Becoming a millionaire can be more than just a pipedream, even on a teacher’s salary. Some people do have the good fortune to win the lottery; but for most, those chances are slim. If you want to be a millionaire, it really boils down to two things: commitment and strategy.
First, you must transform your perception and redefine your goals. Only with the proper mindset can your aspirations of becoming a millionaire can come to fruition. You’ve got to make it your number one goal and then formulate a plan to make it happen.
Teachers are typically strong in the planning department, but amassing wealth sometimes takes an extra push. After all, if it were easy, then everyone would be a millionaire. Here are three easy steps to get you from teacher to millionaire by retirement.
Invest in 403b
Teachers and other public sector employees are usually given the option to invest in a 403b plan. These are tax-deferred retirement savings plans that employers often match. Some of the biggest benefits of investing in a 403b plan are that the contributions are tax-deductible and the savings grow tax-free.
Since you pay taxes on distributions in retirement, many end up in a lower tax bracket before its time to pay Uncle Sam. For instance, socking away $10,000 per year for 20 years will give you $200,000. However, properly allocated plans tend to generate an average of about 7 percent return annually.
If your employer matches just 3 percent, which many do, you’ll end up with $436,540. That’s almost half a million right there.
Invest in IRAs
The road to wealth is a much shorter trip with multiple savings plans. You can easily get half way to the millionaire mark with your 403b plan. An alternative IRA, specifically a Gulf Coast Educator’s Federal Credit Union’s Premium Market IRA, will take you the rest of the way.
This tax-privileged savings plan earns a higher dividend than other plans and doesn’t charge administrative fees. You can choose from a traditional or a Roth IRA, depending on your specific strategy.
Depositing a little less than $11 per day into an IRA will grow to a million dollars in 40 years. This amounts to little more than a snack and a cup of coffee, and it still doesn’t max out the contribution limit for the year.
Invest Even More!
Compounding interest is a beautiful thing in the world of finance, especially if you’re trying to build wealth. It basically amounts to earning interest on interest. For example, suppose you invest $1,000 into an account earning 10 percent simple interest. At the end of 10 years, that account will be worth $2,000.
However, suppose you invested that same $1,000 into an account earning 10 percent compounding interest. At the end of the same 10 years, that account will be worth $2,594.
When building wealth, you want to opt for investment accounts that offer compounding interest whenever possible. You’ll earn more money in a shorter period of time, meaning you may get to millionaire status even before retirement.