Becoming a millionaire is a dream for many, but it is possible to achieve with focus and determination. While a sudden windfall or lucky break can accelerate the timeline, true millionaire status usually requires diligent effort over decades.
he good news is anyone can implement proven money management strategies that harness the power of time and compounding interest to build seven-figure wealth. With discipline and commitment to learn sound financial principles, the goal of amassing $1 million or more in assets is attainable for an increasing number of people.
This article will outline realistic paths that average earners can take to become millionaires through savvy decisions, persistence and patience. You’ll discover that becoming a millionaire is not about luck or overnight success, but rather daily choices to live below your means, invest early and often, take calculated risks, and continually educate yourself on how to master your money.
Start Saving Early
The best way to build your savings is to start early. Doing so allows you take advantage of the power of compounding over the years.
Say you’re 20 years old. If you contribute $6,000 to an individual retirement account (IRA) every year ($500 a month) for 40 years, your total investment would be $240,000.
But because of the power of compounding, your nest egg would be worth much more. Assuming a 7% return, it would total more than $1.37 million.
You’d be a millionaire by age 57, just by saving $500 a month. Granted, you’d rather be a millionaire by age 30. There’s more to do.
Save 15% of Your Income or More
The personal savings rate is the percentage of income left over after people spend money and pay taxes. That rate for Americans on average was 3.4% in September 2023, according to the Bureau of Economic Analysis (BEA).
According to experts, that’s not enough to save for a comfortable retirement, let alone for anyone aiming to become a millionaire.
Exactly how much should you save? Although there’s no correct answer here, most financial planners say that, depending on your age, you should save at least 15% of your annual gross income just for retirement.
That figure is ambitious but not necessarily unattainable. If your employer matches contributions of up to 6% of your salary in your 401(k) plan, you need to save only 9%.
Develop a written financial plan
Saying you want to be wealthy won’t get you there. You must come up with a workable plan on how to become rich, put it on paper and then execute it.
“The written plan forces you to do something; calculate what you need to earn and how to invest,” says Stewart Welch, founder of The Welch Group, a wealth management firm in Birmingham, Alabama.
“The plan isn’t just the goal: it’s the whole thing,” says Welch. “The dream, the goals, the options.”
The options require “scenario planning” — coming up with all the ways you can accomplish that goal, such as opening a Roth IRA or contributing to a 401(k), says Welch. Bankrate’s investment calculator can show you how much you’ll need to contribute and earn over time to reach your goal.
Get into the habit of saving to be millionaire
“Saving money really means putting your own personal finances first,” says Mark Hamrick, senior economic analyst at Bankrate. “So, think of saving money as a way of paying yourself first. By making saving money a priority, you are boosting the chances that your financial future is going to be stronger than your financial present or past.”
Start by building an emergency fund in a savings account so you don’t have to raid the rest of your savings and investments when a big expense arises unexpectedly.
Stay away from debt
There’s this idea floating around our culture that you have to take big risks to become wealthy. People think you have to take out business loans and open up lines of credit to get ahead, and they justify it by calling it “leverage”—which is just a fancy word for borrowing money and getting into debt.
But here’s the thing: Debt is quicksand to your financial dreams. Every time you buy something on credit or take out a loan, you dig a deeper hole for yourself to climb out of. That money (plus interest) you’re sending to lenders is money you could be putting toward your future!
Folks who went on to become millionaires figured this out a long time ago. They didn’t want their most valuable wealth-building tool tied up in stupid payments every month.
Here are the cold, hard facts: 9 out of 10 millionaires have never taken out a business loan, and 73% of millionaires have never carried a credit card balance in their entire life. They’ll be the first to tell you that one of the main ways to reach the million-dollar mark is to avoid debt like the plague.
The bottom line is this: If you want to become a millionaire, avoid debt at all costs. And if you already have some, get rid of it and pay it off as soon as possible. The only “good debt” is no debt!
