A Simple Plan for Making Your First Million

Here’s the plan: When you’re 30, start saving $434 a month. Invest it in a tax-deferred account such as an IRA and earn a relatively modest average return of 8% per year — that’s slightly less than the historical average. When you turn 65, voilà, you’ll have a million bucks (or so).

Of course, how much that $1 million will buy when you reach 65 is another story! Assuming 3% inflation — roughly the average inflation rate over the past century — your cool million will have only about one-third the purchasing power it would have today. (We mention that to impress upon you that, while $434 is an excellent starting point, you’ll want to invest even more as time goes on.)

For now, the question is: Do you have an extra $434 each month? Think of it this way: If your family were a business, would you show a net profit of at least $434 monthly? In other words, is there money left over after you get your income and pay your bills? These are not idle questions. Having a monthly surplus is crucial to building financial security.

You have two choices if you’re not sure you have a surplus (let alone how much it is). One is to continue with an “easy come, easy go” approach, spending money according to moods and whims. What a fun way to go through life! For a while. Unfortunately, such an approach prevents you from moving toward financial stability and security. When you come to your senses, it may be difficult to redeem the situation.

A better choice is to develop a plan to guide your spending decisions. We won’t sugarcoat this: Creating a spending plan is a bit of a hassle. But if you skip this step, you do so at your peril. For 99.9% of us, following a spending plan — a budget — is essential to financial progress.

Why? Because a winning financial strategy begins with a monthly surplus, and ensuring you have a monthly surplus starts with a workable budget (and a healthy dose of self-discipline).

• Reach financial goals that otherwise would be unattainable;
• Apply your income more strategically as you reduce or eliminate irresponsible spending;
• Pay off debt;
• Raise your standard of living;
• Invest regularly;
• Withstand economic downturns;
• Improve communication with your spouse as you set financial priorities;
• Increase your giving to the Lord and His work;
• Stay motivated as you measure your progress.

Many books and online resources can guide you through developing a spending plan. They typically follow an allocation-type strategy — i.e., all your expenditures are categorized, and spending boundaries/targets are assigned to each category. Spending is monitored weekly (or monthly) to ensure you stay within the allotted amounts.

We’ll mention two books written by authors with many years of experience teaching Christian disciples the nuts and bolts of financial management.

Here are additional pointers on setting up a workable plan:

• Be conservative in your income expectations. (If you earn more than expected, you’ll progress even faster!)
• If you’re self-employed, set money aside for taxes as your income comes in. (Put this tax money in a designated savings account so you don’t spend it!)
• Reflect the needs of individual family members in the spending plan. For instance, one child may need money for sports equipment; another may need money for camp.
• Foster a sense of freedom by allocating a monthly amount of personal spending money for each responsible family member. (They are free to spend that money without precisely accounting for each expenditure.)
• Stick with your plan even if you struggle at first. As time passes, following your budget will become second nature.