Three factors for maximum savings success
Taken care of forever, never worry about money again – become a millionaire. For many people, this is a lifelong dream. There is more than one way to great wealth: some millionaires have inherited their fortunes, self-made millionaires are often founders of successful companies. But you can also become a millionaire by diligent savings. For this you need two things: endurance and a good return. But how much money do you have to travel per month for your million-dollar target – and for how long? We have recalculated.
The ticket to the Millionaires’ Club is not easy to buy. If you cannot expect a high inheritance in the course of your life and do not want to rely on a six in the lottery, you must take action yourself. But not everyone has a brilliant business idea and the necessary know-how to earn a fortune with their own company and get rich.
Then saving is your best chance. In order to achieve your million-dollar goal, three factors must work together optimally:
- You need an investment with decent income so that your money and the saved assets multiply quickly.
- You need enough time and have to endure your savings efforts for many years. You won’t become a self-made millionaire overnight.
- You need a sufficiently high monthly surplus, which you can set aside and invest.
Invest your money in shares
If you are dependent on solid profits, you cannot avoid the stock exchange and investing in stocks. For safe deposits on the savings account, for example, German banks only grant 0.13 percent interest in the current low interest rate phase. In the last 15 years, it has been 1.26 percent on average. But that’s still not enough to become a millionaire. They would have to cover more than 1,700 euros every month for 40 years in order to save one million euros at this interest rate. can saving money make you richThis is not realistic.
Four basic rules for investing on the stock exchange
An investment in shares promises higher returns. However, you should not put everything on one card and simply buy any shares or funds. When investing, observe four basic rules to reduce risks and improve your chances of return:
Rule 1: Pay attention to a wide spread
can saving money make you rich. Some stocks have multiplied their price value in recent years. Don’t let such famous stock market stories dazzle you. There are enough counter-examples of promising companies whose share price, contrary to expectations, collapsed at some point. Investments in individual stocks are always risky. With equity funds or exchange-traded index funds – so-called ETFs – you automatically spread your investment across many different financial assets. This makes you more independent of the price development of a particular share.
Rule 2: Long investment horizon reduces risk of loss
“Buy and leave behind” was one of the guiding principles of stock exchange luminary André Kostolany. Rightly so, as data from the Deutsches Aktieninstitut confirm: Anyone who has invested in the 30 standard values of the DAX and held their shares for at least 15 years has never suffered losses so far. In the last 15 years, the average return on the year has been 6.7 percent – despite interim price drops during the financial crisis. So a long-term investment horizon is important so that you can sit out a possible crash. In this way, you reduce risk of loss and still benefit from the return potential of a stock investment.
Rule 3: All costs are borne by your profits
All costs incurred reduce your profits. You should take this into account – when choosing your funds as well as when choosing the securities account.
Many actively managed equity funds are expensive. Annual fees of 2 percent of the price value are not uncommon. You have to get that back in first. ETFs get by with a fraction of the costs (usually 0.1 to 0.5 percent per year). They are not actively managed, but replicate one of the large indices one-to-one – for example, the DAX, the Dow Jones or the MSCI World. Only a few actively managed funds perform better than their comparative index in the long run. With an ETF, you also have good profit prospects at significantly lower costs.
The second important cost factor is the securities account. Large established banks usually charge annual custody fees – usually a certain percentage of the custody account volume. With a million-euro custody account, the annual fees add up slightly to five-digit sums. With a free online deposit, these costs do not apply. Order costs are also usually significantly lower here than with branch banks – especially for ETFs. Some providers completely waive order fees for ETF savings plans.
Rule 4: Reinvest profits and dividends immediately
When choosing the fund, make sure that profits and dividends are not distributed, but are immediately reinvested. These so-called accumulating ETFs are the best choice for asset accumulation. The reinvested dividends and profits create a dynamic comparable to the compound interest effect. Future increases in the value of the fund will affect not only the original capital, but also on the capital gained so far. As a result, your wealth grows much faster and you reach your million target in less time.
How quickly can you become a millionaire?
But how long exactly does it take for you to become a millionaire with this method? And how much money do you have to save monthly for this? Both depend on several influencing factors – for example, on the return they can achieve in the future and on the taxation of your profits.
Like any forecast, our million-dollar bill is therefore subject to certain basic assumptions:
Assumption 1: You want to become a euro millionaire
Becomeing a dollar millionaire is not enough for you. Their goal is a fortune of one million euros.
Assumption 2: 8.9 percent annual return
In our model calculation, we assume that you invest your money in an accumulating ETF that replicates the DAX. We expect a price increase of 8.9 percent per year. This corresponds to the historically average annual return on regular stock savings on the DAX over a very long period of over 30 years.can saving money make you rich
Assumption 3: Taxation according to today’s rules
We assume that you will pay taxes over the entire investment period according to the rules in force today. You pay 26.375 percent withholding tax including solidarity surcharge on your profits, whereby 30 percent of the profit remains untaxed due to the partial exemption. Church tax is not taken into account in our bill.
Assumption 4: Savings rates rise with wages
If wages increase, you can also increase your monthly savings rates pro rata. Since the turn of the millennium, net wages in Germany have increased by an average of 2.6 percent every year. By this percentage, we also increase the savings rates once a year in our bill.can saving money make you rich
How to save yourself to become a millionaire
Under these conditions, it only depends on the duration of the savings phase how much you have to set aside monthly. The following table shows the initial installments required depending on the duration of the savings phase: can saving money make you rich
