The First Million Dollars Is the Hardest ... But Not as Hard as You Think

First Million DollarsThere's an old saying about making money that "the first million is the hardest." That may seem pretty obvious, even to those of us who haven't reached millionaire status yet.

Eye-rolling aside, however, it's instructive to examine what it takes to reach that first seven-figure milestone using specific dollar amounts and investing returns. And it's really fascinating to see how quickly one can get to that second million-dollar mark.

Let's start with what you've got and see how far it can take you.

Everyone Plays by the Same Rules

There are three key tools at your disposal to help you build wealth. They are:
  • The cash you invest
  • The growth rate of the investments you own
  • The ability to reinvest the dividends that your investments generate
For that first tool to do you any good, you need to be willing and able to structure your life to have cash available to invest in the first place. Obviously, heirs and Facebook founders have a good leg up on the rest of us in terms of cash on hand. But we've all got to start somewhere. So see what you can scrounge up.

For the other two -- well, it almost goes without saying that the more you've already got socked away, the more these factors help get your fortune growing.

Turn $20 a Day into $2 Million

Say you can come up with $600 a month -- about $20 a day -- to invest. If you reliably sock that money away over a 40-year career, you could end up with a bit over $2 million, assuming 8 percent annual returns.

While that rate of return may sound a bit steep, if it comes in the form of 6 percent growth and 2 percent dividends that are reinvested, it starts looking more attainable. Absolutely key to your success, though, is an "all of the above" approach: Invest the cash, let it grow, and reinvest the dividends along the way. The chart below shows how the three work together:

Power of Compounding
Source: Author's calculations.

Here, again, you see the "all of the above" approach in action:
  • You can end up with nearly twice as much if you reinvest, rather than spend, your dividends.
  • A total cash commitment of around $250,000 over your career could wind up around eight times that size.
  • The earlier you start, the more time acts as your friend.

The cash you add to your nest egg does much of the work to get you started. But along the way toward that $1 million milestone, your invested cash starts doing most of the work for you.

Just look at how much longer it takes to go from $0 to $1 million than it does to go from $1 million to $2 million. Your first million in this scenario takes a few decades to reach. That second million? It takes less than one decade.

Getting Started -- with a Boost

If you haven't been investing before, coming up with that $600 a month may seem daunting. Fortunately, you probably don't have to come up with that full amount from your own pocket to put that kind of cash to work for you. If you're able to invest through a traditional 401(k) plan at work, Uncle Sam and your boss may very well chip in to help you out.

• Uncle Sam: When you contribute to your traditional 401(k) plan, every dollar you put into the plan reduces the wages that are reported for federal income tax purposes. In effect, if you're in the 25 percent tax bracket, it's as if you kick in $0.75 out of your pocket and Uncle Sam kicks in the other $0.25 of every dollar you invest.

• Your boss: While it's not mandatory, many companies offer 401(k) matches. In a matching program, the company agrees to contribute to your 401(k) plan alongside you. Formulas vary, but a typical match level is 50 percent of your contribution, up to some cap based on your salary.

Put those two factors together, and it gets much easier to come up with that $600 monthly investment. If your boss matches 50 percent of your contribution, it only takes $400 from you to hit that total. And since Uncle Sam is willing to forgo his 25 percent of the money you contribute, that $400 only costs you $300 out of pocket. In essence, to get $600 invested, it only depletes your pocketbook by $300.

That works out to a $10-a-day out-of-pocket sacrifice that, in the end, could net you a multimillion-dollar nest egg.

Remember, time is an important factor in any investing plan. The longer you wait to get started, the less time your money has to work for you, and the more of your own cash you need to put up to wind up in the same place at the end of your working life.

You now know how to get there. So start making your money work for you today so that it has ample time to do the heavy lifting down the road.

Making the right financial decisions today makes a world of difference in your golden years, but with most people chronically undersaving for retirement, it's clear not enough is being done. Don't make the same mistakes as the masses. I urge you to learn about The Shocking Can't-Miss Truth About Your Retirement.

Motley Fool contributor Chuck Saletta has no position in any stocks mentioned. The Motley Fool recommends Facebook. The Motley Fool owns shares of Facebook

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This is the worst investment advice I have ever come across, the author completely ignores the fact that inflation s do happen and it is very unlikely that one doesn't happen in 40 years. Start saving your money in gold, but real gold every month. Instead of saving that $ 50 at the end of the month, buy gold ounces in gold vaults. Recession proof real money is gold people. Contact me if you need more info, reach me at Wasjunior on facebook.

April 06 2014 at 3:55 PM Report abuse rate up rate down Reply
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August 30 2013 at 9:26 PM Report abuse rate up rate down Reply

I am past anger. We continue to pay for bloated pensions and full medical care for all those workers who were in city, county, state and federal jobs. They don't have to pay one red cent for all their medical because we tax payers are paying for them. I know a secretary who worked for the county and made a good living. Her bloated pension is paying her more than she made when she worked. This should be changed immediately. All pensions should be cut by 1/3 and all medical should be reduced to what a normal payout is with regular insurance. Obama and his cohorts should make that law and right now. Then take the money saved and use it to bolster social security so we poor middle class can have something to count on. We've worked hard our entire lives and have tried to invest and save, too, but it's not even close to what those bloated pensions are.

April 26 2013 at 5:17 PM Report abuse rate up rate down Reply
Frank Carter

My wife and I have worked very hard all of our lives and made a good living, but with the ongoing challenges of life and raising a family, we haven't saved enough to even have an emergency fund. I am truly disappointed in this countries leaders. It doesn't take much common sense to understand that maybe they could save SS by increasing the amount we pay into the system. 1-5% increase in deductions wouldn't be noticed and if it helped to save our futures I wouldn't mind. I know that due to economic problems and the fact people are living longer has caused our problems but as a nation we need to save systems that have given everyone hope for the future and allowed our elderly the dignity to live out their lives on their own as well as ourselves as we reach the golden years.

April 26 2013 at 7:31 AM Report abuse rate up rate down Reply

sorry, it seems to have printed my reply twice. Can't figure out how to delete one of them.

January 24 2013 at 2:14 PM Report abuse rate up rate down Reply

I hear you Sandy. I bought foreclosures properties to get ahead. I just bought a condo in South Florida for $28,000 that was worth $278,000 (2007). It has already gone up $24,000 in four month. I found it on

I don't know any other way to ahead quickly.

January 24 2013 at 2:11 PM Report abuse rate up rate down Reply

How many here have an "extra" $20 a day? If I had that kind of money I wouldn't be poor. I never had that kind of money - the best I ever did was an "extra" $50 a month I stuck in my savings account (this was back in the days when you got 6% interest so you can guess how long ago that was). Most people are just making it from pay day to pay day - never mind any "extra" cash!

January 24 2013 at 3:57 AM Report abuse +1 rate up rate down Reply
1 reply to Sandy's comment

I agree. I don't have 20 a month let alone a week!

January 24 2013 at 4:39 AM Report abuse +1 rate up rate down Reply

its not as great as you make it out to be. you save for 30+ years and the bottom falls out of the market or your employer files bankruptcy you are screwed you can stand to lose 1/4,1/2 ,3/4 of a million dollars so try to paint a better picture for investors.

January 23 2013 at 10:23 PM Report abuse +2 rate up rate down Reply

Where should I put my $? Alianz?

January 23 2013 at 10:11 PM Report abuse rate up rate down Reply