Learning how to become a millionaire means overcoming unthinkable obstacles. Understand that if the opportunity to “get rich quick” seems too good to be true, it likely is, and building wealth over time boils down to planning, temperament, and discipline. When you experience an economic downturn, which most of us will eventually in our lives, don’t panic.
Instead, understand that there are highs and lows in any journey, including your path to becoming a millionaire. You can become a millionaire—regardless of your family’s money or your education. It has everything to do with you. Here are 15 ways to become a millionaire.
1. Financial Plan:
Setting a plan with your tolerance for risk, target returns, earning, investing, and saving can have a massive impact on your finances. Successful individuals plan for their future. They also do not dump their money on risky, quick schemes that do not work.
Instead, they come up with a financial plan to get an asymmetric risk-reward relationship, where they take the least amount of risk and get a different amount of potential reward.
For instance, would you risk $1,000 with a 50 percent probability of making $1 if there was an equal probability of losing your initial investment? You’d rather risk $1 with a 50 percent probability of making $1,000. This is an asymmetric risk-reward situation.
Let’s Look At A Plan For Savings:
Learning how to become a millionaire involves understanding the percentage you invest. The average personal savings rate in the U.S., including retirement savings and emergency funds, is 5.5%.
If we apply that percentage to the median household income of approximately $59,000, it calculates to $3,245 a year or around $270 per month. Invested over 30 years, assuming a 10% rate of return, that money could turn into $586,256. That number looks great, right? Not until you see that the average couple will need $280,000 for medical expenses in retirement, and that doesn’t include long-term care.
If you subtract $280,000, you’d only have about $306,000 left. Can you live off that for two decades? It ends up being only $15,300 per year! On the other hand, if you invested 15% of that $59,000 income, you would be putting away $8,850 a year or around $737 a month. Over 30 years, that could grow to $1.6 million, assuming a 10% return. And if you waited just five more years, you’d be sitting on over $2.3 million.
If you’re not sure, now is a good time to hire a financial planner who can make plans for you based on your current wealth, age, willingness to take risks, and other factors.
2. Research:—
If you study the habits of millionaires, you will find that many are voracious readers who enjoy the process of researching their respective fields. People say that Warren Buffett reads for hours every day, including the annual reports of the companies he invests in or is thinking about investing in.
Even if you don’t have the time to read annual reports cover to cover, this doesn’t mean you can’t effectively research investment strategies, opportunities, business ideas, etc. Also, look for ways to join a community by listening to a podcast or audiobook or reading on the bus.
3. Equity Ownership:
There are few millionaires and billionaires who do not own equity in a business or real estate. Entrepreneurs start out by establishing what has been coined “sweat equity,” named for the level of hard work they invested in building the business and the subsequent value they created.
Most people are not entrepreneurs, but this doesn’t mean you can’t build equity. When hiring, it’s a common negotiation tactic to offer options or shares in the business, depending on the stage of the company. There’s a huge advantage to investing in shares of a company if you ever get the chance to receive equity or stock options.
This gives you skin in the game, which will likely make you more passionate about your work and the success of the business. If you buy a share on the stock market, you technically own a piece of that company’s equity. This means you should act like an owner, but you should keep your emotions in check when it’s time to sell.
4. Invest:—
Investing in a diverse basket of stocks and bonds, such as index funds with low expense ratios, has been a good way to make millionaires and billionaires for a long time. In addition to knowing this, investing early helps you become a millionaire.
$300 a month, beginning at age 25, is all it takes to reach millionaire status by age 60. By age 67, you’d be sitting pretty on a $2 million nest egg come retirement. That’s just $300 per month!
If you waited until age 35 to start investing, you’d have to put away $800 per month to hit the million-dollar mark by age 60.
5. Re-Invest:—
Dividends are a way for some investments to make money every month, quarter, or year. It can feel like an extra paycheck that you should immediately spend, but this isn’t the millionaire approach.
You should keep reinvesting your dividends until you’re ready to retire and have saved enough money so that the principal amount in your accounts can cover all of your living expenses. This will add to your principal investment balance, which is also called your cost basis. This means you own even more shares and get more dividend income.
6. Diversify Investments and Income Streams:
If most financial advisors agree that diversification is a good way to manage a portfolio, then this strategy should work for other businesses and investments as well.
An average successful entrepreneur has many sources of income. Whether you’ve built your earnings and net worth based on active or passive income strategies, or a combination of both, you should look to diversify and differentiate your sources of income.
This makes sure that if one source of income suddenly goes away, it won’t affect all of the entrepreneurs’ income, but only a part of it. Differentiation doesn’t necessarily mean you need to start multiple businesses simultaneously, but you should look for other opportunities to invest. Put money into real estate, building a side-hustle business, investing in public equities, etc.
7. Increase your income to reach your goal faster:
If you crunch the numbers and realize you still can’t save the recommended 15%, you do need to increase your income so you can.
Start by getting a job that pays more. Take on a second job temporarily. Train to increase your education, skills, and expertise to increase your salary.
8. Avoid Debt:
Speaking of student loans, you can get a loan for pretty much anything nowadays. You should get what you want when you want it, like buying a new house and paying for it later, right?
In reality, this debt is the worst idea. Every time you buy something on credit, you’re digging a deeper hole for yourself. That money you’re sending to lenders could be yours to keep! For example, take the average car loan, which has a monthly payment of $523 and a term length of five years and nine months.
If you were to invest $500 a month for five years instead, you could have $40,000! And had you invested that $40,000 for another 20 years, you would have made almost $270,000! Now where’s that car after 25 years? Most likely in a junkyard somewhere.
Bottom line: Get rid of debt as soon as possible.
9. Become tax-efficient:
Paying taxes is something that everyone must do, but all taxpayers aren’t created equal under the tax code.
When you think about your return on investment, it’s important to know how debt, equity, income, investments, charity, children, and other things affect your taxes. The difference between a tax bracket of 10% and one of 37% can have a big effect on your actual returns.
10. Rebalance Portfolio:
As your risk tolerance changes over the course of your investing career, rebalancing your portfolio is an important part of long-term value investing. For example, if you’re getting close to retirement, you might be more interested in a liquid store of wealth than Wall Street’s most popular momentum stock to help keep your money safe in your later years.
11. Work Hard:
Success comes from preparation, hard work, and learning from failure. Even with today’s fast-paced technological innovation, overnight success stories rarely happen as fast as people imagine. The development of technology wasn’t born “overnight.”
12. Cut Unnecessary Expenses:
As you work on learning how to become a millionaire, use money with intention. So sit down and evaluate your expenses regularly. Look at your budgets from previous months to see where money may have been unnecessarily spent.
If your budget has been cut to the bone and you still can’t put away 15% of your gross income every month, you can still cut expenses.
Downsize to another home with a smaller mortgage payment and cheaper utility bills. Move to another part of town or even to another city altogether where the cost of living is more affordable.
13. Keep Your Millionaire Goal Front and Center: —
Learning how to become a billionaire runs parallel to most people’s behavior. Just this year, a study showed that 57% of Millennials said they spent money they hadn’t planned to because of what they saw on social media.
And 88% of them, along with 71% of Gen Xers and 54% of Baby Boomers, believe social media creates a comparison problem.
Millionaires don’t play the comparison game. They stayed focused on their own goals and didn’t worry about what other people were thinking or doing.
14. Work with an Investing Professional:
Parents can appreciate the weight a teacher pulls when they have to help children with homework. Asking to find a tutor who’s in the game and who’s better at it is an efficient stepping stone. Working with a financial professional is no different.
One study from John Hancock showed that 70% of people who work with a financial professional are on track or ahead in saving for retirement, compared to just 33% of those who don’t use an advisor.
And another study found that people who have no retirement plan have, on average, around $45,700 in retirement savings. Those who have a written plan made by a professional advisor have, on average, about $203,000 saved for retirement.
15. Time:—
To become a millionaire, allow time and compound growth to work. That’s why you’ll often hear that investing is a marathon, not a sprint. Big financial goals need to be focused on small actions for decades. You have to stay out of debt. You have to keep investing.