One of the questions I get asked most as a financial adviser is, “Will I have enough for financial security?” It really is the million-dollar question!

Given the numerous factors at play, there isn’t a definitive answer. Nowadays, as many of us anticipate longer lives, at least one million dollars is the minimum needed for financial independence.

The basis for experts widely accepting this figure is simple: if you’ve got $1,000,000 earning you 5% (after fees), that’s $50,000 a year. It might not seem like a fortune to live on, but it’s a cornerstone of your financial freedom. Once your dream home is mortgage-free, your investments are thriving, and you’ve got an emergency fund sorted, that’s when financial bliss kicks in!

This may surprise quite a few people, and many might reckon that such a sum is only within reach by hitting the jackpot. However, rest assured, it is attainable. It requires the correct framework, strategy, and dedication… along with a touch of that enchanting thing called compounding. Compounding is so powerful that it has been described as the 8th wonder of the world!

Here’s an example of how you could potentially work towards a million dollars, starting with only $5,000. The larger your initial investment, the better, and the sooner you begin, the more time there is for the magic of compounding to work its wonders!

Begin with your focus. In this instance, it’s achieving your goal of one million dollars and becoming a millionaire.

Frequency – Regular deposits are a smart move, coming straight from your pay. Out of sight, out of mind. Getting your banking setup spot on is key here. Automate your accounts and watch your investment flourish, no need to stress!

Amount – It’s suggested to set aside at least 10% of your monthly net income. If that seems steep, begin with a smaller sum and gradually increase it. Each time you receive a pay rise, boost the amount. This way, it won’t feel like you’re giving up too much.

Rate – Select investments that match your risk profile (e.g., are you at ease as a ‘growth’ investor or leaning towards ‘moderate’?). Here, we aim to achieve a minimum of a 6-8% annual rate of return.

Risk (Volatility) – When it comes to risk, keep in mind that aiming for high returns usually goes hand in hand with high risk. Conversely, opting for lower risk typically leads to lower returns. So, while the journey may take a bit longer, it tends to be a smoother ride. Every individual has a unique risk tolerance shaped by factors like age, personality, and circumstances.

Type of investments – Begin with a high-interest savings account to kick things off, followed by managed funds once you’ve saved up the minimum investment. As your balance increases, we can explore other assets to diversify your investment risk. If you’re benefiting from the low tax on super, along with the superannuation guarantee, you might consider salary sacrificing to your super fund – just be mindful not to surpass the concessional contributions cap.

Age – Naturally, starting early is ideal. However, saving significantly while maintaining a positive cash flow is possible by earning more than you spend! To reach the millionaire milestone sooner, you’ll require a combination of increased contributions and/or higher returns.

Planning, for emergencies and life events. – It’s always wise to keep some money aside for unexpected financial bumps, like losing your job. But that doesn’t mean you can’t treat yourself to a new car or a holiday. As your financial planner, we’re here to guide you on how these choices affect your finances and how to prepare for them. Remember, enjoying life now is a key part of your savings and investment strategy.

Goal – The figures quoted here are based upon a $1 million target, however, depending on your lifestyle and expectations, you can revise that amount to suit your circumstances.

How long does it take to save $1 million?

Let’s kick off with a savings balance of $5,000. The table below provides insight into the amount you need to save and the interest rate required to reach that million-dollar milestone.

Naturally, the sooner you begin saving, the less you need to contribute monthly. You can boost your contribution as your earnings grow. Those who cleverly pay off a mortgage ahead of time can significantly speed up their saving journey by diverting the previous mortgage payments into savings.

And what about the money you get along the way? If you receive an inheritance of, let’s say, $100,000 (assuming an annual return of 6%), you could hit the $1 million mark in just 30 years by chipping in just $400 per month.

Regular investing is like developing a “saving muscle.” You get used to setting aside this money over time and can ramp up the amount just as you’d up your exercise routine. It soon becomes second nature, and the rewards can be massive down the line. Just as attaining a trim and healthy body, growing your saving muscle leads to a sound financial future.

And the best bit: once you’ve got this sorted, it’s on autopilot & you can get on with your life! We’ve got loads of members who’ve got this going, and it’s just the start 😊. When you throw in your home or a property, along with your pension funds into the mix (and ensure everything aligns with your plans), you’ll watch your wealth soar!

Becoming a millionaire might seem like a far-off dream, but with proper planning and action, you could find yourself in the Millionaires’ Club sooner than you think.

Note: Taxation and inflation have not been taken into account in these calculations. Calculation is based on achieving $1 million in today’s dollars.