28 KIPLINGER’S PERSONAL FINANCE^ 09/2017
SIMON BRUTY
MONEY
count). Money taken out of a 401(k)
isn’t growing, which means you’ll miss
out on any gains you would have cap-
tured if your money had been invested
in the stock market or other assets. In
addition, some plans won’t let you con-
tribute to your account until the loan
is paid off, which puts you further be-
hind. And if you leave your job before
the loan is repaid, you’re usually re-
quired to pay off the balance within 30
to 60 days. If you can’t come up with
the money, the loan will be treated as
a distribution. You’ll have to pay taxes
on the entire amount, plus a 10% early-
withdrawal penalty if you’re younger
than 55—a major detour on your road
to becoming a millionaire.
Automate your saving. You can’t spend
money that isn’t in your take-home
pay, so take advantage of your employ-
er’s 401(k) or similar retirement plan
to put your savings on autopilot. Con-
tributions to a 401(k) are pretax, and
money inside the account grows tax-
deferred until you take withdrawals,
which boosts your annual return. Plus,
if your employer matches a percentage
of contributions—and most large com-
panies do—you’ll have an even better
shot at reaching $1 million.
Most 401(k) plans allow you to
borrow, but if you want to reach the
$1 million mark, you should reserve
this option for genuine emergencies
(remodeling your kitchen doesn’t
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INTERPRETING, OF WHICH
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SIGN THE COM PANY’S
VALUES AND PURPOSE
(CLOCKWISE FROM
TOP RIGHT): GROWTH,
EQUALITY, INTERPRETING,
TRANSPARENCY AND
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1
household wealth. In a survey of
households with investment portfolios
worth $3 million or more, U.S. Trust
asked people how they had accumu-
lated their wealth. More than half of
those responding (52%) cited earned
income from a job or business, 32%
cited investments and 10% credited an
inheritance. So it appears that the vast
majority of the group are self-made
millionaires who follow a straightfor-
ward formula of working hard and
using their income productively. We
outline five routes to success.
Live Like a Million Bucks
Let’s start with the basics. One of the
biggest barriers to reaching the $1 mil-
lion milestone isn’t a stock market
meltdown or even a brief period of un-
employment. It’s something financial
planners call “lifestyle creep”—buying
a bigger house or nicer car every time
you get a raise or bonus.
Loads of studies suggest that buying
more stuff won’t make you happier.
But even if you’re convinced that a
luxury car will bring you joy, the
money you spend to buy and maintain
your new vehicle won’t be available
to compound and grow. Quite the op-
posite: Cars begin to depreciate the
minute you drive them off the lot.
And although real estate can be a good
investment (see below), buying a big-
ger house means you’ll need to spend
more on utilities, furniture and land-
scaping, leaving you with less money
to save and invest.
One of the most effective ways to
rein in spending is to dedicate a spe-
cific percentage of your paycheck to
savings every month. Leon LaBrecque,
a certified financial planner in Troy,
Mich., recommends saving 18% of your
gross paycheck. That’s a big ask for
someone starting out, so he suggests
beginning at 4% and increasing your
savings rate by one or two percentage
points a year until you hit 18%. Start-
ing early is key: The sooner you start
saving, the less you’ll have to put aside
each month (see page 33).
