Have you ever dreamed of becoming a millionaire?
It is very possible to become one! Today there are over 10 million millionaires in the U.S., according to research by the Spectrem Group.
Just imagine what you could do as a millionaire. You’d have financial freedom. You could enjoy life, stop worrying about money, and gain peace of mind. And you could afford that new boat or big house you’ve dreamed of. It is doable and you won’t have to wait until you’re 80 to enjoy it.
There are many paths to become a millionaire. You could do it by being an entrepreneur, a freelancer or a dedicated employee in an unassuming job.
But one thing you don’t need is an inheritance. The vast majority of millionaires are self-made. In The National Study of Millionaires, by Ramsey Solutions, 79% of millionaires never inherited. Even if you come from a poor family (and many millionaires do), it’s possible today to be self-made and become a millionaire.
Becoming a self-made millionaire has many benefits — not just money and assets. The experience of building wealth can build a better you. You gain self-confidence and feel in control of your destiny. You gain a sense of purpose in your life. Building wealth also helps you build a better life for your family. And you’ll be able to give more to charity.
Remember, if other people can become millionaires, so can you.
So exactly how do YOU become a millionaire?
First and foremost, you need a plan. Becoming a millionaire doesn’t happen by accident. In this article we show you the steps to develop a million dollars worth of assets over and above liabilities.
Here are 7 steps to become a millionaire.
1. Set Goals to Become a Millionaire
The first step is setting goals.
When you set goals, don’t just say “I want to become a millionaire by 40.” Instead, break it down into smaller actionable goals that provide a roadmap to follow. All goals to become a millionaire should be specific and actionable. Here are some example goals:
- Save 15% of my household income.
- Develop a budget that includes investments to grow assets.
- Start a business within 12 months.
- Pay off credit card balances in the next 6 months.
- Accumulate my first $50,000 in investment assets within 24 months.
Write goals down so you stay dedicated to finishing them. Did you know that millionaires are more likely than the general population to achieve their goals, according to the National Study of Millionaires? One reason is that most millionaires have developed the habit of finishing things. In fact, 98% of millionaires agreed with the statement, “If I start something, I finish it.”
Achieving goals will fill you with a sense of accomplishment. Each achievement motivates you and gets you fired up to grow assets to become a millionaire.
Make sure one of your goals is to establish a budget — and stick to it. Millionaires do not spend whatever they want. A key reason they become millionaires is that they make conscious choices about money and assets. According to the National Study of Millionaires, they also are more likely than the general population to stick to budgets they create.
2. Save 15% of Your Income
You are going to need some assets to work with to grow a million dollar net worth, and those will come from your savings.
Remember, you can’t spend your way to becoming a millionaire. Instead, you must invest and grow your way over time. Treat your money like key assets.
Start by saving at least 15% of your current income – more if you can.
Start saving now. No matter what your age, the sooner you start a saving program the sooner you can get to the millionaire mark.
So what do you do with the money you save? You have multiple options, all of which start with investing (more on this later).
- Keep saving from your employee salary and investing until you reach a million dollar net worth.
- Make a portion of your money serve as a seed fund to become an entrepreneur and start a business or buy a franchise. Read: how to save money for a business.
- If you own an existing business, get some of the funds working to expand your business. Retain the rest as investments to grow your personal wealth, too.
Here’s what NOT to do: do not spend all your money.
Those who want to become millionaires do not worry about keeping up with the Joneses. Neither should you. For example, according to the book “The Next Millionaire Next Door” by Thomas Stanley and Sarah Fallaw, half of millionaires never spent more than $300 for a watch in their entire lives. No expensive Rolexes for them.
3. Pay Off Credit Card Balances
Millionaires avoid consumer debt, and specifically they avoid credit cards. According to the National Study of Millionaires, 73% never had credit card debt.
Credit cards can be useful, but the problem is they tempt you to overspend. And if you carry balances over from month to month, the finance charges pile up. In time you owe even more, and it makes it harder to become a millionaire. Instead:
- Pay down existing card balances fast. It frees up money to invest in assets or to start or expand a business.
- Use a debit card in place of a credit card whenever possible. You’ll be less tempted to overspend because the money is deducted from your account immediately.
- Use credit cards when there’s no good alternative, such as booking flights or hotel rooms for business travel. Fact is, it’s hard to operate a business today without a credit card. But disciplined entrepreneurs use a separate business credit card and pay off the balance each month.
- Limit discretionary spending until AFTER you are on your way to make your first million in assets. At that point you can afford to splurge.
Millionaires do not spend impulsively and run up debt. Rather, they get deliberate about their financial assets. In the national millionaire study referenced above, 99% agreed with the statement, “I have a long term plan for my money.” And that brings us to the next step.
4. Invest and Leverage Compound Interest
Those who want to make a million dollars have an investing plan to grow assets. A savings account paying 1% interest on their money is not enough. Mutual funds pay greater returns, and are one of the easiest investments for entrepreneurs.
Investing is important because it makes compound interest work for you. Compound interest means that any interest you earn over time is added to your assets and you earn interest on top of interest. The power to multiply your assets over time is amazing.
Let’s look at an example.
Dave is 22 years old and wants to become a millionaire. He has $2,000 in assets today, which he invests in a mutual fund. Thereafter, he starts investing $1,000 per month. If he averages an 8% return by investing, in 26 years he will have over one million dollars.
What if Dave could invest more money? His assets would grow even faster. Let’s say he takes on a side hustle so he can increase his investing to $1,800 per month. At that rate, it would take just 20 years to get to a million. The following chart shows the calculations:
Notice that after 10 years’ time he is earning more in interest annually than he is investing. His assets are now growing faster due to the power of compound interest.
Here’s another fun fact: once Dave’s financial assets reach a million dollars, he could stop adding money. In another 9 years his assets would double to over $2,000,000 — without investing another dollar! That’s the power of compound interest.
For some people, finding the money and investing may seem impossible. Start with what you can, and remember, over time investing gets easier:
- Saving becomes an automatic habit when you bake it into your budget. The rest of your spending patterns will adjust.
- As your career progresses you will likely have more money for investing because your pay usually grows with time.
Don’t forget to invest excess money sitting in business accounts. For example, let’s say your business has $50,000 in retained earnings you don’t plan to use right away. Put this money to work earning more. Separate business and personal investments, though — never commingle accounts.
Teach yourself about investing. Even a 1% or 2% greater return on assets shortens the time to become a millionaire. Use this calculator to run financial scenarios.
Do your investing homework! Start your research at a reputable source such as Kiplinger’s list of top funds. Research mutual funds with solid 10-year track records. Learn all you can.
5. Start a Business or Expand One
Owning a business may increase the odds that you become a millionaire. According to the book, The Next Millionaire Next Door, business owners tend to have a higher net worth than those who work for others.
IRS data shows that the top 1% own businesses. In other words, business owners and entrepreneurs tend to earn more money, also.
You don’t have to pick a trendy business. Millionaires are often in unglamorous businesses. Some entrepreneurs are blue collar millionaires.
Entrepreneur founders like Maria Rios have achieved success by solving timeless needs in mundane industries. She built a $30 million business, Nation Waste, starting out with just a pair of steel-toe boots and two garbage trucks. “Trash will always be there. It’s not going away,” she is quoted as saying.
Being an entrepreneur does not require investing all your savings into a business. It’s possible to start a business on a minimal budget. If you are not sure which business to start, see this list of small business ideas.
If you currently own a business, get serious about expanding it or improving profitability. Examine your books and work the numbers. Figure out what is holding back profitability and what you need to do to generate more profits. Should you invest in marketing? Develop new products? Hire more salespeople?
One way for entrepreneurs to get more profits is through a recurring revenue model, which brings us to the next step.
6. Develop Recurring Revenue Streams
A key way to become a millionaire entrepreneur is to develop recurring revenue streams.
Recurring revenue means you earn repeatedly from the same customer, or you develop a way to earn repeat income monthly or annually. The advantage of recurring revenue is that you expend less time, money and effort generating new business income.
There are many types of recurring-revenue business models. Here are four examples:
- Get customers to commit to annual maintenance contracts for the air conditioner units you install. Your business earns money repeatedly from the same customer without the need to find new customers as often.
- Sell your software product as a monthly cloud subscription. Customers pay each month to use the product. You could earn for years from the same customer.
- Place AdSense advertisements on your website. You will earn day after day from the content you created once.
- Build a self-serve storage facility and collect rental fees month after month from the same customers.
The goal is to create a money-making machine — one that chugs along generating dependable revenue month after month.
This business model keeps your costs down by minimizing the effort and expense of acquiring new sales. It also typically increases the revenue-per-customer ratio. This means each customer individually brings more revenue and usually is more profitable.
In summary, recurring income makes it easier to reach your objective to become a millionaire entrepreneur.
7. Create a Purpose-Driven Life
Develop purpose in your life beyond money. Millionaires in the making know that having a life purpose does not distract from their money goals. Having a purpose reinforces their goals. Why? Because they have a reason to accumulate assets and wealth.
Create a vision in your mind of what you stand for. Whether it’s family, faith, charity or a cause — you need something in life to work for. Get involved in your community or spend quality time with family. Examine your current situation.
- What satisfies you deep down?
- Is money a way to provide security for your family, leave a legacy to your children, or give to charity?
A purpose-driven life minimizes the temptation to overspend. We’ve been conditioned by our culture to think that joy comes from spending. Yes, we all look forward to treating ourselves to luxuries now and then. However, millionaires replace the desire for consumer goods with something more important to them.
Final Advice for How to Be a Millionaire
As you go through the above 7 steps, it is human nature to want fast results. But the best advice for an entrepreneur about becoming a millionaire is, don’t watch the clock.
Put your head down. Place one foot in front of the other. Stop concentrating on the time, and concentrate instead on your goals and the steps. You will make tremendous progress and the time will fly by. Then when you look back on the prior 12 months, you will be amazed at the growth of your financial assets.
Don’t neglect family members, especially your spouse or partner. Involve them in the steps to become a millionaire. Discuss the financial freedom, security and peace of mind that being a millionaire brings. If becoming an entrepreneur is instrumental to your dream, explain that. Convince your family to buy into a shared vision by helping them see what’s in it for THEM.
You have to be on the same path. Saving and investing to become a millionaire is so much harder if your partner is a shopaholic. Working together reinforces the commitment to financial independence and building a better life for all.
Now it’s time to create your own customized plan to become a millionaire. Following the steps above will not make you a millionaire overnight — very few things will. But a plan will get you on your way to becoming a millionaire.
Image credit: DepositPhotos and Small Business Trends