Lots of us would like to reach our RM1 million goal, but how do we do it?
What is your MAGIC number to reach your first million?
While it may seem like a number that’s hard to achieve, let’s break it down to see how it’s possible to do so with discipline, time and the power of compounding!
When do you want to achieve your RM1 million?
Keep a time-based goal in mind.
For example, if you set a timeline of 30 years to achieve your first million, that will take you RM2,777.78 of savings a month.
But, if you want to achieve it in a shorter time span of 10 years for example, it requires you to save a whopping RM8,333.33 a month without compounding. Therefore, keep in mind that time is your best friend.
Longer time = lesser RM saved each month
Lesser time = more RM saved each month
So, the time is NOW! It’s just a matter of how much you want to commit to saving on a monthly basis.
What is your targeted return rate?
I’d like to introduce to you the rule of 72!
Some of you may be asking what this rule is so allow me to explain.
It’s a fast track to calculate how long it takes to double your money with a fixed interest rate without using a financial calculator.
How does it work?
For example, if you have RM100,000 in a fixed deposit that yields 3% interest, how long does it take to double your money?
Simply take 72 / 3 = 24. This means your RM100,000 will take 24 years to become RM200,000. If you were to get an interest rate of 5%, 72 / 5 = 14.4 years to double your money.
Below is a table with some examples of the rate of return that will affect the amount of years needed to double up. The higher rate of return, the faster you’ll achieve your goal of RM1 million.
| Rate of Return | Years it would take to Double Up |
| 3% | 24 |
| 5% | 14.4 |
| 8% | 9 |
| 10% | 7.2 |
| 15% | 4.8 |
For example, RM100,000 at a rate of return of 15% per annum will accumulate as per the table below. This means it will take 20 years to reach RM1.6 million!
| Year | Amount (RM) |
| 1 | 100,000 |
| 5 | 200,000 |
| 10 | 400,000 |
| 15 | 800,000 |
| 20 | 1,600,000 |
How much would I need to save each month?
Let’s use an example of 8% return per annum.
This table below shows that the more money you set aside, the faster you can achieve your RM1 million.
If you were to increase your savings from RM500 to RM1,000 a month, you can achieve your first million eight years faster!
| Monthly Savings | Years to RM1 Million |
| 500 | 33 |
| 1,000 | 25 |
| 2,000 | 18 |
| 3,000 | 15 |
| 4,000 | 12 |
| 5,000 | 10 |
| 10,000 | 6 |
Summary
Ultimately, it doesn’t matter if you’re 10 years or 30 years away from your RM1 million target. Take some time to think of the three steps below and apply the rule of 72 to it.
1. When do you want to achieve your RM1 million?
2. What is your targeted rate of return?
3. How much am I saving monthly?
With the above information now set in stone, you’re now able to clearly plan your destination and search for a vehicle or investment products that are able to drive you towards your goals.
Saving as much as you can now will help you to reach your first million as soon as possible.
The more time you let your money grow, the less you’ll need to set aside each month, and this in turn will mean you can accept lesser returns to reach your designated amount and goal.
While lesser returns may not sound attractive at first, it also means you don’t have to expose yourself to much market risk and simply let time do the work for you.
As the saying goes, better late than never.
So keep in mind that it’s never too late to start saving now and I hope this will help you to achieve your goal with more clarity and direction!
About the author
Nick Lim is a licensed financial planner under Capital Markets Services Representative License (CMSRL) and a Bank Negara-approved financial advisor representative (FAR). He can be contacted at [email protected]
