In order to have $1 million invested so that you can safely withdraw $40,000 a year, you’ll need to fast track your savings. To do this you will have to save a high percentage of your income each and every month and invest that in a low cost index fund.
If your company has a 401(k) matching then that’s free money on the table. You don’t want to leave money on the table by not contributing to this matching. This is also a way to increase your savings rate. If you can save an upwards of 50% of your income, it will mean that you can retire earlier.
There are two approaches to this. Increase your income and decrease your expenses. Because it is generally more difficult to increase your income, most people tend to focus on decreasing expenses.
You can increase your income by having a side business in addition to your day job. This can include a plethora of things including selling products or services online, working another job, etc. I generally don’t like the idea of working another job if it takes away from your time with family. Find something that is scalable and not getting paid for exchanging your time for money.
Decrease your expenses by cutting out things in your life that you can go without. Cut the cord for cable and watch things online. Cook at home more often and don’t waste money eating out. Bring your lunch to work instead of buying a meal. Make your coffee at home instead of buying one at Starbucks everyday.
The key to both of these theories is consistency. You cannot just save money once a year and expect to have a heap of cash by the end of 10 years. You’ll have to consistently save money from each paycheck. Consider setting up an automatic investment withdrawal. You also cannot just skip the Starbucks once and expect to have more money available.
Stick to it and be rewarded. What examples do you have for increasing your income or decreasing your expenses?