3 Simple Steps to Becoming a Millionaire

by Kevin on May 17, 2012

What are the top three things needed to become a millionaire?

Can you think of them?

Is it work ethic? Charisma? Inheritance? Luck? Deceit?

It doesn’t have to be that complicated. We like to think of millionaires as people who either hit it lucky with a decent idea or invented something brilliant. Or maybe they stole from the poor to enrich themselves while smiling in front of the cameras. While those descriptions may fit some millionaires, it doesn’t have to be that way for you.

How to Become a Millionaire in 3 Simple Steps

When you boil it down, it all comes down to this…

Earn an income

Unless you plan on inheriting a fortune, you need to earn an income to become a millionaire. Obviously the more income you earn the easier it can be to get to millionaire status. But don’t be fooled into thinking that you have to earn six figures to reach the million mark. There are a lot of “rich” people who are not wealthy.

There are great stories of janitors that ended up millionaires without having earned more than $10 per hour. These stories are the exception, not the norm, but it is possible.

It all starts with earning an income.

Don’t spend all of that income

Why aren’t those rich people wealthy? They earn an incredible income and spend it all away. The money flows like sand through their fingers. Likewise the janitor that ends up giving $1,000,000 to his school didn’t waste a penny of the income he earned.

You don’t have live like a pauper. You can enjoy the money you earn — it’s why you work so hard, right? But you can’t enjoy all of it right this very second. You need to have some self-restraint and force yourself to set aside some of that hard earned cash for the future.

This also means that paying interest on dumb debt like credit cards is really harmful to your goal of being a millionaire. Buying things can be a problem, but the most serious problem is buying things that you can’t afford to pay cash for. (Using credit is fine as long as you pay off the bill at the end of every month.)

Save and invest the rest

You’ll never reach a million dollars if you don’t save some of that money you earn. And unless you earn a ton of cash every year and are able to save a significant portion of it, you still won’t reach $1,000,000 without earning a significant return on your investment.

In short, you can’t take your money and stick it into an ING account earning less than 1% interest on it. (And I love ING Direct!)

You’ve got to take some risk and invest in companies; ideally you do this through index mutual funds. But even if you choose fee-laden, high expense ratio, actively managed mutual funds… even that is going to be better than sitting at less than 1% interest.

You need a solid rate of return. “Just” aiming for 7% gives you a shot if you start investing early and put $10,000 per year away. The more you can save each year, the less you need to earn on the return. And vise versa. (Good luck reaching millionaire status saving $1,000 per year.)

It’s not that difficult. Don’t live like a pauper and don’t live like the King. Aim for the middle, save some of what you earn, and invest it for the future. You might be surprised where you end up.

(Enjoy this post? Check out the 10 Steps to Avoid Becoming a Millionaire.)

{ 3 comments }

Steve in Denmark May 17, 2012 at 7:26 am

I’m not seeing ‘win the lottery’ in there – surely the simplest step of all?

Crystal @ Prairie Ecothrifter May 23, 2012 at 8:32 pm

It’s not ground breaking advice, but holy moly, I know a lot of people that need to hear it more often. Earn more, spend less, and save the extra. Just solid advice.

Deacon at Well Kept Wallet June 1, 2012 at 2:01 pm

So simple yet so many people don’t do it. Spending less than you make is definitely the first step to becoming a millionaire.

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