If, like many, you believe the only way to end up with a net worth of $1 million is to inherit it, here’s a fact that may surprise you: a whopping 79% of American millionaires received no inheritance from family members. This is good news for the rest of us as it proves that it’s not impossible to go from zero to $1 million in a lifetime.
Of course, it doesn’t happen overnight, but with some tenacity, discipline, and planning, it is totally doable. Here are some tips to get you there.
1. Bulk up your savings
Let’s start with the obvious one: saving. Your ability to save plays an important role in making your first million. However, you would need to be saving substantially more than the 20% recommended under the popular 50/30/20 rule. Try to sock away as much as you can, say, 50% of your paycheck. This will severely curtail your spending power, but the sacrifice will be worth it when you reach your goal of financial independence.
2. Create an investment portfolio
Put your money to work in the stock market now so you can reap the rewards in the future. Depending on your level of risk tolerance, you can either invest for a quick return or grow your money slowly but surely. Whatever you choose, it’s worth consulting a financial advisor for the best outcome.
3. Do what you love
Going into business doing something you love and doing it well is one way to ensure success. You will be more likely to stick with something for the long haul if you genuinely enjoy it. Even when you encounter the inevitable setback, it would be easier for you to bounce back if you’re passionate about your business. Who knows? You may even find yourself having some fun on the way to $1 million.
4. Don’t procrastinate
No matter how you plan to get to $1 million–whether by saving, investing, or entrepreneurship (or better yet, a combination of all three)–the earlier you start, the better. Your rate of success hinges upon the type, amount, and length of your investments, so get started as soon as you can.
5. Stay the course
The key to your first million is commitment. Becoming a millionaire will take time, so be patient. Sometimes investing can feel like you’re marking time, not making much progress, but don’t be discouraged by slow growth in the early years. The biggest returns usually come further down the road.
6. Embrace frugality
It’s a fallacy that all millionaires are spendthrifts. A striking number of them actually lead very low-key lifestyles. To appreciate the truth in this, we needn’t look further than Warren Buffett, whose frugality is legendary. He lives in the same house he bought in 1958 for $31,000 despite having a net worth of $96 billion.
The fact is your spending habits have as much impact on your accumulation of wealth as your earning power. You simply won’t be able to save if you spend all you earn, no matter how large your paycheck. This doesn’t mean you have to deprive yourself of all of life’s pleasures; just spend wisely.
7. Make the most of your 401k
Turn your 401k into a gold mine. If you contribute the maximum allowable to your 401k (that’s $20,500 in 2022 if you’re not yet 50), you get your first benefit: a reduction in your income tax. (An extra tip: stash the amount you save in income tax into your savings account). If you leave your 401k untouched, you get a second benefit: it grows by compounding interest. It’s well worth it to have this passive income.
8. Create a second income stream
If the bulk of your salary goes toward bills, you probably won’t be able to put aside enough to become a millionaire anytime soon. That’s where a side hustle comes in. Lots of millionaires know that the secret to building wealth is the ability to create income streams. It also underscores the core attitude of many among them: the willingness to sacrifice leisure in pursuit of their goals.
9. Get into real estate
Making money in real estate doesn’t have to be a daunting venture. If you made a down payment on a rental property in as near to an up-and-coming area as you can afford, the rental income should be able to cover the mortgage with some left over for your savings account. When the property eventually becomes yours, you can sell it and start over with another one.
10. Mindset matters
Having the right mindset will be a big help in reaching your goal.
Have a saving, not splurging, mindset.
Don’t be afraid of hard work. Line up a side hustle.
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Don’t forget to help others.
While you’re at it, don’t compare yourself to others. Those who seem to have it all are sometimes one mortgage payment away from bankruptcy.
Be patient. This is a marathon, not a sprint.
By using these suggestions, you’ll inch closer to becoming a self-made millionaire.