Making your first million can be seen as a significant financial milestone. This goal may seem lofty or even unachievable for many starting their financial journey. But what are some ways we can make this goal a reality?
Let’s start with savings.
If you’re 25 and have a 40-year career ahead, you would need to save $25,000 annually, or roughly $2,083 per month, assuming no bonuses. But is this realistic? That depends on several factors:
Salary: Your income level directly impacts how much you can save. For example, if you earn $10,000 a month, saving $2,000 represents 20% of your income. While challenging, it is achievable with disciplined saving habits. However, if your monthly salary is $5,000, saving $2,000 would account for 40% of your income, which is significantly more difficult.
Spending Habits: How you manage your expenses also plays a crucial role. According to the Singapore Department of Statistics, the average household spent $5,931 monthly in 2023, or about $1,986 per household member.
According to data from SingStat, the median household income in 2023 was $8,196. After accounting for the standard 20% employee CPF contribution, the monthly take-home income comes to around $6,557. If the household spends $5,931 a month, this leaves savings of just $626.
Spending Below Your Means
However, as mentioned earlier, earning more doesn’t mean we must spend more. If a median-income household were to spend at the level of a lower-middle income group (21st–40th percentile), which averages $4,401 a month, they could save $2,156 instead. For the rest of this article, we will assume a monthly savings of $2,156 and use this figure in our calculations.
By carefully managing your income and expenses, setting realistic savings goals, and maintaining disciplined financial habits, reaching the milestone of your first million becomes more attainable.
Saving Without Investing Isn’t Good Enough
Reaching a $1 million goal through savings alone is possible, but it is going to be difficult.
It’s like building a house brick by brick without any power tools. You can get there eventually, but it will take much more time, effort, and discipline.
That is why saving is only the first step. To reach $1 million faster, you need to invest your savings so your money can help generate more wealth over time.
If you’re just getting started, opening an account with a beginner-friendly platform like Stashaway or Endowus can make the process much simpler, especially if you prefer a guided, hands-off approach.
How Does Your Money Work For You?
Your money can work for you in two main ways: 1) taking risks on your behalf and/or 2) by working longer for you. Let’s break down these options:
Risk Vs Returns: Taking Risks On Your Behalf
The relationship between risk and returns is a cornerstone of financial theory and investment strategy. Essentially, it operates on the principle of the risk-return tradeoff, which states that the potential for higher returns comes with a higher level of risk. This tradeoff is fundamental to making investment decisions. Do note that this assumes you already have a diversified portfolio. If you do not, then you are just taking unnecessary risks, and we suggest you read this article on how ETFs can help you gain instant diversification in your investment portfolio.
A brokerage like Tiger Brokers or POEMS allows you to invest directly in ETFs such as the S&P 500. Alternatively, if you want a more hands-off approach, you can also consider robo-advisory platforms such as Stashaway or Endowus to help you invest.
Without diving too deep into technical details, the key point is this: your money can work harder for you if you’re willing to take on more risk in exchange for potentially higher returns.
For example, if you save and invest $2,156 a month with an average annual return of 7% (compounded annually), you could build a $1 million portfolio in about 20 years. In contrast, if you simply save the same amount without investing, it would take around 39 years to reach the same $1 million goal.
It’s like using power tools to help build your house—you can complete the construction more quickly with the same amount of manpower.
Compounding Over Time: By Working Longer For You
Your money can also earn you returns simply by working longer. When you invest for the long term, the power of compounding allows your investments to grow exponentially, as you earn returns on both your initial principal and the accumulated interest or dividends.
For example, instead of saving $2,156 a month for 39 years to accumulate $1 million, you can achieve the same $1 million portfolio by investing just $450 a month at an annual compounded investment return of 7%.
Think of it as using the right power tools to build your house—you can complete the construction on time while using significantly less manpower.
Save & Invest
Journey To $1 Million
Assuming a monthly household income of $6,557 and monthly expenses of $4,401, the household could save $2,156 monthly.
| Monthly Saving/Investment | Duration | Accumulated Amount | |
| Saving Only | $2,156 | 39 years | $1,009,008 |
| Investing (7%) | $450 | 39 years | $1,002,457 |
| Investing (7%) | $2,156 | 20 years | $1,060,635 |
Whether you are aiming for the magical $1 million milestone, planning for retirement, or simply trying to build enough wealth to semi-retire comfortably, the lesson is clear: saving alone can get you there, but it may take a very long time.
Investing helps your money work harder. With a long enough time horizon, even a small monthly investment can grow into a meaningful portfolio through compounding.
For beginners who prefer a hands-off approach, a robo-advisor such as Endowus can help build and manage a diversified portfolio based on your risk profile. This may be useful if you want to start investing without having to choose individual stocks or ETFs yourself.
For those who prefer more control, a brokerage platform such as Tiger Brokers allows you to invest directly in ETFs, stocks, and other assets. This can be suitable if you are comfortable managing your own portfolio and want more flexibility.
The key takeaway is this: saving is important, but investing is what helps accelerate your journey towards financial independence.
Read Also: $1 Million Dollars Today or $5,000 A Month For The Rest Of Your Life: Which Is The Better Choice?
This handy infographic can provide a guide for how long it may take you to reach your $1 million savings goal: Figures used in this infographics are slightly different from our article, but the key point is similar—investing helps us reach our financial goal more quickly than just saving only.
Image by Victor Ng from Pixabay
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