Welcome to Year 7 of of our 15 Year Millionaire Series. If you are new to compounding returns, make sure to sign up free to our RSS Feed or Email Newsletter.
So far we have covered the first 6 years of our plan to become a millionaire in 15 years. To read the rest of the series, please visit The 15 Year Millionaire Series.
During each post throughout the series, we have focused on the building blocks of a robust portfolio by analyzing and focusing on things like real estate, tax advantaged accounts such as 401(k) and IRA investment plans, and traditional taxable accounts.
The end of each post also includes a summary of what the typical participant's account balances might look like (assuming historical average rates of return).
The goal of the series is to offer a concrete plan for building a million dollar net worth in 15 years, while emphasizing the simple building blocks of a robust portfolio, and how they can benefit you as an investor.
Working the Plan:
So far during our plan, we have focused on building an emergency fund, how to best purchase real estate, and on how investors can take advantage of tax sheltered accounts.
During the last few years of our plan, we have saved each pay increase in order to increase our savings rate. This year we will do something similar, except the extra savings will be deposited into another form of tax sheltered savings vehicle, called a 529 College Savings Plan.
Save Your Raise Challenge:
For mathematical reasons, throughout the 15 Year Millionaire series, we have assumed an annual pay raise of 5% per year. Last year, we increased our savings rate. We can expect to do the same during year 7. However, this year the money will be deposited into a 529 College Savings plan intended either for yourself or members of your family.
Saving Your Raise:
During Year 6 of the plan, we assumed a salary of $63,813. After your 5% increase, your pay in Year 7 should be $67,003. This is an increase of $3,190 (before taxes).
Assuming a 25% tax rate, you should take home around $2,500 a year more. In order to contribute the full amount of your raise to your 529 College Savings Plan, you'll contribute $200 a month to your 529 College Savings Plan.
Throughout the series, we will continue to challenge you to save your raise, albeit for a slightly different purpose as time goes by. Although these changes seem small, you can clearly see that they have a huge impact on your lifestyle.
529 College Savings Plans:
529 College Savings plans are extremely tax efficient vehicles for college savings. Each state has different benefits and regulations governing their 529 Plans, but any investor can choose to invest in a 529 Plan in any of the 50 states.
There are generally two types of 529 College Savings Plans: prepaid and savings. We recommend the savings type 529 investment plans, as they are more flexible and can often outperform inflation.
According to Wikipedia:
"Money from a 529 plan can be used for tuition, fees, books, supplies and equipment required for study at any accredited college, university or vocational school in the United States and at some foreign universities.
The money can also be used for room and board, as long as the fund beneficiary is at least a half-time student. Off-campus housing costs are covered up to the allowance for room and board that the college includes in its cost of attendance for federal financial-aid purposes.
Qualified education expenses do not include student loans and student loan interest."
Don't plan on going back to school? 529 Plans are fully transferrable to your spouse, children, and many other members of your family.
529 Savings Plan Over Time:
$200.00 a month deposited into your 529 College Savings Plan may not seem like much, but after only 8 years of investing in the 529 Plan (Year 15 of the 15 Year Millionaire Plan), your account balance could be as high as $30,174.00 (assuming historical stock returns).
If left alone until needed, this account could provide very well for your education or that of your kids or even grandchildren, due to the power of compound interest.
15 Year Millionaire Stats: End of Year 7
As promised, each week we will offer another set of tips and challenges for becoming a millionaire in 15 years, along with tracking the effect of these changes and strategies over time. By following the 15 year millionaire plan, your accounts and net worth will be somewhere in the neighborhood of the following. (Assuming that you began the plan within the parameters described in the first post of our series. All changes instituted throughout the program remain in effect. In addition, we will assume a 5% annual salary increase as well as the following: 10% annual stock market returns, a 1.5% return on savings, and a 3.0% annual increase in the value of real estate.)
Salary: $67,003.00
Bank Account- Emergency Savings ($300.00 per Month): $25,599.44
Bank Account- Down Payment on a Home: $0.00
Debt- Mortgage: $58,447.28
Real Estate Value: $173,890.78
401(k) (15% Contribution + 6% Employer Match): $123,249.32
Roth IRA (Max Contribution): $52,193.66
529 Account: $2,400.00
Bank Account- Itemized Savings ($275.00 per Month): $13,213.27
Taxable Brokerage Account Balance: $0.00
Net Worth: $332,098.48
Next Monday's Post:
Thank you for reading the 15 Year Millionaire Series. Next week we will focus on starting to invest in a taxable brokerage account in order to further diversify your investment portfolio. Click here to read Year 8: Invest in a Taxable Brokerage Account.
Photo By: ZZZack
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