Many people want to know how to become a millionaire, but getting rich isn’t about learning a few financial secrets. There’s no such thing as getting rich quickly.
Rather, it’s about a long-term commitment to saving and making wise investments to build your wealth. I know, not sexy at all, but it’s entirely true.
It’s like Warren Buffet says,
“Building wealth is a marathon, not a sprint. Discipline is the key ingredient.”
Even though becoming a millionaire might seem out of reach, long-term wealth building is an attainable goal for people at a variety of different income levels and stages in life.
Changing your mindset about money
When you seek advice about asset building and money management, you may hear more about how to grow your capital than you do about how to change your thinking. But, adopting the proper mindset is critically important if you are serious about investing.
Without this shift in mindset, all the rest falls flat.
So, what is it that sets investors apart from non-investors when it comes to thought process? Part of it is how they respond to stress and unexpected changes. People who are successful with investments are far from obsessive. Instead, they respond to changes and opportunities as they arise and allow their money to work for them.
Rather than checking numbers several times a day and making drastic changes based on minor market shifts, a successful investor thinks about his or her investments over the course of many years and decades.
Another characteristic of people who successfully build their wealth is a realistic viewpoint. You cannot become a millionaire overnight unless you’re this guy who invented the shake weight…
The shake weight: America’s biggest inside joke since 2007.
Thank you sir, thank you!
But the truth is, If you are looking at how to get rich from a single investment over the short-term, the odds are against you. Building your capital while insulating yourself from risk takes time, a lot of time, and it’s important that you are prepared to take on investments for the long haul.
But where do we start?
Get started investing early
The earlier you invest, the more time you will have to build your wealth and the more likely it is you will find success. The truth is that it’s never too early to start investing for your future—but it can be too late.
Giving yourself decades to invest allows you to weather the downward turns that the market may take and hold out for positive market changes. It also allows for the magic of compound interest to kick in.
If you don’t give yourself enough time to invest strategically, you are more likely to suffer in a market dip without reaping the benefits of the eventual market climb.
If you need your retirement funds at the height of the 2008 financial crisis, you’d be hurting. A lot. If however, you simply weathered the storm and sit tight, you’d be well above your pre-2008 highs at this point.
There are lots of reasons why it’s beneficial to start your investment journey early on if you want to learn how to become rich. These include the following:
Benefit from compound interest
Compound interest is money earned on interest. In other words, compound interest gives you a financial boost for reinvesting your money and earning more interest. The earlier you start your investments, the more interest you will accrue and the more compound interest you will earn.
Opportunity to take risks
Some of the most lucrative investments also have the highest risk associated with them. Although it’s important to understand the extent of any risk you assume, taking calculated risks can be highly beneficial.
If you’re investing short term, you probably don’t have enough time to recover from risky investments that go south, which could leave you with even less capital than you started with.
More time to develop good financial habits
It takes time to learn positive spending and budgeting habits, but you have to start somewhere. Many people find that their spending and other financial behaviors improve as they begin to think about investments and long-term financial planning.
Better long-term success
Investing is all about planning for your future—and your future will be far more secure if you start investing earlier. Giving yourself more time allows you to build your investments effectively so that you can enjoy the quality of life you want throughout your working life and your retirement.
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Know your worth
While every person is unique, having some kind of metric to weigh your financial health against your peers can be helpful. If you are ahead of the game, this information will affirm that you’re on the right track.
If you’re lagging behind, it might just be the motivation you need to make some necessary changes.
One of the ways you can look at your financial health compared with those around you is via net worth. This is a calculation that includes all of your liabilities subtracted from all of your assets.
Take account of your assets, including your savings, your home equity and your valuable possessions, and then subtract liabilities such as loans, lines of credits and other debts.
The average net worth for an American under age 35 is $6,676.
By age 40, that figure climbs to $35,000 and then up to $84,542 by age 50. At age 60, right about when most people are starting their retirement, the average net worth is $143,564.
If you are looking at these figures and feeling completely inadequate when it comes to your net worth, you’re not alone. Thinking about saving so much in just a few decades can be daunting.
The good news is that it is possible as long as you put healthy financial habits into practice and invest your money wisely. It can even provide you with a path when determining how to become a millionaire in the long term.
Early on in your career, the choices you make form the basis for all your future financial successes and failures.
To get started on the right track, it’s a good idea to try and have about half of your annual salary saved by the time you are 30. If you make $50,000 a year, your goal by 30 should be to have $25,000 saved.
Start now! Use a tool like Betterment to open up yourself a savings account, and start socking money away.
If you’ve already passed the age of 30 and don’t have this level of savings, there’s no need to worry—a late start is better than no start at all. Establish a budget that allows you to maximize the amount you can save.
Avoid discretionary spending and try to make cuts to your budget where you can. Again, this is a key tip when figuring out how to become rich.
Read more and educate yourself
If you want to learn how to ski, your first step wouldn’t be to hit the slopes at the Winter Olympics.
Investing is not about chance—it’s about strategy. To invest and save effectively, you must take advantage of all the information available to you.
If you’re truly wondering how to get rich, look to sources of information that detail strategies and sound investment advice.
A prospective skier might look to the advice of Bode Miller to improve his or her form, while those who aim to improve their financial health may take advice from Listen Money Matters, or other kickass free online resources.
You won’t be able to navigate the financial world effectively unless you are familiar with the various factors at play.
If your eyes glaze over when you hear words like securities, mutual funds, and asset allocation, it would serve you well to brush up on your investment literacy. Read some books about investing or check out some trusted resources online.
Don’t be hesitant to ask for definitions and clarifications as necessary. Even though you might feel embarrassed when there’s a term you don’t know, asking for a definition upfront boosts your understanding and allows you to be more informed in the long run.
Most importantly, make sure that you are receptive to all forms of financial study and education.
Emulating success stories is important, but you should also try to learn from the failures of others. Make sure you are aware of the common missteps that befall investors so that you can avoid them as much as possible.
Think about passive income
Passive income gives you the opportunity to collect money over time on an investment or type of work that you’ve already completed.
For example, purchasing a home and renting it out is a way to collect passive income. In this example, you benefit indefinitely from a one-time investment of initial time and money.
If you don’t have the kind of capital it takes to purchase property, you can still create passive income with a smaller investment of time and money. Below are some ideas:
Rent a room
If you have an extra room in your house, you could be pulling in hundreds of extra dollars per month in rent. It’s a great option to develop a stream of passive income. You may be able to benefit greatly from this option, especially if you live in a high-demand rental market and your home is in a good location.
You don’t have to purchase a whole property to get involved in real estate investing. Crowdfunding allows you to benefit from real estate returns without purchasing a home or commercial property outright.
There are a variety of resources available for people who want to invest in crowdfunding including Fundrise and Realty Shares. With many crowdfunding platforms, you only need an investment of between $500 and $5,000 to get started.
Individuals who cannot get approved for loans through traditional financial institutions and lenders often turn to alternate sources of financing such as peer-to-peer lending. Because these tend to be higher-risk loans, interest rates typically range from 6 to 10 percent. You can use programs like Lending Club to get involved with peer-to-peer lending quickly and easily.
Pay yourself first
You’ve probably been advised before to pay yourself first, but it’s important to underscore exactly what this means when it comes to saving and investing.
Paying yourself first means prioritizing savings over discretionary spending.
Let’s say you have a weekly income of $800 and average weekly expenses (things like gas and groceries) that total $300. In this example, paying yourself first means you contribute to your savings account before you spend any of the extra $500 on discretionary expenses.
Developing the discipline it takes to pay yourself first is a process, and so it’s helpful to use automation tools to help hold yourself accountable. You can set up automatic paycheck deductions for your 401(k) or IRA so that savings is automatically deducted. You can also use a savings platform or application to set up automatic savings contributions.
If you struggle to save, but you know that your spending is higher than it should be, it’s important to put things in perspective.
Instead of thinking about the items you want now but have to refrain from buying, think about the quality of life you will be able to enjoy later on in life thanks to your hard work and commitment to savings now.
You can pay yourself first by contributing to a retirement savings account and an investment portfolio or a standard savings account with your bank. The important thing is not how you’re saving, but that you are saving in the first place.
Start a business
For many people, the prospect of working for someone else for the duration of their lives is entirely discouraging. Not only does working for someone else inhibit your freedom, but it can also prevent you from reaching all your financial goals.
When you think about how to become a millionaire and get rich, it’s important to think about how your career trajectory will need to change to accommodate your goal.
Sometimes, the best thing you can do for your financial future is to establish a business that you can run part-time and on the side, to begin with.
The best way to start a business is to pursue a field that you are passionate about and develop a product or service that fills a need. If you’ve always been a music lover, but your career is in technology solutions, consider starting a company that deals with the development of music software, for example.
Even though you might not be able to quit your day job and run your business full time right away, you will be able to build your profits as time goes on as long as you have a marketable product and you make the necessary investment of time and energy.
Speak to friends or advisors you trust to determine whether the business concept you have has potential. Unfortunately, even great concepts may not be profitable. It’s essential that you consider the long-term financial viability of your business before you choose to quit your current job and commit to being a business owner.
The key is it should cost you very little up front, and if it crashes and burns, you aren’t living on the street. But hey, at least you learned something, a calm sea never made a skilled sailor!
Becoming wealthy is not simple, but it is possible if you have the fortitude and commitment to work at it. Start by educating yourself and implementing healthy financial habits to get yourself off off a good start.
With the right strategy and the right resources, you can figure out how to become a millionaire. But not overnight.