How to Make $1 Million in 10 Years Through Saving and Investing

Want to make $1 million in a decade? Follow these tips on how to cut back to save and invest more.

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It’s certainly possible. If you want to create $1 million in just 10 years, it’s going to be tricky, even difficult, but doable. However, only if you’re saving, cutting back, and investing in that time. So today, let’s look at how people reaching retirement can earn that big boost in income, while reducing their risk as well.

Cut back

Now this might be an obvious question.  However, how many investors who want to reach that $1 million goal are really cutting back? To do so, there are a number of ways you can seriously cut back if you hope to achieve $1 million in just a decade.

First off, downsize, or even move if you can. This can bring in a large portion of income that can be put towards investments. From there, you’ll want to reduce any non-essential part of your everyday operating budget. For instance, while it might be nice to drive to work in your own vehicle, consider selling that vehicle and taking the bus or subway. This can again seriously reduce your overall costs.

But we’re not done yet. To make even more cash in this next decade, you’ll want to put aside money each and every month rather that just look for quick cash through sales or extra income streams. For this, you’ll need a budget.

Budget and save

Now you may already have a budget, but you may not have a net-zero budget. This is where you take your net income and sign a dollar amount to every line item of your budget. Start with essentials, such as debt payment minimums and household bills. These you can set up to make sure automated payments are going out every month, which will also prevent any interest build up.

Then, you’ll want to go over the items that fluctuate from month to month. This would be groceries, eating at restaurants or ordering in, anything like that. Now you’re going to want to cut these back as much as possible, but don’t go too far. If you cut entertainment down to zero, you risk relapsing and spending a bunch all at once. This would ruin all your hard work!

The idea, however, is that you assign a value to each and every item on your budget. Down to zero. Once you’ve assigned every line item to essentials and non-essentials, you should then be able to put the rest into your savings. And then you can start investing. 

Start building

With that amount now being put into your investing account, you can start building towards that $1 million. For this I would consider a company that has seen a lot of growth over the years, and is likely to continue building. Something like Fairfax Financial Holdings (TSX:FFH).

Fairfax stock has done well in pretty much any market, including this one. The company’s underwriting practices do well in high interest markets, and value investments recover when the market does as well. Thanks to CEO Prem Watsa, the next decades should be strong ones for investors.

Fairfax stock has grown at a 10.3% compound annual growth rate (CAGR) over the last two decades. It also offers a 1.37% dividend yield. If you were able to put aside $1,000 towards investing each month from this saving method, you could have $12,000 to invest. Let’s see what could happen in the first year.

FFH – now$1,4648$20.29$20.29annual$12,000
FFH – 10% increase$1,614.808$20.29$20.29annual$12,918.33

In the first year alone, you’ll have added almost another $1,000. If you invest more, or even just continue adding and reinvesting as you go, there is nothing you can’t achieve. Even $1 million in a decade.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Fairfax Financial. The Motley Fool has a disclosure policy.

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