Unless you win the lottery, have a rich uncle, or are extremely lucky, there is no quick path to becoming a millionaire. A lot of people look for get-rich-quick schemes, but the truth is that they do not really exist.
Becoming a millionaire is a goal that many strive for, but few obtain. This is often because it’s hard to put in the work required or because people aren’t confident they can actually achieve wealth.
However, the average person is indeed able to become a millionaire. However, it will take more work than just winning a scratch ticket!
Characteristics of a Millionaire
There are certain characteristics that virtually every self-made millionaire has:
- Patience. It is nearly impossible to become a millionaire overnight. Getting rich takes time. For example, you must be patient to finish years of schooling or to wait for the interest to compound on your investments.
- Perseverance. To persevere means that you work towards a goal until it is accomplished. If you are going to become a millionaire, you must be committed for the long haul. Consider it a marathon; you can’t just give up two years into the process if you’re on a five year track.
- Hard Work. Becoming a millionaire will probably require long nights and tough decisions. You may have to work on weekends or find a second job. Or if you’re in school, you’ll need to do whatever it takes to be at the top of your class.
- Sacrifice. You’ll need to give up some of what you want now to have more of what you want later. These sacrifices may include a new car, a summer vacation, or dinners out. They may also include giving up some time with friends or family.
- Courage. It takes guts to step out of your comfort zone, even when stepping out is the only way to achieve your goals. For instance, applying to the top schools in your field or for a promotion takes courage. After all, you could and probably will be rejected at least once. What’s more is you need to come back from rejection and try again if you want to change your life. The difference between those who are successful and those who fail is often simply that the successful ones just kept trying.
Ways to Become a Millionaire
Implement some or all of the following 12 strategies and you may just be on your way to becoming a millionaire:
1. Save for Retirement
This can be the simplest way to earn money, especially if you start early. All you need to do is open a retirement account, such as a Roth IRA or a 401k where you work, and deposit money into it from every paycheck. To maximize your earning potential, start young and put in the maximum allowable amount (i.e. Roth IRA or 401k maximum contribution limits).
As with any long-term investment, the more time you have for earnings to compound, the more money you can make. If you are wise with your investments, contribute a high portion of your salary, and have time on your side, you will be well on your way to becoming a millionaire.
2. Live Within Your Means
You could live in a 4,000 square foot house and drive an oversized SUV, or you could live in a more modest-sized home and drive a ’95 Honda Civic. The first option may help you to keep up with “the Jones,” but the second option will help make you a millionaire.
Keep your living expenses well within your means such that you can save for your future. Many people even choose not to flaunt their money once they become wealthy. If you want proof that this can make you a millionaire, I recommend the book The Millionaire Next Door by Thomas Stanley.
3. Stay Out of Debt
This goes hand-in-hand with living within your means. Get out of debt and stay out of debt. To become a millionaire, make decisions that will prevent you from getting into debt in the first place or, if you must, have a timeline and a plan to pay it off.
For example, if you must take on some debt to expand your small business, know how and when you can pay it off before you proceed. Further, consider saving cash for big purchases. Even if you decide to go with a low-interest loan on a car, for instance, maintain an equivalent amount in investments to pay off the loan if necessary.
4. Earn Extra Income
Earning extra income to contribute to your savings or turning a side business idea into a full-time business venture can both be ways to become a millionaire.
For example, let’s say you earn $10,000 a year in your second job and invest all your earnings for ten years. If you let it grow for another 20 years and it earns 8% every year its invested, it would turn into $675,214! Some ways to earn extra income include freelance writing, web design, babysitting,dog sitting, tutoring, and selling jewelry and crafts on Etsy.
5. Invest Wisely
Investing can be intimidating, especially if you are new to the process. It’s best to understand from the beginning that while you can make a fortune through investing, others can make a fortune through you as well. In other words, seek low-cost investments, especially if you’re young and have time on your side. High brokerage fees or annual investment expenses can decrease your annual earnings by 2% or more. That may not sound like much, but it would decrease your earnings in the example above to $422, 726, a loss of $252, 488 or 37%!
If you plan to open an account through a company such as Vanguard or Charles-Schwab, call them up and ask for suggestions. They can help you make wise investments based on your age, your planned retirement age, and your long-term financial goals. For example, when I set up a rollover IRA with Vanguard last year, they were able to talk me through the whole process and help me feel comfortable and confident in my investment choices.
6. Get an Education
Approximately 25% of millionaires are some sort of professional, such as a doctor, a lawyer, or an accountant. Each of these high-paying professions require a substantial amount of education. However, make sure you have a smart plan for paying for your education before you find yourself in a heap of student loan debt after graduation.
7. Pay Your Mortgage Off Early
By paying your mortgage off early, you can avoid paying what could be hundreds of thousands of dollars in interest. Then, once your mortgage is paid off, you can contribute the same payment amount to your own savings. That said, sometimes it can make sense to maintain a low-interest mortgage payment because you get to deduct the interest you pay every year on your taxes. Since the interest you pay saves you money in taxes, this effectively lowers your mortgage interest rate.
However, this will only make sense if you’re depositing money in investments that are returning more than your “effective” mortgage interest rate. Either way, make sure you’re getting out of debt, or that your investments are returning more interest than the amount of interest you’re paying on your debt.
8. Start a Business
While this is one of the riskier options, it is one that can really pay off. About 25% of millionaires are professionals and the other 75% are entrepreneurs. Starting a business takes hard work and courage, and it’s not for everybody. Read the stories of successful entrepreneurs to see not only the benefits of starting your own business, but also how to create, build, and run one so that it is successful and endures.
9. Network With Like-Minded People
It’s amazing how we become similar to the people with whom we have relationships. If you surround yourself with people who have bad habits, chances are that you will acquire those same bad habits. On the other hand, if you surround yourself with people who have impressive financial goals, you also will shoot for similar goals.The pressure put on you by successful peers can act as an impetus for personal success.
10. Have Your Money Work for You
The easiest way to earn money is by letting your money work for you. One way of doing this is through earning passive income, such as by owning rental properties. Starting a business can also potentially earn you passive income once you get it running and hire employees to manage day-to-day operations. Another great way of having your money work for you is through dividend stock investing.
11. Stick to Your Plan
Remember, you must have perseverance to become a millionaire. Whatever plan you come up with, you need to stick to it in order to achieve your goal. Consider the legendary investor Warren Buffett who at a young age invested and started multiple businesses, and ultimately met multiple failures. He stuck with his investing and business principles and continued to pursue his goals in spite of obstacles. This is what has made him one of the wealthiest people alive.
12. Do Something You Love
If part of your plan includes becoming a physician, but you don’t enjoy practicing medicine or caring for others, you probably won’t be able to stick to it. Choose a path that allows you to pursue something you are passionate about. You’ll enjoy the journey a whole lot more and have a much higher chance for success.
It’s tough to achieve the American dream of being a millionaire. That’s why it’s called a dream. Practice the qualities of patience, perseverance, hard work, sacrifice, and courage in order to put yourself in the best position for success. Know your strengths and use them to your advantage. Know your weaknesses and be prepared for obstacles you may face because of them. Lay out your plan, and then go to it with all you got.
And lastly, don’t be surprised if you fail. You’re in great company. Just pick yourself up, use what you’ve learned, and try, try again.
What other routes can you take to become a millionaire?