Last Updated: 7th September, 2020
How to become rich?
I am sure you must have wished at some point in time of your life that you had a million dollars in your account so that you never had to work again?
Isn’t that wonderful?
How about driving fancy cars, travelling around the globe? Many people dream about a life as happening as this… While it would certainly be nice to have such a lifestyle, people believe — they’ll never become millionaires and it’s just a dream. They have no clue how they can become one.
The truth is hitting $1 million mark is more reasonable today than ever.
A writer, Thomas spent 20 years studying American millionaires and patterns in their habits. The result of all his research was the bestseller, The Millionaire Next Door.
Even if you don’t have time to read this book, I think you are lucky and surely this post if for you !!!
– Always think “Long Term”: Try to harness the power of compound interest.
Long term thinking doesn’t only apply to your “Savings”, in fact it also applies to your spending patterns. There is a famous saying “Buy what you need, not what you want”.
To understand this, let’s do a simple math:
You must have spent $100 on a trivial stuff occasionally. Right? Everyone does, including me.
Now, instead of thinking it as “just a $100 expense for a month”, think of it as stealing $1,200 from yourself every year and approx $18,000 from you every decade assuming a 5% interest rate (which is way below the average of S&P 500 stock exchange) and reducing inflation.
So that $100 actually costed you a whopping $1800 ? Sound’s crazy, isn’t it? But how many times do we actually make these calculations?
Next time when you buy a Starbucks coffee, just think about it? This doesn’t mean that I’m asking you to lead a frugal life, however it’s just that your mind needs to be tuned.
Not that difficult, right?
– Open an Investment Account
This is a simple and mandatory step. Can you image to make millions without investing your money? Impossible.
In the above example, it is assumed that you invested the $100 which you saved otherwise you would be losing money due to inflation if you simply kept it as cash.
– Earn money from multiple sources, spend less and invest the rest.
Okay, it’s a fact that we all need to save money as much as possible. Earn money, spend less than you earn by living below your means, and invest the rest. Leaving aside your emergency funds, the money saved should be invested. You can consider to buy ETFS, Mutual Funds, or stocks based on your risk appetite.
I would suggest to go with ETFs as they are less risky, and will help you to get a decent return and become a millionaire. Note that all investments contain some amount of risk.
Calculation of savings per month to become a millionaire!
If you currently have $10,000 saved, you need to save $935.55 each month for 30 years at a 6.00% rate of return to reach $1,000,000.
That’s just apprx. less than $500 a paycheque if you are paid bi-weekly and after 30 years you become a millionaire.
This amount is even less as I have taken a very conservative Interest Rate. Each year your portfolio earns interest which will then be reinvested and interest can be earned on those reinvested funds!
– Do NOT withdraw your INVESTMENTS
Never ever withdraw your investments. Forget as if you never had that money. This should be your strategy. Numerous studies have PROVED that leaving your money invested over the long run is the best way to accumulate wealth.
Now, let’s go through the detailed steps to become a millionaire…
Complete Step-By-Step Guide to become a millionaire
Here is how to become a millionaire step by step. This even works as a teenager! Who wants to learn how to become a millionaire? Most of us actually. Becoming a millionaire is largely based on discipline and restraint, not what kind of car you drive or the square footage of your house. The desire for material possessions and a lavished life will actually prevent you from accumulating significant wealth. I am going to outline the ten things you need to do if you want to learn how to become a millionaire.
A plan forces you to take action, not just talk about your dreams. Figure out how much money you are spending and how much money you are saving. Focus on the expenses you can control and minimize them. Forget about what happened in the past and run your life like a business. No business succeeds without a plan and nobody becomes a millionaire without a plan.
It is incredibly hard to save your way to millionaire status. You need to increase your income without upgrading your standard of living. If you continue to upgrade your standard of living as your income increases, you are not getting ahead. If you want to increase your income, start a side gig, start a business, educate yourself, invest your money to work for you and acquire assets, not liabilities.
3. Investment Costs and Taxes
One of the easiest things you can do is maximize contributions to your 401K because the money grows tax deferred resulting in faster compounding. You also want to maximize contributions to a Roth IRA separate from your 401K. Put away as much as you can tax free. When trading, trade as cheap as possible and less frequently. Take advantage of tax deductions. Millionaires are smart about their money, and give as little to the government as possible. If you are investing in stocks, hold them for over one year. Investments held for less than 12 months are taxed as ordinary income while investments held for over 12 months are taxed at the long term capital gains tax rate.
4. Income Streams
The majority of millionaires have multiple streams of income. Start building other income streams. Start a side business, get a part time job, invest, rent out real estate, build online income streams or create passive income streams. There are countless ways to make money, but the point here is to be diversified. If one of your income streams disappears, you have others to fall back on. Do not rely solely on the income from your job!
Automate contributions to your 401K and to your savings account. Automate your bill payments to save time, because time is money! Automate as much as you can in your life so you have more time to focus on what is important, making more money!
6. Invest in Yourself
Read every single day. Write. Keep a journal. Listen to podcasts. Learn new things. Become a well rounded genius. Millionaires consume knowledge like it is food keeping them alive. Like Warren Buffett says, the more you learn the more you earn!
7. Lifestyle and Credit
Be frugal with your lifestyle. Avoid luxury and only buy exactly what you need. Plan out purchases in advance, and never buy something on impulse. Sacrifice today for a better tomorrow. You also want to avoid credit and credit cards like the plague. If you can’t afford it right now, don’t buy it.
You become what you surround yourself with. Surround yourself with people who are above you, and ask a lot of questions. The truth is, millionaires think differently. If you surround yourself with four idiots, you are likely to become the fifth one. If you surround yourself with four millionaires, you are likely to become the fifth one.
Don’t be afraid to take a risk as long as it is well thought out. Treat your life like a science experiment and try new things. When testing things out, do so as fast as possible. If you are wrong, learn from your experience and try again!
10. Assets and Liabilities
Millionaires understand the difference between assets and liabilities. You need to increase your assets and decrease your liabilities. An asset is a useful or valuable thing, or something that appreciates in value as you own it. Liabilities are something you are financially responsible for, or something that loses value as you own it.
If you follow these ten steps, you have learned how to become a millionaire. It takes time, like anything else. Most of us lack patience today, and we want a reward for our work immediately. If you are patient, driven and intentional you will become a millionaire step by step, even as a teenager.
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