The 21st century produced billionaires who were barely in their 20s, but don’t let that lull you into thinking that accumulating $1 million by 40 is somehow an easy lift.
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“Becoming a millionaire by 40 is not impossible,” said Baruch Silvermann, CEO of The Smart Investor. “But it will require a lot of hard work, dedication and a lot of luck.”
That’s especially true if you don’t get going until you’re in your 30s. If you’re just getting serious about getting rich with middle age bearing down, you’ll have to dedicate nearly every waking moment to the task. But if you check the following tasks off your to-do list, you’ll at least have a fighting chance.
Decide Why You Want To Be Rich and Never Let Yourself Forget
Keith Donovan, startup advisor and founder of Startup Stumbles, has seen several 30-something entrepreneurs grow into 40-something millionaires.
Most dove headlong into a purpose-based mission and the money followed — but it followed only for those who continuously reasserted their reasons for pursuing financial success in the first place.
“I’d recommend taking a moment to reflect on your motivations for seeking financial prosperity and establishing attainable milestones,” Donovan said. “Grasping the heart of your driving force — your ‘why’ — serves as a compass to stay inspired and resolute, especially when confronted with trying circumstances. In my personal experience, a steadfast motivator has always been the yearning to forge a lasting legacy and cultivate a positive imprint on the world.”
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Invest Your Way to $1 Million
Investing is the most accessible path to wealth-building, and it will play a role in most people’s strategies. But for investing to be your whole strategy, you have to have several things working in your favor.
“To become a millionaire by 40, investing your money wisely and starting as early as possible is crucial,” Silvermann said. “Starting early, even before your 30s, gives you enough time to leverage the compounded power, and this can help you make even more money on top of your initial investment. Over time, this compounding effect can lead to huge growth in your investment portfolio and help you build wealth in the long run.”
Start With a Lot and Beat the Market
In reality, the decade between 30 and 40 is not enough time for the power of compounding to reach its potential — unless you’re really good and have a whole lot of cash saved up.
“It is worth mentioning that in order to be a millionaire by 40 by investing, you’ll need either a high amount when you start — at least $250,000 — or, alternatively, make a phenomenal yield on your money if you start with a lower amount,” Silvermann said.
If you started with $250,000 at age 30, you’d need to earn 15% annualized returns to amass seven figures by 40, neither of which comes easy.
Invest a Lot Every Month With Typical Returns
If you don’t have a massive seed investment and the skill to beat the market, the alternative is to match the market with a hefty monthly contribution.
“The most straightforward way to become a millionaire by your 40th birthday is investing about $5,500 monthly starting at age 30,” said Laura Adams, MBA, an award-winning personal finance author and expert with Finder.com. “If your investments receive an average 8% return over the decade, you’ll have $1 million.”
Change Careers With Money as Your Motivator
The best way to come up with $5,500 to invest every month is to earn a high salary. According to Indeed.com, all 13 of the highest-paying jobs are in medicine, which is not a field you can just jump into in your 30s. But others — like several in software, IT, marketing and finance — are more attainable and still pay well into the six figures.
If you have the skills and background to pivot to a high-income field that you might not love, a big salary can be more valuable than a good stock portfolio or even your own business.
“Your earning potential is your greatest asset,” said Christopher Stroup, certified financial planner for Abacus Wealth Partners. “If you can level up to a higher paying job or establish a side hustle to bring in more income, the additional savings can go a long way towards reaching millionaire status by 40.”
Generate Passive Income — And Reinvest It
A passive income stream could pave the path to seven-figure wealth by 40 — but only if it’s the kind of income you don’t spend.
“Another aspect of investing is to create a passive income stream — stocks that pay dividends, rental properties or bonds are great examples,” Silvermann said. “By accumulating and reinvesting this passive income, you can significantly increase your wealth over time.”
Portfolio manager Ben Carlson, CFA, used his A Wealth of Common Sense blog to illustrate the power of reinvesting passive income.
In the 95 years since 1928, the stock market has returned annualized gains of 5.8%, but if you factor in reinvested dividends, that number jumps to 9.9%. That sounds like an increase of 70%, but thanks to compounding, the difference is much greater.
The market had to gain 21,500% over 95 years for 5.8% annualized returns, but it took 750,000% gains to achieve 9.9% annualized returns. That’s 35 times more with dividend reinvestment than without. A $1 investment in 1928 would have been $216 at the end of 2022. With dividends reinvested, that same dollar would have become $7,500.
Start (or Buy) a Business
While investing in stocks and other traditional securities probably won’t generate sufficient returns for most investors to make $1 million in a decade or less, entrepreneurialism might.
“Starting your own business or exploring entrepreneurial endeavors gives you more control over your income potential,” Silvermann said. “As an entrepreneur, you have the freedom to create and expand your own business, which opens up unlimited possibilities for earning money. As an entrepreneur, you are not limited by the salary that someone else is willing to pay you. You can earn as much as your business can generate. Unlike a fixed salary in a traditional job, successful entrepreneurs can accumulate significant wealth by leveraging various resources to grow their businesses.”
If you don’t have the time, inclination or ideas needed to start a business, platforms like Flippa let you purchase income-generating companies, websites, blogs, e-commerce sites and apps that are already successful, established and bearing fruit.
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This article originally appeared on GOBankingRates.com: 5 Things To Do in Your 30s To Become a Millionaire by 40
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
