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These 2 Charts Are Just About All You Need to Know to Become a Millionaire

Save steadily, begin early and don't let the financial so-called advisers from taking too a big of a bite.

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There are an endless number of books, podcasts and talking heads that will sell you on their methods for gaining financial freedom. Buyer beware! In reality, once you sort through the noise, financial freedom is not that complex and doesn’t require a guru to tell you to stop buying fancy coffee or carry around your entire monthly budget in earmarked envelopes full of cash because credit cards are evil.

John Holcroft | Getty Images

Sure, there a handful of do’s and don’ts but, at the end of the day, there are two core tenets that must be understood, embraced and put into practice. Since a picture is worth a thousand words, we will look at two charts that contain keys to unlocking your freedom.

Telling someone to start saving early is like saying you should exercise for your long-term -- advice from Captain Obvious. In both cases, few people begin doing what they know should until it’s too late. The chart below will either delight or frighten. This chart shows how much you need to save per year if you plan on having $1 million for retirement (age 65).  This assumes a 7 percent annual return, which is based on having a balanced and well-diversified portfolio.

Related: Which is Better: an IRA or a 401K?


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Depending on your lifestyle, $1 million might seem like plenty or not nearly enough -- you must determine how much you will really need. But the point here is that you don’t need to win the lottery or sell your company to Google. The power of compounding can allow anyone to achieve financial freedom, especially those willing to start early. When Jeff Bezos asked Warren Buffet why more people don’t follow his simple time-tested advice, he quipped “because nobody likes to get rich slow.” The U.S. is the wealthiest nation in the world, yet 58 percent of Americans don’t have $1,000 saved for retirement. Let’s make sure we don’t become part of those grim statistics.

Related: You've Scored a New Job. Here's What to Do with Your 401(k) Funds.

Assuming you are committed to saving, what can derail your success? Well, what if I told you that the financial industry would like nothing more than to effectively confiscate as much as half of your future nest egg? That’s right. Imagine being disciplined enough to set aside the right amount to reach your $1 million goal only to end up with $500K? How could this be possible? Simple: the slow bleed of excessive fees being charged to your account. Fees are like termites. They seem small but, if not addressed, they will eat your entire house to the ground.

The chart below shows the impact of excessive annual fees. Let’s say we invest $5,000 per year over a lifetime (45 years) with 7 percent annual growth rate. Then we show the impact of fees on that same investment. Notice how a seemingly small percentage erodes the future balance.

Related: Out of work? Advisors offer important 401(k) dos, don'ts

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Sure, nothing in life is free but, as you can see, getting your annual fees as low as reasonably possible is crucial. How does one get a handle on their fees? How does one know how much they are actually paying given that the Department of Labor says over $17 Billion is lost in hidden fees each year (somehow hiding fees is legal, which is another discussion for another time)?

I suggest you start with your 401k, as this will be the primary retirement vehicle for most Americans.  Here is what you can do…

If you are a business owner, you should have your plan analyzed and benchmarked against low cost alternatives. In fact, as the “plan sponsor,” you have a legal obligation to do so but most don’t (watch out for the Department of Labor who may come knocking). You can request a copy of your employer-fee disclosure (also called the 408b2) and this will itemize your fees. Note: They can be lengthy and opaque, so finding an expert to help you decipher may be important.

If you are an employee, you can request a copy of the employee fee disclosure (also called the 404a5) from your existing provider. This should show all the pertinent fees being charged to your account. I would suggest that you talk to HR or the business owner about having the plan analyzed for cost savings.

Financial freedom is a goal that nearly everyone can achieve if they are willing and disciplined. Yes, there are many landmines to avoid. including many are set by the financial services industry. Let me summarize a short list of do’s and don’ts that should greatly serve you in your journey:

  1. Start saving early and do whatever it takes to catch up (and automate it so you don’t even think about it).
  2. Avoid excessive fees.
  3. Avoid any advisor who is paid commissions or is otherwise incentivized to sell you a particular investment. Find a “fiduciary” advisor who is obligated to put your interests first, doesn’t have a dog in the fight as to which investment you select and won’t peddle their own proprietary investments. Oh, and get that commitment in writing! (Note: Brokers outnumber fiduciary advisors nearly nine to one).
  4. Avoid chasing expensive actively managed funds and stick with low-cost index funds.
  5. Don’t buy expensive life insurance as an investment tool.
  6. Be tax efficient! Max out your tax-advantaged accounts first (401k, IRA, Roth etc).

The path to financial freedom might be narrow but only because most people have wandered off on their own or been steered in the wrong direction by a “professional.” Keep this list as your map, and I encourage you act now. Your future self (and your family) will thank you!

Tom Zgainer

Written By

Tom Zgainer is CEO and Founder of America’s Best 401k, which offers a proprietary 401(k) fee checker tool.