Saving $1 million for retirement is a lofty goal; for many young adults, it seems out of reach. According to a Wells Fargo survey, 64% of working millennials say that a seven-figure retirement isn’t in the cards.

Four in ten millennials have not set aside money for their later years. The reality is that achieving millionaire status is doable if you take the proper steps to plan. It’s possible to reach the million-dollar mark by age 30. The secret of becoming a millionaire begins with understanding which financial habits can help you grow wealth.

Start Early

One of the most powerful tools you have for saving $1 million by 30 is time. As you save and invest, your money earns interest. That interest compounds, meaning your interest is earning interest. The sooner you begin saving and investing, the longer your money has to grow.

Consider this example. Assume that at 16 years of age, you got your first job and opened a Roth IRA. You contribute $5,500 to your account each year, up to age 30, earning a 6% annual return. That would give you a little over $122,500.

Suppose you get your first professional job at age 22. Your employer offers a 401(k) match equal to 100% of your contribution, capped at 6% of your salary. To max out the $20,500 contribution limit allowed for 2022 (note: the contribution limit is typically increased annually, but we’ll assume it remains at that level for illustration purposes), you start by contributing 41% of your $50,000 salary.

In turn, your employer would contribute another $3,000 ($50,000 x 6%). With a 2% annual raise and a 6% annual rate of return, you’d have over $248,000 in your plan by age 30.So far, you have accumulated more than 25% of your million-dollar goal. If you were to continue saving at the same pace, earning the same rate of return, you’d easily have $1 million by age 40.

By age 65, that would grow to more than $6 million. That illustrates how important an early start is and how vital compounding can be to your wealth goals. Starting to save early is essential for any retirement plan. Anything you put away in your 20s has 40 years or more to grow before you retire. A few dollars can go a long way.

Save to Invest

The previous example shows how it’s possible to save close to $340,000 just by saving in your IRA and a 401(k), but you still have some ground to make up to get to $1 million. How do you do that? To become a millionaire, you must know the difference between saving and investing.

When saving money, you’re most likely putting it in a low-risk vehicle, such as a savings account, money market account, or certificate of deposit. These accounts are safe, meaning that the odds of losing money are low, but you can’t generate significant wealth when you’re earning a low rate of return on what you save.

When you invest in things like stocks, mutual funds, or real estate, you increase the risk factor. The trade-off, however, is the potential to earn much higher returns.

Going back to the previous example, suppose you were to take the same $5,500 you could put into a Roth IRA and save it in a high-yield savings account instead. Your account earns 1% interest, compounded monthly. If you save that amount each year from age 16 to 30, you will make approximately $16,000 in interest. The Roth, however, would have grown by $55,000, assuming a 6% return.

While it’s wise to have some cash tucked away in an emergency savings fund, you’ll still need to invest if you want to reach $1 million by age 30. Maxing out tax-advantaged accounts such as an IRA and a 401(k) will get you closer to the goal.

Utilizing a taxable brokerage account to invest in the market can help fill the gap. You’ll pay capital gains tax when you sell an investment in your taxable account at a profit, but that might not be an issue if you invest long-term.

Diversify Your Income Streams

Working at a full-time day job can help you generate income to invest, but if you’re on the path to $1 million, you may need to add other income streams to the mix.

Freelancing is a popular option for many. An estimated 57 million Americans do some freelance work, according to Upwork and the Freelancer’s Union.3 Starting a side hustle by offering freelance writing, being a virtual assistant, or providing coding or design services could lead to more income that you could put into your million-dollar investment plan.

Investing in real estate is something else to consider. Owning a rental property, for example, can generate a steady stream of monthly income. The income is passive, meaning that it comes in regularly as long as you maintain consistent tenants.

Additional ways to build passive income include investing in peer-to-peer loans, creating and selling an online course or product, affiliate marketing, or renting a room in your home on Airbnb. Some of these methods require more of an initial investment of time and money than others, but they can all lead to regular income to supplement your paycheck.

Track Your Goals and Know Your Value

Saving and investing $1 million by age 30 is a big target to hit, and it helps to track your progress. Breaking it down into smaller goals can make the process more manageable.

For example, you may set monthly, quarterly, and annual goals as you work to reach $1 million in savings and investments. It’s also essential to be conscious of your value and how that correlates to your ability to build wealth. For example, negotiating a raise at your job could yield more income to save. Using your skills to become a freelancer or sell a product online could do the same. The key is to know your true worth and how to leverage it to reach your goal.

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