The Three Levers to Reach $1 Million

[DividendPartisan]

if you are in fact similar to the average American, then one of your goals may very well be to reach $1 million dollars someday. Or if not that, then enough to retire. Or to help give back and bless others. Or to travel the world. Whatever passion or particular goal you may have, you probably also have some aspiration or dollar amount attached to it.

That said, the remainder of this article will provide you with The Three Levers You'll Need to Pull in order to reach that destination. For this particular example, that $1 million dollars. Unfortunately for most of us though, according to research firm Spectrem Group, only 7% of American households ever get their investment portfolio's to reach seven digits.

This article, however, will help give you the starting tools you'll need to get there. Chances are, you won't make it without them. But if you know them and apply them, your path to $1 million will be greatly improved.

Though much of this material may seem straightforward, why is it then that so many of us have difficulty growing our portfolios? And even fewer of us still ever actually reach $1 million?

The statistic above may seem disheartening, but don't worry! There are three basic levers of wealth building, and with a little discipline, persistence, and understanding these three levers, you'll be there in no time. So here we go...

Lever 1: How Much You Save

CNNMoney states, "You're far better off being a dogged saver who's a mediocre investor, than being a below-average saver who can knock the socks off the S&P500." That said, focus on how much you save!

Pull on Lever 1 by forcing yourself to live below your income. Your income must exceed your expenses. The greater the delta, the faster you get there. DividendMonk and DividendMantra probably do this the best I know of.

In summary, 81% of millionaires say they "got there" through Frugality.

Bottom line - Spend less than you earn. Save the rest.

Lever 2: How Much Time You Have

The amount of time you have to reach $1 million will greatly impact how hard you'll have to pull on the other two levers.

Chris Dardaman, head of financial planning firm Brightworth, says "It's not the end of the world if you can't save as much or invest as well as you want... as long as you save and invest longer."

The best advice I can give to anyone is to start saving and investing early. The earlier you start, the more time is on your side to reach your goal. Even if it is small or you aren't an expert, start now. I think it was Albert Einstein who said compounding interest is the most powerful force in the universe.

Bottom Line - Put time on your side, start saving now, and then be patient. (Don't forget the patience part!)

Lever 3: How You Invest

As an investor myself, this is probably my favorite lever. Similar to how long you have and how much you save, how you invest - the investment decisions you make along your journey - will also greatly affect when, and if, you reach $1 million.

Conventional wisdom says that stocks will return more than bonds. I tend to believe this is true the majority of the time and use almost as a rule when 'strategizing' my future investments. Whatever your belief on this topic, however, I would recommend everyone begin by taking a serious look at their asset allocation (percentage of holdings that are stocks vs. bonds).

Asset Allocation is one of the most important things you'll need to assess in order to effectively pull on this particular lever. Though I personally enjoy dividend stocks, I also realize the wisdom in holding other investments that are more diversified than individual stock holdings, so ensure you analyze an array of investment options.

Conclusion
In order to reach your goals, you'll definitely need to pull on these levers. But, if you steadily pull on all three, you will greatly increase your chances of making those million-dollar dreams a reality.

One final note - Millionaires (with less than $5 million total assets) average over $13,000 a year given to charity. Imagine how greatly you could affect change with contributing that much a year to helping others.

Here's to our pursuit.

What are your thoughts?

[pochax]

Lever 1 and Lever 2 >> Lever 3 in terms of importance. Lever 3 becomes more important as you really start building wealth, but pales in comparison to Lever 1 (essential) and Lever 2 (not essential, but hard to overcome if you start late).

[tim_v]

Lever 1 and Lever 2 >> Lever 3 in terms of importance. Lever 3 becomes more important as you really start building wealth, but pales in comparison to Lever 1 (essential) and Lever 2 (not essential, but hard to overcome if you start late).

I agree but also think 1&2 are strongly related.

Someone that starts saving 10% of income from their first full-time job will find it much easier to keep saving that amount than someone that doesn't save anything for several years and then decides to start saving. Spending is more difficult to reduce than to maintain.