If you’re looking to become a millionaire, we’ve got some good news and some bad news. The good news is that it’s more than possible to become a millionaire, even with a modest income. The bad news is that it requires hard work, discipline, and a tight focus on achieving that goal.
It also requires that you follow a number of steps, and get into a number of habits. In this guide, we’ll take you through them. By following these steps, you can start to build long term wealth, and eventually end up a millionaire.
How to Become a Millionaire Overnight
This might sound like too cautious an approach. Surely there are ways of becoming a millionaire overnight, with no work?
Well, maybe. The problem is that most of them – winning the lottery, coming into a massive and unexpected inheritance – rely on luck. And because of that, there’s little point in worrying too much about them. Winning the lottery, in other words, is a huge long-shot. In order to make the business model pay, the odds need to be higher than a million to one.
In reality, there are a number of well-established rules, techniques, and approaches that are used by people who are already on their way to becoming millionaires, and which are a far surer bet than a lottery ticket.
One of those is, of course, to get a very high paying job as a computer engineer, banker, or professional sports star. We’re going to assume here, however, that it’s too late for you to do that. Instead, let’s assume that right now you have an average job, an average salary, and average expenses. How can you turn that into a million dollars? Well, here’s how.
1. Love Your Work (and do more of it)
First, the bad news. If you want to become a millionaire, you’re going to have to work for it. That might come as a disappointment to some people – those who asked what they will do after they have a million dollars, reply “quit work”.
Here’s the reality. No-one has ever become a millionaire doing a job they don’t enjoy. When you love what you do, you do more of it, and you do it better. And by doing it better, your extra effort and skills will be noted by your boss, and you’ll find yourself getting promoted pretty quickly.
This leads to something of a counter-intuitive conclusion. It might be worth it, for many people, to quit their job for one that is lower paying but more enjoyable. By swapping your current job for one that you enjoy more, or which has better opportunities for advancement, you are taking a long-term view of your future. And that is what you need to do if you want to end up becoming a millionaire.
This advice might not be for everyone, of course. It could be that you hate your job, but that you can’t afford to quit. In that case, falling in love with your work will probably mean finding another income stream. You could start a business doing what you love, or look for a part-time evening job – whatever excites you, and allows you to love the work you do.
2. Avoid Debt
Second, if you want to be a millionaire you should avoid debt at all costs. It might be tempting to take low-interest credit card loans in order to get yourself out of a hole, but ultimately they are going to put you deeper into that same hole.
That truth can sometimes be hard to see, however. Nowadays, many credit card companies will offer you money back when you make purchases, in order to encourage you to use their cards. They do this, however, because they know that in the long run they will make even more money from interest.
To see this, let’s crunch the numbers. Let’s assume that you take on a debt of $5000 at 16% APR – typical of most Americans – and you pay back the minimum amount each month. That minimum will be around $100, and at that rate paying off the debt will cost $3,140 in interest and take you 82 months — or almost seven years.
In other words, even a small amount of debt can stop you from saving and investing – where your money is growing, and not costing you extra.
3. Start Saving Soon
There is another trick to building long-term wealth – start thinking long-term as well. And one of the best ways to do that is to recognize the amazing benefits of compound interest. If you start saving early, even if you are only saving a little each month, you will find that your savings are significantly larger when you reach retirement.
Practically, this means that you should start saving as early as you can, even if you are only putting aside a tiny amount each month. You should put this into an account with the highest interest rate you can find, so shop around for a savings account that is paying a good rate. Then, pretend you don’t have the money. The best way to think about your savings is that they are yours forever – whether you eventually end up investing them in a house or your kids’ education or even a yacht, you will never lose the dollars you put aside in this way.
4. Cut Down on Expenses
A fourth technique for building long-term wealth might seem obvious – make sure you are earning more than you spend. But behind this seemingly simple piece of advice lies a great deal of complexity.
That’s for two reasons. One is that quite a lot of what we buy is on credit, in one way or another. Most people will take out an auto loan, for instance, in order to buy a car, and because this is so normal a lot of people don’t even think of it as debt. But it is, and it means that the lender will be taking money from your paycheck every month.
The second reason is what is known as “lifestyle creep”. If you are professionally successful, it is natural to reward yourself by buying luxuries that even a few years ago would have seemed like a crazy expense. People who manage to become millionaires are those who manage to avoid this temptation.
This is, in part, because they like their lifestyle. If, as pointed out above, you love your job, it’s unlikely that you are thinking about how much you are earning every day, week, or year. Instead, and in a slightly strange way, it is often those people who care least about money that are happiest with what they have – whether this is a hundred dollars or a million.
4. Start Investing
Finally, once you have an emergency fund safe in the bank, you can start to think about investing. The same rule goes here as for saving – the earlier you start investing, the bigger the advantage you will get from it.
That said, there are many different types of investment, and not all of them are suitable for everyone. Day trading stocks and shares, for example, is a risky business that can end up with you losing a lot of money. Far better, for most people, is a long-term approach.
If you want to be a millionaire by the time you retire, for instance, you will need to think on that timescale. And the best way to do that is to invest a small amount of money regularly in an index fund that tracks the stock market as a hole. Although these funds might not make you massive gains quickly, they offer very low risk, so are the surest way to meet your financial goals.
To see why, let’s crunch the numbers again. If you invest $25,000 in an account that earns 3% interest compounded monthly and don’t invest any additional funds, you’ll have $45,518 in 20 years. Leave that money in the same account for 30 years, and you’ll have $61,421.
The Bottom Line
The bottom line here is that there is no easy way to become a millionaire. If there was, everyone would be doing it!
Instead, becoming a millionaire requires you to work hard, minimize your expenses, and invest in a way that builds long-term wealth. That won’t make you a millionaire overnight, but keep following those rules and, in a few years, you might just be one.