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Making your first million can be seen as a significant financial milestone. For many starting their financial journey, this goal may seem lofty or even unachievable. But what are some ways we make this goal a reality? Let’s start with savings. If you’re 25 years old 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: 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. How you manage your expenses also plays a crucial role. According to the , the average household spent $4,906 monthly in 2017/2018, or about $1,628 per household member. However, spending varies greatly depending on lifestyle choices. Generally, those in higher income brackets tend to spend more than those in lower brackets. 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. However, achieving your $1 million goal through just saving is going to be difficult. It’s like building a house brick by brick without any power tools—possible, but time-consuming and requiring lots of effort. However, achieving your $1 million goal solely through saving can be challenging. It’s like building a house brick by brick without using any power tools—possible, but it requires significant time and effort. To reach our goal of $1 million more quickly or with less effort, we need to invest our savings. Investing means putting your money to work to generate more wealth. Your money can work for you in two main ways: 1) or 2) . Let’s break down these options: 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 . Without going too much into the technical details, the key thing to note is . Assuming you save and invest $2,068 a month and enjoy an investment return of 9% p.a. (compounded annually), it will take about 18 years to achieve a $1 million portfolio—22 years sooner than if you were only saving without investing. It’s like using power tools to help build your house—you can complete the construction more quickly with the same amount of manpower. Your money can also earn you returns simply by working longer for you. 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 $2,083 a month for 40 years to accumulate $1 million, you can achieve the same $1 million portfolio by investing just $700 a month at an annual compounded investment return of 5%. Think of it as using the right power tools to build your house—you can complete the construction on time while using much less manpower. Whether you are aiming for the magical $1 million or want to accumulate enough to retire or semi-retire comfortably, it’s important to recognise that by saving alone, you will take a long time to reach your financial goals. Instead, you should invest your savings to achieve your investment goals more quickly while allocating a smaller amount of money towards these goals. It's free! Don't miss out on the latest financial market movements. FSMOne aims to help investors around the world invest globally and profitably, follow for bite-sized finance analyses and exclusive happenings.