While there are quite a few personal finance milestones, becoming a millionaire is one of the biggest. It’s also one that’s getting more important as the cost of living gets higher and higher. A $1 million net worth is no longer a sign of extreme wealth. In fact, it will likely eventually be a necessity for a comfortable retirement.
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So, how can you get there yourself? Let’s look at the most common and effective ways to become a millionaire. Most of these are things that anyone can do, but we’ll start with the obvious exception.
1. Have rich parents
There’s no denying that the easiest way to become a millionaire is to come from a rich family. Lots of millionaires get their money by inheriting it or by receiving a “small loan” of a few million to launch their business. Most of us aren’t in this group, but on the bright side, there’s more than one way to get rich.
2. Be aggressive about increasing your income
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Income isn’t everything, but it is important. The path to $1 million is a whole lot faster when you make $120,000 per year compared to $40,000. A 2020 study by Pew Research shows just how much high income correlates with high levels of wealth.
| Income bracket | Median income | Median wealth |
|---|---|---|
| Upper | $207,400 | $848,400 |
| Middle | $86,600 | $115,200 |
| Lower | $28,700 | $11,300 |
Data source: Pew Research Center.
People who have the most financial success tend to aggressively look for opportunities to earn more money. This attitude makes a huge difference in maximizing your earning potential. Here are a few of the key steps that high earners take:
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- Focus on being a top performer. It’s much easier to negotiate a raise or get a big salary offer while job hunting if you’re good at what you do.
- Leverage your most valuable skills. Think about what you’re better at than the average person, and then figure out which of those things other people will pay you to do for them. You could look for jobs based around those high-value skills or offer freelance services.
- Regularly look for ways to make more. This could mean seeking out promotions, looking for new jobs, or finding ways to expand your business. High earners don’t get complacent. They do these things on a regular basis.
3. Get an early start with saving and investing
Saving and investing are two of the most important financial habits to cultivate if you want to become a millionaire. A good goal is to put 10% of your income toward savings and another 10% towards investments every month, but you can adjust those numbers as needed. The sooner you get started with these habits, the easier it is to build your net worth.
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That’s especially true with investing, because when your investments have more time to grow, it can significantly increase your returns. Case in point: Let’s say you want to retire at 65 with $1 million. If you get a 10% annual return, here’s how much you need to save per month depending on your age when you start investing:
- At 20, you need to save $116 per month.
- At 30, you need to save $307 per month
- At 40, you need to save $847 per month.
- At 50, you need to save $2,623 per month.
If you’re not investing yet, that’s something to start doing right away. You can do so with online stock brokers or a retirement plan, such as a 401(k) at work.
4. Choose proven investments with strong growth potential
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To maximize your returns, you need to choose the right investments. This is something that people with a high net worth do very well. Less successful investors, on the other hand, often make some common mistakes that cost them quite a bit of money in the long run.
Some are too conservative by keeping too much money in cash or bonds, limiting their portfolio’s growth. Others go in the opposite direction and put lots of money in unproven, high-risk investments, such as cryptocurrency.
The best investments have a long track record of success with strong average returns. In particular, there are two that have stood the test of time:
- Stocks: Although performance varies considerably from year to year, the average stock market return has been about 10% per year before inflation. A simple way to invest in stocks is with exchange-traded funds (ETFs), which contain a large number of stocks and have low fees.
- Real estate: Many millionaires have made their money by investing in real estate, an asset that doesn’t have as much volatility as stocks. While buying property is a time-consuming and expensive process, there is a simpler option in the form of real estate investment trusts (REITs), which are bought and sold like stocks.
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It’s a challenging goal, but becoming a millionaire is achievable when you make a plan and stick to it. If you increase your income as much as possible, get into a saving and investing routine, and invest well, you’ll be on your way.
