According to INVL Investment Management and Life Insurance Group Retail Services Manager Dr. For Dalios Kolmatsu, the main condition is to start saving early, to be financially disciplined, to invest in his studies and to be able to step out of his comfort zone, indicates company press release.
Is it realistic to accumulate a million from a salary?
“How to become a millionaire” is one of Google’s most popular search engine questions, which has been asked by up to 22% of people around the world during quarantine. more often. I have no doubt that this application is not losing its popularity even now. So how do you accumulate a million? In purely mathematical terms, an easy way to have a million by a certain date is to count the months from today until that predicted date and divide by the million. In this way, it will become clear how much money needs to be set aside each month in order to be able to save a million on the scheduled day.
For example, if you are currently 40 years old and want to have a million only after retirement, you have 288 months to transfer at least 3472 euros to your account. It would be easy if everyone could take such a sum out of their pocket every month, not to mention the fact that a million should be able to be accumulated by earnings and average income.
However, anything can be done with more financial literacy – with less effort and without compromising the quality of your life. In order to start accumulating your million in this way, I recommend evaluating and “strengthening” the three most important aspects of savings”, – shares the ideas of Dr. D.Kolmats.
1. Balance of family patrimony
As the expert notes, a property worth a million and a million available are not the same. In the first case, part of the property can be for borrowed funds – a house for a loan, a car for a lease, there are other financial obligations and so on, in the second case – all funds and goods available are the property.
“When getting married or living with a partner, many people don’t think about how they will handle their property if life turns out differently and they have to divorce. These issues are resolved by entering into a post-marriage agreement, as well as communicating clearly within the family about financial obligations, because being in a family, one is simultaneously responsible for common assets and liabilities.
How can you get an overview of income, expenses and investments? To do this, you need to draw up a balance sheet of the family patrimony: write down how much real estate and movable property you have, the money in the accounts, how much monthly income you receive and how many expenses you incur, how much you have investments and how much – liabilities to banks or other financial institutions.
Subtract your debts from your assets and you’ll see your family’s balance sheet and available funds available for investment. Once you’ve done that, set yourself three goals and work towards them: forecast your family’s short-term financial goals, your family’s equity growth, and your family’s long-term financial goals. family. The most important thing is to avoid “financial infidelity” – when the other party does not know the expenses and income of the partner, because in this case one day you may be very unpleasantly surprised”, advises the Dr. D. Kolmats.
Many financial experts advise following the 50-30-20 rule: necessary expenses should be 50%, non-essential expenses – 30%, and investments – 20%. family budget. If there is no space in a section each month, you need to review your expenses and, even better, increase your income. In order to anticipate possible higher expenses, it is worth planning future trips and entertainment at the beginning of the year, planning for groups of children and larger purchases – if these expenses are included in the balance of the family patrimony , the temptation will be less to spend budget.
“Robert Kiyosaki, who has written several books on financial literacy, said, ‘If you are financially illiterate, your only source of income is your salary.’ Family finance experts recommend having multiple sources of income.
According to the types of income, they are divided into salaries, investment income and passive income, which are obtained from real estate, fees for additional activities, etc. Although most Lithuanians focus on the extra income from renting real estate, the investment returns provide greater financial freedom and can cover all family expenses in the long run,” says the group’s head of retail services. investment management and life insurance from INVL about the nuances of income.
In addition to these three sources of income for building equity, there are several others worth considering – state tax breaks and, oddly enough, loans.
“I read a brilliant idea in a book on financial literacy – no matter how much debt you have, the first thing you need to do is invest.” Of course, this sounds very ambiguous and scary, but it’s the truth. This is true even if you have a home loan that you want to pay back to the bank as soon as possible. For what? Knowing current mortgage interest rates and long-term yields makes investing more profitable in the long run. It is also worth investing if you want to benefit from tax advantages or allocate part of the salary increase to your pension through your employer”, – stereotypes are destroyed by Dr. D.Kolmats .
According to her, when we think of loans, the first thought is usually for the purchase or repair of a house, but a loan can also be an investment tool that generates income. For example, if the financial situation allows it, it is possible to take out a loan and buy a second home, which would serve as rent and passive income.
The second way is to take out a loan, pay part of the amount to repay the home loan and invest the other part. This way, in the long term, you can earn from the difference between the return on investment and the remaining mortgage.
“If you don’t want to take out a loan for various reasons, I always recommend that you invest in yourself – increase your skills, if necessary – retrain. In the long run, higher skills can lead to income higher, which increases your capital, opens up investment opportunities and is a great contribution to the first million”, – the family finance expert names different forms of income.
As Dr. For D. Kolmatsu, achieving financial freedom and investing requires leaving the so-called safe harbor, but this is very difficult to do, as people are psychologically accustomed to preserving what they have and to avoid even a minimal loss. Even provided they lose the profits they could get over a longer period of time.
“After deciding to invest, with 100% you will have to say goodbye to the feeling of security and accept a certain degree of risk. It is inevitable and it is the essence of the investment world. Another important thing is to understand the effect of compound interest, which is even currently called the 8th wonder of the world. For example, investing 1 euro with 5 percent. at an average annual return after tax, over 20 years you can expect to accumulate 2 €653 – more than is invested – this is the return of the compound interest effect Of course, there are many suggestions on how to “employ” your money so that it brings a higher return , but when I receive such a question, I always answer – do you want to speculate or invest?” explains Dr. D. Kolmats.
When knowledge is lacking, she says, pension funds are a great way to start investing and exercise your investment “muscle.” By regularly transferring contributions to your pension funds, you develop patience and tolerance for market fluctuations, forming the habit and consistency of investing periodically.
“The most important thing is to start your investment journey with smaller amounts so that mistakes are not painful, and later, when you earn larger amounts, you will have enough experience and knowledge to feel more secure to invest them in. However, in any case, it should be remembered that past results do not guarantee good investment results in the future, as the markets are affected by various geopolitical factors and can fluctuate depending on the situation. consequence,” says Dr. D.Kolmats.
How much do you need to invest each month to accumulate a million?
The financial expert assures that the easiest way to accumulate a million is for those who start doing it very early – only after reaching adulthood. For this, you have to commit 10% each month after getting your first job. income and to maintain this proportion throughout life, not to be afraid to take risks and to invest these funds periodically, to take advantage of all possible state aid and not to spend savings on spontaneous purchases.
“Of course, these rules apply at any age, only the amounts due to the shorter remaining period will have to be greater, the financial discipline – stricter, and the investment risk – more moderate.
If there is not much left until retirement, invest for 20 years with 5%. with an average annual return after taxes, 2,422 euros should be reserved for capitalization per month, 1,197 euros for capitalization over 30 years with the same return and 653 euros per month for investments over 40 years. Investing longer can lead to higher investment returns because capital can be exposed to higher risk for a longer period, which means higher returns across the spectrum. Additionally, the previously discussed tax benefits could also reduce contributions, which upon reinvestment would increase the deposit to a million with compound interest returns.
So, is it realistic to accumulate a million from an average salary in old age? After assessing family assets and different sources of income, it is truly possible to create a million dollar “realization” plan and commit to investments. Intimidated by the potential risk due to lack of experience? Of course, but those who do not invest risk more – gain nothing,” says Dr. D.Kolmats.
Source: The Delfi