3 Simple Steps To Become A Millionaire

money-1428587_640What is it about becoming a millionaire that makes us strive for that amount of wealth? Is it the way millionaires are portrayed on television that makes us think that once we achieve that level of wealth we are set? We can buy a jet, a mansion, a boat, etc. and spend our money frivolously?

Judging by what we see on reality television, this is how millionaires live. In reality though, most millionaires don’t live this lavish lifestyle. In fact, only the super elite actually live a life where they can spend money without thinking about it.

But this doesn’t mean you should just give up the dream of becoming a millionaire. While you might not get to spend money without thinking about it, it will allow you to be more relaxed with your spending.

You can take a vacation every year without getting too concerned with it costing you $2,000. You can choose to stop working a little earlier than 65.

But how do you actually get to millionaire status? Below I show you the 3 ways that if you follow, you will become a millionaire. The good news is that all of the tips below are relatively easy to put into practice. Let’s get started!

3 Ways To Become A Millionaire

#1. Automate Your Savings

If you are like most people, you spend first and then save everything that is left over. The bad news with this strategy is that most times, there is nothing left over to save! This is why most Americans save nothing. If you are saving nothing, it is going to be hard to grow your money. Therefore, something has to change. That something is how you save.

Instead of spending first, saving later, you will save first, spend later. Start out with a reasonable number, like 10%. For example, if your paycheck is $1,000 you want to save 10% of this, or $100. Over the course of the year, you would save $2,600 assuming you are paid bi-weekly.

To do this yourself, look at your paycheck. Multiply the amount of the check by 10% (0.10) and the answer is the amount you need to save.

The easiest way to save is in your 401k plan at work. Just contribute 10% to your plan and you are all done. Simple, right? If you aren’t covered by a 401k plan, then you will need to save the money yourself. Again, though, just automate.

Virtually all banks will let you set up an automatic transfer from your checking account to your savings account. Just set up a recurring transfer of 10% of your paycheck every time you get paid.

Of course, if you can easily save more than 10% of your income then save more! Whatever amount you save to start, the key is to first start saving something and then to keep increasing the amount you save every year. Try to eventually get to 30% and watch your wealth grow!

#2. Keep Spending In Check

You will never become a millionaire if you always owe others money. What do I mean by this? I am talking about debt. If you are always in consumer debt (credit cards, auto loans, etc.), paying someone else interest, you will never get ahead financially and will never become a millionaire. It’s just how it works.

You need to learn how to live within your means. Once you save your 10% (or the amount you can afford), you can spend every last penny that is left over. But, you can’t spend one cent more. That means no more putting purchases on your credit card to cover you until next month. If you can’t afford something without going into debt, then you can’t afford it and must wait to buy it.

I know this doesn’t sound fun, but you want to become a millionaire right? Well, this is how all those people became millionaires. They waited until they had the money to buy the things they wanted.

#3. Learn To Invest

On my site, I talk about investing all of the time. It is much more basic than everything you read out there. At the end of the day, all you need to do is pick a few low cost investments and hold them for the long term. This means you hold when the market is rising and you hold when the market is falling.You even hold when “there is blood in the streets” and the market is tanking like it did back in 2008. In such situations, contemporary art investment could be a secure option for both new and experienced investors.

The reason you do this is because investing in the stock market works over the long term. Most of us are focused on the short term and when the market falls, we freak out and sell our investments. Then we wait.

The market rebounds and starts rising, but we are still too scared to get back in. Once the market has been rising for a while, we become comfortable with the idea of investing again, thinking the good times will keep going, even though they won’t. We invest our money. Shortly thereafter, the market crashes again and we run for the hills.

Your emotions are what ruin your investment success. If you can control the two biggies – fear and greed – you will be a successful investor. I go into more detail about all of this on my blog.

The keys though are that you pick low cost investments, keep investing more (maybe use automation like in the first tip?), and stay invested throughout the years.

Putting It All Together

Once you start saving first and keep your spending in check, you will begin to notice that in time, you will have a nice chunk of money. In the coming years, as you invest more of your money, you will notice that your money will grow faster and faster thanks to the power of compounding.

For example, using the numbers from above, say you save $3,000 in an investment every year for 15 years. During this time your investment earns 8%, which is what the market has averaged historically. After 15 years you have close to $100,000.

I know this post is all about being a millionaire, so here is how you get there. If you can save 25% of your $30,000 for 30 years, you will have $1 million dollars. If you don’t want to wait 30 years to become a millionaire, you have some options:

  • Cut your spending so you can save more
  • Increase your income by getting a raise or promotion
  • Increase your income by earning money on the side

Any one of these (or all of them together) will shorten the time it will take you to become a millionaire.

Notice that investing in higher return investments is not on that list. This is because when you increase return, you increase risk. It’s not worth it to go this route. As sexy as a 15% return is, it is not something you can expect to earn annually over time.

Remember, your emotion of greed gets you into trouble. Becoming a millionaire doesn’t happen overnight. It takes time. The only real way to become a millionaire overnight is to win the lottery, and in most cases, those people end up penniless because they don’t know how to control their spending.

You learn how to control your spending when you follow my tips above and when you become a millionaire, these lessons will ensure that you remain a millionaire.

Jon blogs at Money Smart Guides, a personal finance blog that helps readers get out of debt and start investing for their future.

 

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