How To Become a Millionaire: 5 Strategies To Get Started
Becoming a millionaire is more possible than you think. These principles and philosophies could help.
Contributing Writer at Tally
September 29, 2021
Dreaming of a millionaire mindset on a meager budget? You’re not alone.
Just a little more than 8% of American adults are millionaires, according to the Credit Suisse Global Wealth Report. With movements like Financial Independence Retire Early (FIRE) gaining popularity, more and more people have begun focusing on reaching millionaire status as quickly as possible.
Saving a million dollars may seem like a stretch, but it’s more possible than you would think. It will require hard work and some strategy.
In this article, we’ll cover how to become a millionaire. Specifically, we’ll go over the principles, philosophies and money rules that could help you boost the amount of money in your bank account.
1. Pay down existing debt and avoid any new debt
If you’re looking to build your net worth and become a millionaire, one important principle to put in place is avoiding debt. That’s because debt comes with interest, and interest is money that you’re not able to save or put toward your investment accounts.
Consider compound interest as an example: If you have credit card debt and do not pay your credit card balances in full, your lender will charge you interest on top of interest. The interest charges from the previous month are added to your balance, and then you’re charged interest on the new balance.
Compare this to investments, which also compound. However, instead of compounding into a balance that you owe, your investments grow to build your net worth. We’ll touch on that more below.
If you do have credit cards, you should aim to pay down the balance in full every month. You can also work hard to pay off other existing debt, such as student loans.
Try to avoid car loans, if possible, by paying in cash. Consider taking on debt only for large-ticket necessities, like a mortgage, since there’s a slimmer chance you’ll have enough cash on hand to cover the entire purchase.
2. Save aggressively
If becoming a millionaire is a financial goal of yours, you can get started by saving money. That’s the bottom line, short of winning the lottery.
Some financial advisors recommend the 50/30/20 budgeting rule, which pushes you to save 20% of your net income.
If you wish to become a millionaire, you’re going to need to change the way you look at your personal finances. You may have to put more than 20% of your net income into your savings account. Aggressive savers will save upwards of 50% of their salary each year.
To do this, you’ll need to cut back on expenses: It may mean that you’re not able to go out to a fancy dinner every weekend; perhaps you purchase a used car instead of a new car; maybe you live with roommates to help reduce your rent, instead of living on your own.
There are retirement calculators available online to help you figure out if you’re saving enough. You can also talk with a certified financial planner who can better evaluate your cash flow and craft your retirement plan.
3. Invest your money
Putting your money in a savings account alone is unlikely to get you to millionaire status. Investing your money can help increase your rate of return. Though it can vary from year to year, the average 10-year stock market return is 9.2%, according to Goldman Sachs.
Consider historical data demonstrating what your stock would be worth now if you had invested $1,000, 10 years ago. Though it’s an extreme example, Amazon’s share price on October 1, 2010 was $153.71. On October 2, 2020, the share price was $3,135. This means that your $1,000 investment would be worth more than $20,000. That’s a lot of money!
Amazon is one success story, but it’s important to note that not every company is this successful and that the stock market can experience high highs and low lows. There are other investments that are considered less risky and can still allow you to build wealth, including:
Real estate investments
Speaking with a trusted professional who is qualified to give financial advice is critical, especially if this is your first time investing. Financial advisors can help you craft an investment strategy based on your risk tolerance and goals.
4. Max your retirement accounts
When building your nest egg, you need to take advantage of every way possible to earn money. Your financial plan should make it a point to maximize your retirement accounts, especially if you have Roth accounts.
Roth 401(k)s and Roth IRAs grow tax-free. You pay taxes on the money you put in, but you don’t need to pay taxes after that (unless you withdraw early).
Maximizing the amount you put into tax-advantaged retirement accounts will help when working toward financial freedom.
Additionally, many employers offer matching contributions for retirement accounts. This is free money provided by your employer. For instance, your employer may say that they will match your contributions up to 4% of your salary. If you contribute 6% of your earnings, and your employer matches 4%, you’ll actually be contributing the equivalent of 10% of your earnings to your retirement account.
5. Diversify your income streams
The income you earn from your 9-to-5 job may not be enough to get you to millionaire status. Instead, think about diversifying your income streams. Consider starting your own business or side hustle that you can use to make extra money.
Forty-nine percent of Americans under the age of 35 report having a side hustle. It’s completely possible for you to be self-employed while also working your full-time job.
Even if you only make an extra $100 per week, that equates to roughly $5,000 at the end of the year. If you invest this money, it could grow exponentially.
You can also try to find ways to earn passive income. For instance, if you have a three-bedroom home, you could rent out any extra bedrooms. The money earned from the tenant’s rent would qualify as passive income. You can use this to help accelerate your mortgage payoff. When you pay off your mortgage, you can then start investing the rent money or use it to buy another property.
Now that you know how to become a millionaire, it’s time to get started
In today’s age, there are many ways to get ahead and start saving money so that you can attempt to reach millionaire status.
The most important thing you can do is create a roadmap to wealth and stick to it. There will be bumps along the way, but staying the course is the best path to financial success. By working hard and following the five principles we outlined in this article, you could be well on your way to financial freedom.
If you need some assistance getting started, be sure to check out Tally†. Tally is a credit card payoff app that helps you pay off your existing credit card debts. By using Tally, you’ll pay down debt more quickly, which will help put you in a better position to start saving money toward your millionaire goals.
†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.