Take the One-Year $1 Million Challenge

How can you become a millionaire by the time you retire? Maybe you have a “million dollar idea” or are well on your way to rising up the ranks in the finance world. You’re on the right track, but it’s going to take some work. Perhaps you plan to marry into wealth. That seems easy but it can take a psychological toll and leave a hole in your heart that no amount of money can fill.

The Motley Fool has a simpler idea that only takes one year (plus 41 years of waiting for the payout), and it’s all based on every investor’s best friend: the power of compounding.

The One-Year $1 Million Challenge

If you do the following by 26, you'll be a millionaire when you hit retirement:

How is that possible? Check it out: “In 41 years of compounding at 10% annually, $20,500 ($15,500 in a 401(k) and $5,000 in an IRA) will turn into $1 million.”

Needless to say, there are various considerations to think about before you go accept this challenge. Can you afford to save that much money between paying rent and living day to day? Do you even make that much money? If so, are you prepared to lock it up for the next 41 years and never touch it?

People have their different opinions on 401(k) and IRA plans, but the real point here is this: when it comes to saving and investing as a recent grad, time is very much on your side. Even if you can’t hit the $20,500 mark, any money you can put away now will grow tremendously over time with compounding interest.

And remember, it doesn’t have to be in one lump sum, either. You may have to start cutting back on the lattes and flat screens, but if you’re not a “live fast, die young” type, that’s a small price to pay to retire with a milli in the coffers.