Seeing people reveal their net worth on social media may make you wonder, “How to become a millionaire?” Yet, the good news is that becoming one is more likely than you realize.
It does not necessarily mean having a butler, a private jet, or a luxurious lifestyle. Instead, it means providing for a comfortable retirement or an early one.
You might be able to pursue your passions instead of being tied to a paycheck due to work.
Since many of them attract media or pop culture attention, it might seem like becoming a millionaire is out of reach for ordinary individuals. In reality, becoming a millionaire does not require developing the next tech unicorn or being a celebrity.
Most millionaires aren’t celebrities, and many don’t earn six- or seven-figure salaries. A little bit of common sense and self-discipline can help you become a millionaire with a reasonable income.
Let’s start with how to become a millionaire in 2022.
- How To Become A Millionaire
- 1. Start Saving Early
- 2. Stay Away From Debt
- 3. Save 15% of Your Earnings
- 4. Start a Side Hustle
- 5. Eliminate Unnecessary Expenses
- 6. Choose Smart Investments
- 7. Take Benefit of Employer Contributions
- 8. Think Beyond Your 401(k)
- 9. Work With A Financial Advisor
- 10. Keep Your Goal Front and Center
- Wrapping Up
How To Become A Millionaire
A six-figure job or family money is not required to become a millionaire. You must begin saving early and be careful about every dollar you spend. Here are some strategies for achieving that million you need to retire gracefully or live elegantly.
1. Start Saving Early
The simplest method to grow your savings is to begin early. Building your savings this way allows you to benefit from compounding.
If you were 20 years old, you could save $240,000 towards an individual retirement account (IRA) ($500 a month for 40 years) if you contributed $6,000 annually.
With a 7% return, your investment would amass over $1.37 million. By saving $500 a month, you’d be a millionaire by age 57.
Compounding is your first step on how to become a millionaire. Let us now understand this concept in brief.
Compounding Returns Example
Let us examine how compounding might help you become a millionaire. To start with, we will determine how much money we may make.
Since 1926, a portfolio with 80% stocks and 20% bonds has returned 9.4% annually. Inflation has been about 2.9% during the same period.
With this historical data, we will make a 6.5% inflation-adjusted annual rate of return assumption. We will then determine the after-inflation return, which will give us the amount of money we would have if we invested today.
It’s essential to comprehend that the longer we save and invest our money, the less we must save each month from accomplishing our goal.
In other words, the amount we must keep each month from becoming a millionaire depends on how long we will save and invest.
Most people are not trying to become millionaires in a decade, so saving $6,000 each month is unrealistic. Fortunately, we can still become millionaires if we set goals and work hard to achieve them.
People saving for retirement have at least two decades to become millionaires. By extending our investing period to reflect that, we can begin to see the value of investing early and the power of compounding.
Over 20 years, our monthly savings would drop to $2,075. While this isn’t feasible for many individuals, we are going in the right direction.
Here is how much we would have to save each month for different periods.
|Time Period||Monthly Savings|
Time and compounding are two things worth mentioning, as they have a significant impact on your savings in the long run. If you begin saving early enough, you can build a fortune from a modest monthly income. Each decade you delay beginning doubles the amount of money you must invest to reach your goal.
2. Stay Away From Debt
There’s a mistaken notion in our society that you must take considerable risks to make a lot of money. People believe you must take out business loans and open lines of credit to succeed. They rationalize it by using the term ‘leverage’ – borrowing money and going into debt.
However, debt is a quicksand to your financial goals. Every while you buy something on credit or take out a loan, you dig a deeper hole for yourself to climb out of. That money, together with interest, you send to lenders is money you may use to finance your future!
People who became millionaires long ago realized that. They didn’t want their most critical wealth-building tool (their income) tied up in foolish payments every month.
There are two things that you must remember if you are wondering about how to become a millionaire or how to be rich.
First, 9 out of 10 millionaires have never taken out a business loan, and second, 73% of millionaires never had a credit card balance throughout their lives.
They tell you that avoiding debt is one of the most important ways to make it to the million-dollar mark. The only kind of debt that is acceptable is no debt at all.
3. Save 15% of Your Earnings
Saving a portion of your income, say at least 15% or more, is our next strategy on how to become a millionaire.
The personal savings rate fell to 5.4% in May 20221 as per the Bureau of Economic Analysis (BEA). The individual savings rate is the proportion of income left over after people spend money and pay taxes.
According to experts, retirement savings, let alone for someone hoping to become a millionaire, requires much more.
How much should you save? It’s impossible to get it right when considering how to be rich, but most financial planners agree that saving 15% of your annual gross income if you want a retirement nest egg is a minimum.
While this might seem unattainable to many people wondering how to be rich, it’s not. For instance, if your employer matches contributions up to 6% of your salary, you’ll only need to save 9% of your income.
4. Start a Side Hustle
You don’t have to make a six-figure salary to become a millionaire. One-third of all millionaires never earned a salary of that magnitude in a single working year.
To become a millionaire a little bit faster, boost your income. The more money you make, the more you can invest.
You can request a pay raise or seek out a higher-paying job. You may start that side venture you’ve always dreamed of or eliminate some junk accumulating in your basement.
You may return to school (and avoid student debt) and get additional training to boost your skills and salary potential.
Additional education pays off the most in the long run. Suppose you’re a Licensed Practical Nurse (LPN). Their median salary in 2022 is $50,607. Registered nurses make approximately $82,750 annually—$30,000 more than LPNs.
It takes one to three years to become an RN. However, that added money each year can help you fulfill your financial objectives, mainly if one of these objectives is to become a millionaire.
Millionaires possess the ability to take charge of their lives. In other words, they are self-reliant. Nearly all millionaires (97%) believe they shape their future. They don’t simply hope for a better tomorrow; they act on it.
What are you waiting for? If you recognize that you must earn more money, go and do it. You have to earn passive income if you’re thinking about how to become a millionaire or how to be rich.
5. Eliminate Unnecessary Expenses
When learning how to become a millionaire, ensure you spend your money on purpose and with a sense. According to our findings, 93% of millionaires still use coupons when shopping.
Most millionaires live on less than they earn and stick to their monthly budgets, avoiding wasteful spending. The typical millionaire lives a humble life despite what you may have seen on TV or cable news.
They don’t squander their money on junk or goods they can’t afford; instead, they economize by making small sacrifices to save more for the future. Small sacrifices can have a significant impact over time.
Take a glance at your spending and compare the previous month’s budgets. Where are you losing money? Which category budgets seem to raise over time?
Here are the ideas on how to be rich by eliminating expenses:
- Insurance: Can you bundle car and home insurance to save money? Can you get a better price by accepting a higher deductible? Research and discover for yourself. An independent agent can help you find out where you can save money.
- Cable: You’ve undoubtedly heard of streaming services such as Hulu and Netflix (and many others). Give them a try—you may be able to watch the programs you desire without cable.
- Gifts: It’s essential to resist the urge to purchase extravagant gifts for close family or friends. If you do, you’re placing them under pressure to repay the favor.
- Restaurants: Have you ever wondered how much money you could save if you stopped getting that daily coffee on your way to work? For a month, try to eat every meal at home and see for yourself.
- Subscriptions: Are there any subscription services that you utilize? Are you able to remove a few of those from your monthly budget? You might be surprised to find out how much money you can save.
Remember, any sacrifices you make now will help you achieve your goal of becoming a millionaire. And you’ll stick with the frugal lifestyle you began once you’ve become a millionaire (there’s no doubt about it).
6. Choose Smart Investments
When learning how to become a millionaire, choose a simple investment strategy. You may believe that self-made millionaires invest in risky ventures but maintain a conservative portfolio. Though, technical and complicated investments are expected.
An index fund is the best approach for most people to invest in stocks. Investing in these simple, economic index funds is the right strategy.
An index fund should have the following characteristics: It should be diversified, broadly diversified, invested in stocks, have low cost, have a long-term track record, and have a low expense ratio.
Even though stocks have more significant long-term gains, they are more volatile in the short term. When learning how to become a millionaire, choose an index fund with a ten-year return of at least 10 percent, preferably at a low cost.
Resist the urge to invest in trendy financial products such as cryptocurrency. These products are heavily dependent on market forces, and they can lead to substantial losses.
If you would like to diversify beyond index funds, you might want to consider real estate investment trusts. These funds invest in commercial real estate property and sizable residential apartment complexes.
Historically, REITs have provided high returns for investors. By adding a REIT to an otherwise index-heavy portfolio, you can start making financial gains.
7. Take Benefit of Employer Contributions
When thinking about how to be rich, remember you are not alone in your retirement savings journey. According to Fidelity, 85% of plans match employees’ contributions to a 401(k) or another retirement account.
By contributing to a retirement account, your employer’s contributions can make it less complicated for you to become a millionaire.
Many of the country’s largest companies match 50 cents for every $1 an employee contributes. These contributions are usually capped at 6% of your salary, but they can add up to $200 monthly to your retirement accounts.
Suppose you earn $50,000 annually and deposit $450 into your monthly retirement accounts. You would have $1 million by turning 40 without employer contributions. With employer contributions up to 6% of your salary matching your contributions, you will gain an extra $250 monthly.
An employee saving $450 a month can become a millionaire in about 34 years rather than 40 if their employer matches $250 a month. If they work and contribute for 40 years, their wealth would grow to nearly $1.6 million.
Employer contributions are an essential part of this guide on how to become a millionaire.
8. Think Beyond Your 401(k)
When learning how to become a millionaire and how to be rich, setting up an employee-sponsored 401(k) is just one way to save for retirement.
You can establish a traditional IRA, where a set proportion of your income is automatically diverted into a separate savings account.
An IRA fund may be deposited in a bank or invested in stocks, bonds, or mutual funds. When you withdraw it, you will probably be in a lower tax bracket, resulting in savings. Even better, withdrawals are not taxed as long as you leave the money there.
Roth IRAs are available, but they have more restrictions than regular IRAs. Contributions to Roth IRAs are determined by your income and vary whether you are single or married.
You may contribute $3,000 in the first two years and $5,000 in the sixth year. Withdrawals and earnings from Roth IRAs are not taxed, but contributions to these accounts are not deductible.
Here are a few other retirement savings plans tailored for entrepreneurs:
- Simplified Employee Pension (SEP) IRA: Are you a self-employed individual? If so, then a SEP-IRA retirement plan might be of interest to you. It is simple to establish, flexible, and offers reasonable contribution limits.
- Savings Incentive Match Plan for Employees (SIMPLE) IRA: Small businesses can benefit from SIMPLE IRAs because they are similar to a hybrid IRA/401k plan. Sole proprietors may not participate in a SIMPLE IRA, but they are still preferable to businesses with fewer than 100 employees.
- 401(k) Plans: In addition to being able to contribute as an employee, you may also contribute as an employer with a joint 401(k). This account is similar to a traditional 401(k), but your spouse may also participate.
All these plans will help you to save money and continue your journey on how to become a millionaire.
9. Work With A Financial Advisor
You must address two significant issues if you want to retire early:
- Saving for retirement bears less time.
- Your retirement will provide you with more free time.
A financial advisor can assist you in developing an investment strategy that will help you achieve your retirement goals. In addition, your monthly investment amount must be sufficient to achieve your goals.
You and your financial advisor can ensure that you receive money that lasts after retirement by receiving dividends, required minimum distributions, Social Security payments, pension payments, and real estate investments.
Choosing an advisor you trust and feel comfortable with is imperative, as you may work with them for years to come.
Furthermore, the fees for a financial advisor should be based on their expertise, not just their time. If you hire the right expert, you will more than compensate for their services.
Remember when you are learning how to become a millionaire, an investment professional can help you safeguard your future by looking after your money.
10. Keep Your Goal Front and Center
The actions on how to become a millionaire are directly contrary to the behavior of most people, which means you can see your family and friends doing, going, and buying things in the opposite direction.
If you focus too much on what your family and friends are doing, you may get into trouble with your own money.
Fifty-nine percent of millennials say that social media influences their spending. That means they let someone else’s highlight reel on their social media platforms determine how they spend their own money; no thanks!
Don’t get sucked into comparison culture. We should refuse to buy anything we can’t afford to impress people we don’t like. Comparisons are a real downer.
Millionaires don’t compare themselves to other wealthy people because they’re focused on their goals rather than their friends and family.
Only seven percent of millionaires compare themselves to their friends and families regarding spending.
Instead, they don’t compare themselves to others, which is how they maintain their focus on their own goals.
When learning how to become a millionaire, focus on the items most relevant to you—your family and friends, your church, your career objectives, and your children’s future—you will be much more pleased than if you had a shiny new car or a fabulous vacation.
What is the simplest way to become a millionaire?
The simplest method to become a millionaire is to profit from compounding by starting to save your money as soon as possible. You will earn more on the interest you earn the earlier you begin saving. You should keep at least 15% of your income.
You can also reach your million-dollar objective by reducing unnecessary spending and seeking financial advice from a specialist. Consider acquiring new work abilities or taking on a second job.
How much investment do you need to become a millionaire?
To become a millionaire, you need to invest a certain amount of money, depending on your position in life. You may put away less money when you are younger because you have more time to build up your wealth and are more likely to endure more risk. If you delay saving until you are older, you must put away more monthly money.
How can you be a millionaire in five years?
Are you wondering how to become a millionaire in five years? Following these three steps will make it possible for you to achieve that status:
The first step to achieving financial independence in five years is to cut back on your spending, maintain a budget, and increase your money smarts to keep more of your earnings.
The second step is to save and invest as much of your money as you can.
The third step is to locate mentors and peers who will push you.
Can a normal person become a millionaire?
Anyone can become a millionaire, given adequate income. You will have an increased chance of achieving millionaire status if you receive larger paychecks.
You may also find it easier to work long enough to amass a million-dollar net worth if you enjoy what you do.
You will require self-discipline, a strategy, and, in some instances, expert assistance to help you reach your goal of becoming a millionaire.
When learning how to become a millionaire, instead of pursuing an arbitrary million-dollar status, strive for financial freedom. Your financial goals may require anywhere from no money to millions of dollars, depending on your circumstances.
Saving and investing early and consistently while keeping an eye on fees should be your focus regardless of what financial objectives you pursue. In addition to avoiding lifestyle debt, compound returns will take care of the rest.
Hopefully, this post on how to become a millionaire provides you with all the required information to become a millionaire.