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If you’re hoping for the easy, failsafe secret to become a millionaire, we hate to disappoint you but it’s not easy. If there was an easy way to earn a million, everybody would be doing it. No matter how you look at it, becoming a millionaire will take work –unless you happen to win the lottery.
The good news is that becoming a millionaire on your own is actually easier than winning the lottery. Your chances of winning the lottery are 1 in about 300 million or 0.000000333333%. On the other hand, your chances of becoming a millionaire in the US are anywhere between 6.4% and 22.3%, according to Federal Reserve Board’s Survey of Consumer Finances. So hard work, clear goals and an early start are your best chances of making it big.
Most millionaires hit their first million by the time they are in their 50s or later, so if your goal is to hit that million mark at least a couple of decades earlier, you’ll have to work even harder.
Give Your All in Your 20s
You will be in school for much of your 20s, which means your free time will be limited. Any free hours you have should be dedicated to growing your wealth even if that means sacrificing your social life.
The harder you work early on, the bigger the results, so you should get into the habit of sending any disposable cash you get your hands on to savings and investments. Every $100 you don’t spend going out or buying trendy things can go into financing a business, investing and growing your wealth.
Here’s an easy example. Let’s say you start investing $1000 per month when you’re 20 with an expected rate of return of 7 percent (lower than the usual market return, so even better is possible). Just doing that – with no additional businesses, investments or anything else – would make you a millionaire by the time you’re 50. But start saving the same amount when you’re 30, and you won’t even have have a million when you turn 50.
The lesson? Every year matters, so don’t wait till you’re 22 or 23 to start doing something if your goal is to be a millionaire by 30.
Pick the Right Career
Millionaires come from all ways of life but some careers are much more likely to get you there than others. For example, professional sport players and Fortune 500 CEO have very good odds of earning enough to be millionaires. Then again, the chances of becoming either one are not in your favor.
Still, there are some career choices that will improve your chances of making it big. According to data from the Bureau of Labor Statistics and US News, the top 11 higher-earning careers are all in the medical field, and include anesthesiologists, dentists and even psychiatrists.
But if medicine is not your thing, petroleum engineers, IT managers, marketing managers, lawyers and financial advisors all have average yearly earnings of over $100,000. Some of these careers only need a Bachelor’s degree to get started – and while high-cost loan repayment will eat into some of these salaries at first, your chances of becoming a millionaire early are much higher if you pick these professions.
Develop Multiple Streams of Income
Bestselling author, certified financial planner and motivational speaker Tom Corley spent five years studying the habits and choices of 177 self-made millionaires to figure out their secret to success. Among other things, he found that 65 % of self-made millionaires had at least three streams of income and 29 % had five or more. On the other hand, most people in the lower or middle classes have only one stream of income: their job.
Having only one income coming in can be tricky: if you lose your job, you have to stop saving towards your millionaire net worth until something else comes up. But also, the chances of you becoming a millionaire with only one stream of income are much lower.
Financial experts believe that there are seven basic streams of income that millionaires tap into to increase their wealth:
- Earned Income: Either your salary or money you get from self-employment pursuits if that’s your main source of income.
- Profit Income: After your job, this is the easiest second stream of income to pursue. With websites like Etsy, ebay, and ecommerce stores easily available to anybody, you can turn a hobby into a small business with a very small start-up investment.
- Rental Income: Technically speaking, you can rent anything –your bike, a room through Airbnb, specialty tools you already own. But for high income on your path to a million, renting out property is the way to go.
- Interest Income: You could get interest from peer to peer lending, but the most common form of interest income is from buying bonds.
- Dividend Income: This usually comes from dividends paid by index funds or stocks you’ve invested in.
- Capital Gains: Those stocks and funds you’re getting dividends on? You can eventually sell them to get capital gains (as long as the sale price exceeds the purchase price). Any property you own that you eventually sell for a profit will also fall in this category. Flipping houses –where you buy a fixer-upper, work on it and then sell it for a significant profit– can sometimes be a good path to becoming a millionaire, especially if you have the skills to do some of the work yourself.
- Royalty Income: Write a book, license a product or sell your photos, music or videos through stock sites such as Shutterstock to earn royalties. Royalties are an effective form of passive income, where you produce something one and it continues to produce money.
Invest, Not Just Save
While it’s smart to keep some money in your bank account for emergencies, most of the money you’re able to save should be invested. This is because a simple savings account will only provide minimum gains and make it impossible to grow your money properly.
Let’s say, for example, that you have $5000 to put into savings, plus an extra $1000 to add every single month for a decade (from the time you’re 20 till you turn 30). Put that money into a savings account with a 1% interest and at the end of the 10 years, you’ll have $131,748. But put the same amount into stocks/EFTs – which had an average return rate of 9.2% over the last decade – and your original investment will grow to $202,922 after a decade. Quite a big difference and a much closer step towards your first million.
Live Well Below Your Means
One of the best known saving rules is the 50/30/20 rule. Coined by Senator Elizabeth Warren in her book, “All Your Worth: The Ultimate Lifetime Money Plan,” this simple plan suggests to allocate 50% of your income to needs, 30% to wants, and 20% to savings.
While the idea behind the rule is excellent, if your goal is to become a millionaire by the time you turn 30, you’re going to need to save more than 20%.
A good way to look at it is in terms of “how much you have left” rather than how much you’re putitng away. Let’s say your first salary is $35,000 per year and you manage to save 40 % of your salary ($14,000). That leaves you with $21,000 to live on. Then, after a year, you switch to another job or get a promotion and you’re suddenly earning $50,000 a year. You should still try to live on the same amount ($21,000) and put the rest away. Suddenly, your path to a million is accelerating.
Yes, living on $21,000 will be tight. You might have to live with roommates, cut down on eating out, and live frugally. But the more you cut on these expenses, the faster your wealth will grow.