A net worth of $1 million may appear unattainable at first glance, but it is more achievable than you think. To join this exclusive club, you don’t even need a winning lottery ticket or a trust fund.
Your annual income is important, but how you allocate your funds is more important than your salary. When properly planned, a strong work ethic, prudent spending, and astute investing can grow your fortune to $1 million — and beyond.
Achieving this goal will necessitate some sacrifices, but the sense of financial security will be priceless. If you want to become a millionaire, you need to make some significant changes. Create a solid game plan by incorporating some — or all — of these 12 tips into your daily routine and you’ll be well on your way to earning your first million dollars.
Increase Your Profit Margin
Profit margins aren’t just for businesses; they also apply to you. “By increasing the gap between what you earn and what you spend, you end up with a profit in the same way that a business earns a profit,” J.D. Roth, founder of Get Rich Slowly, explained. “You can then use this profit to pursue your long-term financial goals.”
To specifically reach a million dollars, you’ll need to increase your savings rate significantly above the standard 10% to 15%, according to Roth. He recommended saving half of your income and warned that you’ll have to make difficult decisions about deferring current spending in exchange for future financial success. He advised two-income families to live on one income while saving and investing the other.
Begin with $10 million.
“Start with $10 million” is a joke that reflects how our brains can lead us astray when it comes to investing. Learning about investing, making a plan, and sticking to it is the best way to avoid our “inferior mental angels.”
According to Kirk Chisholm, principal at Innovative Advisory Group, our psychology frequently works against us. It’s not difficult to make a million dollars through investing if you start young enough and avoid psychological traps like crowd-following.
Avoid trading your investments in and out. Create a solid investing strategy, invest through thick and thin, and you can become a millionaire over time. According to Vanguard Research, those who buy and sell more frequently underperform those who buy and hold.
Make Your Passion a Business
Passion alone will not get you your first million dollars. There is no substitute for good fortune and flexibility. “Find something you are truly passionate about, become the authority on it, and turn it into a business,” said Joseph Carbone, wealth advisor at Focus Planning Group. “You will not only be happy, but you will most likely be very successful.”
The Chipotle story exemplifies this. Chipotle founder Steve Ells was eager to open a fine-dining restaurant after graduating from culinary school in 1993. In order to raise funds for his exclusive restaurant, he took a small loan from his father and opened his first Chipotle. His passion for cooking shifted from a high-end restaurant to a successful path to wealth with the popular Chipotle Mexican Grill restaurant chain after selling 1,000 burritos in the first month.
Expect to fail along the way as well. Don’t be surprised if there are some hiccups on the way to that million-dollar idea.
Make an early investment.
Getting rich can be a mathematical exercise. It’s well documented that long-term stock market investing, reinvesting dividends, and letting your money grow and compound can make you a millionaire. However, knowing how much to invest, in what types of mutual funds, and for how long is also important.
A simple calculator can tell you how much you need to invest, for how long, and at what rate of return. Todd Tresidder, owner of the wealth-building website Financial Mentor and a former hedge fund manager, created a calculator to assist with this. For example, if you invest $500 per month in a diversified stock market index fund, such as the Fidelity Total Market Index Fund, and earn an average 7% return (assuming a 2% inflation rate), you will be a millionaire in 36 years.
If Henry begins at the age of 25, he will be a millionaire by the age of 61. He’ll need to save and invest more if he starts later. If Henry chooses lower-return investments like money market funds or certificates of deposit (CD), he will have to save thousands of dollars more to compensate for the lower annual rates of return on those investments.
Whatever path you take to become wealthy, it will take time. It takes years for your money to grow and compound in the stock market. Starting a business and nurturing it to success takes time. When it comes to compounding returns, the most financial growth happens in the later years.
“Making your first million is often more difficult than making your second million,” said Daniel Zajac, certified financial planner and partner at the Zajac Group. “Whether it’s through starting a business or saving for years and years, the first million is often the most difficult.” Maintain your commitment, patience, and focus on the end goal.”
Don’t let the initial slow compounding growth or the pitfalls of starting your own business derail your long-term wealth goals. When it comes to making a million dollars, fear and impatience can be your worst enemies.
Real Estate Investing
Investing in real estate has long been regarded as a means of accumulating wealth. However, investing in real estate in lower-cost-of-living areas is much easier to begin with. If you live in San Francisco or New York City, you might want to consider investing in a developing neighbourhood.
Paula Pant, the owner of the personal finance blog Afford Anything, is investing in real estate to build wealth. She advised saving enough for a down payment on a rental property with a strong positive cash flow. This means that after you pay your bills, you will have money left over to deposit into your bank account.
As you pay off the mortgage, you will eventually own the property outright. Pant suggested starting with one property and working your way up to $1 million.
Change Your Way of Life
Dispel the myth that millionaires all spend recklessly and live large. Award-winning authors Thomas J. Stanley and William D. Danko investigated how people became wealthy in their book “Millionaire Next Door,” and their findings were surprising.
“Many people who live in expensive homes and drive expensive cars are not actually wealthy,” they wrote. “Then we discovered something even stranger: many wealthy people do not even live in upscale neighbourhoods.”
The authors discovered that high salaries do not always translate into high net worth. In fact, Stanley and Danko discovered that those who accumulated the most wealth were frugal themselves and married conservative spenders. The difference between income and spending is advantageous for those learning how to get rich. Consider this: You can’t build wealth if you spend everything you earn — or, worse, spend more than you earn.
Make the Most of Your 401(k)
The government provides you with a wealth-building gift in the form of a 401(k) account. Here’s how to use it to make your first million dollars:
- Enroll in your employer’s programme and invest the maximum amount permitted by law — $20,500 for 2022, plus a $6,500 catch-up contribution for those over the age of 50.
- Any contribution to the 401(k) results in an immediate reduction in your taxable income (k). So, if you earn $60,000 and contribute $19,500, you only pay taxes on $40,500.
- The money grows and compounds tax-free as long as it remains in the account.
In practise, if you contribute $19,500 to your 401(k) each year and earn 7% on an average stock mutual fund, you will be a millionaire in 23 years. If you invest less and earn a lower return, it will take you longer to reach your first million.
“You don’t have to be the next Richard Branson to make your first million dollars,” said Grant Bledsoe, founder of Three Oaks Capital Management and Above the Canopy blogger. “Take whatever the IRS gives you.”
Be a Wealth-Building Entrepreneur.
It may seem obvious, but if you want to make your first million, choose a side hustle to supplement your income. It’s unlikely that you’ll become wealthy if you only make enough to cover your rent, food, and utilities. To become a millionaire, you don’t have to be brilliant, but you do have to be disciplined, hardworking, and creative.
Mark Cuban, a wealthy entrepreneur and businessman, began creating income streams at the age of 12. According to Biography, he sold trash bag packages in order to afford the shoes he desired. For extra money in high school, he sold stamps and coins.
In his junior year of high school, he took college psychology classes, then skipped his senior year to begin college full-time. This exemplifies the wealth-creating hustler mentality. He sacrificed his leisure time to pursue his dreams. Many millionaires are in the same boat.
Avoid a Self-Defeating Attitude
Wealth creation is as much a mindset as anything else, so it’s critical to eliminate beliefs that will work against you. If you want to make your first million dollars, follow these steps:
- Don’t believe that anyone owes you a living.
- Don’t expect anything for free.
- Do not incur any consumer debt. You don’t need something if you don’t have the money to buy it.
- Don’t let yourself be distracted. If you want to be wealthy, you must persevere in the face of adversity.
- Avoid avoiding education. Learn the skills you’ll need to succeed in your chosen field.
- Don’t be afraid to take on a second job.
- Do not try to keep up with the Joneses. They’re drowning in debt.
- Don’t forget about the others. Giving appears to breed reciprocity.
If you want to learn how to make your first million dollars, it’s best to start young and be patient. It’s also critical to have fun along the way, because that is, after all, the point.
If you have a lot of great ideas, pick your favourite and monetize it. It makes no difference whether it’s a product or a service, as long as people are willing to pay for the benefit it provides.
Spanx founder Sara Blakely, for example, became the country’s youngest female self-made billionaire by inventing flattering undergarments to wear under white pants. According to Forbes, her net worth is currently $1.1 billion.
Ty Warner, the creator of the Beanie Babies, amassed a fortune from his stuffed animal empire. He wisely developed a broad product line and sold it in limited quantities, causing the items to become extremely popular. According to Forbes, the former Dakin Toy Company sales rep has a net worth of $4.2 billion.
Perhaps your invention solves a common problem or entertains the masses. People are willing to spend money on something that adds value to their lives in either case.
Increase Your Inheritance
You might think that a small inheritance — say, $25,000 to $75,000 — won’t go far, but by allocating the funds wisely, you can really cash in. Marc Johnston-Roche, co-founder of Annuities HQ, acknowledged the temptation to spend your newly discovered wealth, but advised investing instead.
“Collaborate with a financial planner to develop an asset allocation strategy appropriate for your age group,” he advised. “This strategy will vary depending on how much risk you’re willing to take and how long you intend to invest these funds for.” It’s not a one-size-fits-all approach, so it’s critical to seek professional advice.”
To achieve significant growth, Johnston-Roche advised leaving the funds untouched for the next five to ten years.
“You’ll also be able to take advantage of compound interest by investing your money now and letting it grow,” he added. “When you reinvest earned interest rather than paying it out, compound interest can accumulate significantly over time.”