Is It Much Easier To Make Your Second Million Than First?

According to surveys in the US, most millionaires are not made by winning the lottery, a brilliant business idea or through inheritance. Most do it the steady way via disciplied savings and investing. But how hard is it to achieve a million this way?

Let's say you start with nothing in the bank and put away $1,000 a month. With income increases and bonuses, let's assume you add to the savings at the rate of 5% a year. After one year, you would be putting away an average of $1,050 a month. With an average return of 8% per annum, you would hit the $1 million within 22 years!

But then, here's the bad news. In 22 years, your million would be worth only about $340,000, assuming annual inflation rate of 5%.

The good news is, given that the assumptions are right, your second million will be much easier to achieve. It the rate of savings remains, the second million would be made in another seven years. The third million, you would make in another four years. Even if you stop contributing after you reach the first million, the second million would be made in nine years, less than half the time it took to accumulate the first million.

If you put away $1,000 a month without increasing your savings, you would go from zero to $1million in 26 years and $2million in 35 years.

In a nutshell, most of the effort is spent in accumulating that first million. Once you get to that level, the magic of compounding and the opportunities that will open up to you, will help you get that second and third million.

They say the rich gets richer, and that is really true.