Barbara Friedberg* says becoming a millionaire isn’t as out of reach as it seems to most people and shares tips on how to get there.
Conservative retirement estimates indicate that most people need at least a million dollars at retirement.
This is a daunting number for sure, especially for people who didn’t begin saving at the ripe age of 16.
Never fear! It’s not to late to start learning how to become a millionaire.
Like any big goal, breaking it down into bite-sized steps makes it more attainable.
And, you don’t need to earn big bucks to end up with a million dollars!
There are stories of janitors, barbers and librarians amassing a million on an average (or less) salary.
Whether you’re looking to save a million dollars for your retirement or are hoping to learn some millionaire secrets so you can live in financial independence in your 30s, there are ways for you to bring your goals into reach.
- To become a millionaire – check your behaviour
Are you living like you want to become a millionaire?
If not, now’s the time to change.
Becoming a millionaire means living below your means!
In fact, it’s difficult to recognise most millionaires, as they look like you and me. They didn’t get rich by living extravagantly.
Consumerism is a difficult foe to tackle in this age of near-constant advertisements.
We’re frequently bombarded with messages that tell us we aren’t worthy or successful if we don’t have the latest gadgets, the trendiest clothes, or a sports car.
Ignore those messages, and your bank account will thank you.
This is far from suggesting that you need to make painful sacrifices and live in misery for a decade or more.
However, one of our millionaire secrets is that you need to be selective about where your money goes.
Some ways to be conscious of your spending are:
- Keep your mortgage at a reasonable percentage of your income.
Most experts recommend that your housing expenses not exceed 30 per cent of your take home pay!
- Be thoughtful about your car.
Purchasing a used vehicle can be a cost-effective way to secure the kind of car you want (yes, even a sports car) at a price tag you can live with.
- Align your spending with your values – spend on what’s truly important, not to keep up with the Jones’.
- To become a millionaire – max out your retirement funds
Maxing out your 401(k) [superannuation] is one of the basic steps to becoming a millionaire.
First, if you don’t at least take advantage of your employer’s match, you’re throwing money away.
If you can’t afford to max out your contributions (which is $18,500 per year as of 2018, plus a $6,000 catch up allowance if you are over 50), you should at least make an effort to invest as much as your employer will match.
[A$25,000 concessional contribution cap, from 1 July 2017 to 30 June 2021. A$100,000 non-concessional contributions cap from 1 July 2017 to 30 June 2021.]
This might be the easiest way ever to become a millionaire.
If you can invest $18,500 per year and earn a seven per cent return on average, it will take you 23 years to become a millionaire.
We have contributed the max to our retirement accounts for decades, and learned to live on the remaining money in our checking account.
There were months where money was tight, but after many years using this approach, the results are well worth it.
Don’t forget to weigh your options here; both 401(k)s and IRAs are good investment options, as long as you aim to max them out.
If you can max out both your 401(k) and IRA, your money will compound more quickly.
- To become a millionaire – automate your savings
While we’re on the topic of tucking away money, you may as well set up direct deposits or automatic transfers to your retirement funds.
If you never see this money hit your bank account, you’ll be less likely to spend it.
If you can’t access the money, you’re likely to let it grow and compound for years.
I know we said tip #2 was probably the most important step to becoming a millionaire, but this tip is tied with maxing out your retirement funds as the most important millionaire maker tip.
Humans are typically lazy and once a behaviour is set into place, we tend to leave it alone.
Setting up a direct deposit into a separate savings account is a good way to do this, but automatically investing in something that is much more difficult to access, such as an IRA and a 401(k), is much, much better.
It puts your money to work right away, and keeps you from spending it on seemingly urgent expenses.
By automatically transferring money from your paycheck into your retirement accounts and possibly another emergency savings account, you can spend what’s left.
No need to budget, as your most important savings goals are taken care of.
- To become a millionaire – diversify your streams of income
This does not necessarily mean that you should work 80 hours per week at multiple jobs—although picking up some extra work is definitely a good idea, particularly if you’re aiming to pay off debt or rapidly save.
Working the sorts of jobs that require you to physically work in some way are active income streams, and those won’t always help you become a millionaire.
Instead, you should aim to diversify your streams of income in ways that help you work smarter, not harder.
You’re looking for passive streams of income, or sources of income that make you money almost autonomously.
There are countless ideas for side-hustle ideas.
Examples of this include investing the savings from your 9-5 into a duplex or triplex.
Live in one unit and have the other unit cover most (or all!) of your mortgage.
Continue stashing away money until you’re able to afford a second multifamily home, which you can rent out entirely.
Investing is a perfect example of how the dividends and capital gains of your stock market or REIT (real estate investment trust) investments continue to grow, without much oversight.
If you’ve got a spare room, consider renting it out to defray the mortgage costs.
The key to becoming a millionaire is to make your money do the work for you.
Pursue it diligently, but not at the expense of your time—the sooner your income streams turn passive, the better.
- To become a millionaire – surround yourself with like-minded people
Mum’s advice from your teenage years still holds true: you become like the people you spend the most time with.
Spend your time with other millionaires if you want to become a millionaire.
This tip doesn’t mean you need to surround yourself with millionaires.
What it does mean is that you should surround yourself with those that share your values and goals.
If you’re striving to build wealth, and all your friends are living and spending for today, it’s tough to stay focused on your own goals.
The millionaire habits you create, can become embedded in your behaviour and lead to wealth. My Dad was very poor growing up.
His goal was to become a millionaire, and he achieved that goal. His millionaire lifestyle habits were ingrained in my lifestyle.
Our family made deliberate lifestyle choices to facilitate the millionaire goal.
Dad drove a luxury car, but bought it used. My parents bought a big house – that needed work. They rehabbed the house to create value.
Of course, you’ll want to avoid people who spend millions of dollars.
If you’re looking for millionaire secrets, look for people who live frugal and intentional lifestyles, and who can be both mentors and sources of inspiration for you.
- To become a millionaire – think big, and act accordingly
Working an extra few hours a week for minimum wage won’t get you to millionaire status.
Cutting Starbucks visits won’t help much, either. In order to become a millionaire, you need to think bigger picture and take some steps that might seem scary.
Some things that might seem scary but could pay off are:
- Taking an opportunity presented at work that is outside of your comfort zone, but can increase your outreach or networking (like speaking at a conference, or representing your organisation at a national gathering).
- Taking a portion of your money and making a high-risk investment.
Going “all in” is rarely a good plan, but changing up your investment style can have high rewards.
That could mean devoting a greater portion of your investment dollars to stock investments, when you’re younger.
- Starting a side business with a friend or family member, like splitting the down payment on a fixer-upper and sharing the profit after you flip the house.
Always weigh potential risk against potential reward, and make sure you have some a backup plan in case things don’t work out.
- To become a millionaire – stop making excuses
A wise person once pointed out to me that there is a big difference between making an excuse and stating a reason.
We all have reasons that our net worth might drop; maybe your car needed substantial repairs, or a series of micro-emergencies drained your hard-earned emergency fund.
These are good reasons for your financial setback, and all you can do to compensate is try to plan for the unplannable, or pick yourself back up after these events occur.
Excuses, on the other hand, are less, well, excusable. Have you ever thought one of these things about yourself?
“I can’t make a million dollars—I’m not smart/innovative/creative enough.”
“I’d love to enact these ideas, but I just don’t have the time.”
“Sure, this works for other people. I’m just too focused on my *real* job to make any extra money right now.”
These excuses are ways you are selling yourself short.
Essentially, you are in your own way to becoming a millionaire.
Which excuse tends to stop you from pursuing your dreams? Identify it, then try replacing the thought with something more positive.
For example, “I don’t have the time” can become “I have 15 minutes right now: what can I do in that time that will help push me toward my financial goals?”
You might be surprised at how small simple changes can lead to big results.
You can become a millionaire at any age – wrap up
These seven secrets to becoming a millionaire are stepping stones to cultivating your first million dollars.
Some of them can be completed immediately, like changing your behaviours, setting up automatic deposits to max out your retirement accounts, and seeking out opportunities to network with like-minded people.
Millionaire interviews are a great way to learn about how others have reached this goal.
Over at ESI Money, John gets granular when interviewing millionaires.
Other millionaire secrets include not making excuses and diversifying your streams of income to generate passive income.
Keeping the big picture in mind and acting accordingly will also help you on your trek to becoming a millionaire.
*Barbara Friedberg is an investor, former portfolio manager, & university finance instructor.
This article first appeared at barbarafriedbergpersonalfinance.com
