) account (or an equivalent account, like the federal government's Thrift Savings Plan) for 26 years, and you will probably get there. We assume that your investments earn 7% a year. Since you're using a retirement account, your investment earnings will automatically compound. You should invest the account assets in a diversified mix of mostly stocks and some bonds (roughly 60% stocks and 40% bonds). Investing in a lifecycle or target date mutual fund would be a convenient way to get a diversified mix of assets. We also assume that you don't make any withdrawals or take any loans from the 401(k) account. (That way, your investment earnings will compound without interruption.)

If you want the inflation adjusted equivalent of $1 million, increase the amount you save each year by the rate of inflation. You'll probably be able to do this since incomes for most people tend to keep approximate pace with inflation over the long run. Even if your income doesn't always increase as much as the inflation rate, make sure your savings keep pace. Maybe you'll lose a little lifestyle, but you'll get better quality of sleep.

2. Save $10,000 a year in a 401(k) or equivalent account for 31 years. This is based on the same assumptions. Increase your savings annually by the inflation rate to maintain your buying power.

3. Save $7,500 a year in a 401(k) or equivalent account for 35 years. This is based on the same assumptions. Increase your savings annually by the inflation rate to maintain your buying power.

4. Save $5,000 a year in a 401(k) or equivalent account for 40 years. This is based on the same assumptions. Increase your savings annually by the inflation rate to maintain your buying power.

None of these methods will make you a millionaire quickly. But they don't require any special skills, an advanced degree, a bundle of stock options, or a winning lottery ticket. Anyone who is patient and saves steadily can get there. Most people who are well off accumulated their wealth bit by bit. It doesn't matter if you don't make a huge income. The tortoise wins this race, not the hare.

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