In 2021, 5.2 million individuals became millionaires according to the Credit Suisse Global Wealth Report. Out of all these people, though, how many do you think are self-made?
According to a study from Fidelity, 82% of millionaires are self-made, which would mean 936,000 people became millionaires last year without the help of generational wealth.
This goes to show that becoming a millionaire is more possible than most people imagine. Yet, the majority of people are held back by limiting beliefs, a lack of vision, a short-term perspective, and a simple lack of financial education. If you want to become a millionaire, it’s critical to learn how to think long-term, build your financial knowledge, and make choices that support your vision for your life.
In this article, learn how to develop the mindset of an everyday millionaire. With the right attitude and action plan, you can achieve millionaire status and live with financial freedom as you save and invest.
- Anyone can learn how to become a millionaire through careful financial planning, regardless of your starting point.
- The power of compounding interest allows individuals who begin saving young to become millionaires more easily.
- Avoiding debt, keeping a budget, and living below your means will allow you to save more money throughout your career.
- Boost your income through side hustles, strategic career choices, and investments to accrue wealth more quickly.
5 Steps to Becoming a Millionaire
1. Build Good Saving Habits While You’re Young
The earlier you start saving, the easier it will be for you to accrue wealth because of the power of compound interest. Compound interest means you are getting paid interest on your interest, which can make your money grow faster than if you just earned simple interest.
Investor and personal finance educator Graham Stephen recommends saving for retirement as early as possible. He says, “At 20 years old, there’s no excuse for you not to open up a Roth IRA. Just open an account with Vanguard, Fidelity, Charles Schwab, or a multitude of the other free brokerages out there.”
Increasing your savings account contributions while you’re young allows you to accumulate larger amounts of wealth over time even more than with checking accounts. Even small increases in your contribution rate can make a big difference with the total amount of money you’ll have.
According to a Spectrem report, the average age of a U.S. millionaire is 62 years old, and about 38% of millionaires are over 65 years old. This goes to show that most millionaires don’t build their wealth overnight—they build it over time through careful habits.
An individual contributing 5% of a $50,000 salary to savings each year will have $210,000 in 30 years, while someone saving 6% of that same salary will have $251,000 in 30 years. The more you increase your contribution rate, the closer you will get to that million-dollar mark.
2. Set a Budget With Financial Goals
Budgets are critical for bringing awareness to your spending and giving you control over your finances. When you set a budget, you can track whether or not you are doing all you can to meet your savings goals. To become financially independent, you’ll need to first start by setting and sticking with a budget.
Ramsey is an advocate of zero-based budgeting. Zero-based budgeting means you assign each dollar of your income to a specific purpose. After creating a budget, you should know how much you’ll spend on necessities, wants, savings, or investments. You don’t need a financial advisor to do this.
Include a section for emergency savings in your budget. Unexpected expenses arise, and you don’t want to be thrown off track to reaching your financial goals. If you plan for these events, they won’t deter you from building wealth.
3. Avoid High-Cost, Low Benefit Debt
Millionaires understand that debt can hold them back from reaching their financial goals. A 2019 Fidelity study found that 57% of millionaires have no debt at all and 52% of millionaires wait to buy big ticket items until they have enough cash to pay in full.
While certain debts like home mortgages and business loans can help you build your net worth, most debt, such as student loans and personal loans, is capable of derailing you on your path toward financial success. Avoid high-interest rate debt and debt that does not help you increase your net worth.
If you have debt that is inhibiting your financial goals, try one of these popular methods for getting out of debt:
- Pay off debts with the highest interest rates.
- Put as much money as possible toward the debt with the highest interest rate while making the minimum required payments on other debts.
- When your first debt is paid off, focus on the debt with the next highest interest rate.
- This is the most cost-efficient debt repayment strategy because it minimizes the amount of interest you will pay over time.
- Put as much money as possible toward your smallest debt while making minimum required payments on other debts.
- When your first debt is paid off, target the next smallest debt.
- This keeps motivation high through small wins.
Credit card debt and payday loans should be avoided whenever possible. As of November 2022, the average interest rate for a new credit card was 22.4%, while payday loans can have fees as high as $15 for a $100 loan over a 2-week period. This fee is equal to an annual interest rate of almost 400%.
4. Start a Side Hustle
A 2022 Zapier report found that 40% of Americans make extra money through a side hustle. If you have spare time on the weekends or evenings, taking on more work can help you reach your financial goals more quickly.
Whether you start your own e-commerce business, offer freelance consulting, or drive for Uber, that extra income can help you boost your savings and investments significantly.
5. Invest to Earn Passive Income
While increasing your active income is great, passive income allows you to earn more money with little or no extra effort. When you invest wisely, your wealth will grow over time.
Here are a few investments to include in your investment portfolio:
- Includes buying and selling mutual funds, index funds, ETFs, and individual stocks.
- 72% of millionaires own individual domestic stocks.
- 54% own domestic equity mutual funds.
- 40% own ETFs.
- On average, millionaires hold five types of stock market products. While the average annual returns of the stock market are roughly 10%, this average includes years with significant highs and significant lows.
- According to Warren Buffett, a stock market decline is the perfect time to buy.
Retirement Savings Accounts
- A savings account like a 401(k) or IRA allows you to build wealth through investing and lowers your tax bill.
- Contributions to traditional 401(k) and IRA retirement accounts lower your current taxable income, while Roth 401(k) and IRA accounts offer tax-free withdrawals in retirement.
- You can contribute up to $22,500 to a 401(k) and $6,500 to an IRA each year.
Real Estate Investing
- Andrew Carnegie famously said, “90% of all millionaires become so through owning real estate.”
- Real estate investments produce rental income, protect from inflation, provide tax benefits, and make it easier to finance future investments.
- Millennial millionaires own an average of three investment properties, while older millionaires own an average of 2.4.
Examples of Self-Made Millionaires
Ramit Sethi is an entrepreneur, financial advisor, and investor with a net worth of over $20 million dollars. But he wasn’t always a financial expert. After graduating high school, Sethi invested the money he earned from scholarships into the stock market. Unfortunately, as an inexperienced investor, Sethi lost half of his money.
He could have given into the limiting belief that because his first investment did not work out, he was not cut out for a life as an investor, but he overcame this belief and his lack of expertise. After those early losses, he developed a long-term mindset while investing, which made a huge difference in his finances.
He writes in I Will Teach You to Be Rich, “The single most important factor to getting rich is getting started, not being the smartest person in the room.” Additionally, Sethi encourages investors to negotiate salaries, set up automatic investment payments, and get started investing right away.
Rachel Drori is an entrepreneur with a net worth of $350 million that she earned through a side hustle small business that became a successful business venture. While Drori was working as a marketing professional, she saved $25,000 to invest in a side hustle selling frozen smoothies. That side hustle quickly grew into the Daily Harvest brand which now has a $1 billion valuation.
To achieve success, Drori had to avoid the limiting belief that her business may not succeed. She pursued her vision for her business while implementing risk management strategies. To keep risk low, Drori committed to keeping her day job until her customer base was made up of five times more strangers than friends.
While not every business venture will grow into a billion-dollar brand, entrepreneurs can follow Drori’s example by creating a vision and pursuing goals while practicing risk management.
Marcello Arrambide is an investor who came to the U.S. from Venezuela as a child. His family had very little money, so Arrambide was working two jobs at age 13, just to help his family get by. Arrambide didn’t let his low-income background keep him from becoming a millionaire. He now invests in the stock market, with a specialty in day trading, and does not have to worry about working a typical 9 to 5 job.
Arrambide was able to grow his net worth through patience and a long-term perspective. He says, “Too often we look for immediate results, but anything of value takes time.”
Becoming a Millionaire Is Possible for Anyone
Following these steps won’t show you how to become a millionaire in five years, but it will show you that becoming a millionaire can happen if you put in sustained effort over decades of time. Many people wonder how to get rich when they’re still struggling to make ends meet. The good news is that you do not have to start rich to become a millionaire. If you feel like accruing that much wealth is out of reach right now, start with small goals. Before anyone becomes a real estate investor or the owner of a million-dollar stock portfolio, they must start somewhere.
If you want to be a millionaire or even a multimillionaire one day, but you’re not sure if it’s possible, follow these tips to take the first steps toward financial stability:
- Focus on getting out of debt.
- Set a budget and stick to it.
- Contribute to your savings every month, even if it’s only a small amount.
To learn more about wealth-building and personal finance tips, check out these articles:
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- The Ramsey Show. “Ramsey Rant – You NEED A Written Budget.”
- Lending Tree. “Average Credit Card Interest Rate in America Today.”
- Zapier. “Zapier report: 40% of Americans have a side hustle in 2022.”
- Rule. “102 Warren Buffett Quotes on Life, Success, & More.”
- IRS.gov. “Retirement Topics – 401(k) and Profit-Sharing Plan Contribution Limits.”
- Coldwell Banker. “A Look at Wealth 2019: Millennial Millionaires.”
- Forbes. “How A Former Marketing Executive Built A $1.1 Billion Brand Around Frozen Fruits And Vegetables.”
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- I Will Teach You To Be Rich. “About Us.”