One million dollars is a number that many people set as a target for their retirement nest egg, and it has something of a mythical feel about it. The very idea of being a millionaire symbolizes great wealth for most Americans, and indeed only about 8.8% of Americans actually are millionaires, putting them in the category of the financial elite.
I’m a Self-Made Millionaire: Here Are 3 Things I Never Waste Money On
Avoid: 7 Mistakes That Drain Your Wallet at the Gas Station
However, there are concrete steps that anyone can take to increase their chances of reaching a seven-digit net worth. By starting early enough and implementing some of these financial steps, you may find yourself in this rarefied company more easily than you think.
Start Investing Early
Probably the single biggest step you can take towards achieving millionaire status is to start investing early. As Mark Cuban said, “When investing, the best thing you can do is start early.” Socking away as little as $200 per month when you are 20 can translate to over $1 million by age 65 if you earn an 8% return on your investments. While no investment return is guaranteed, the long-term average return of the S&P 500 index easily eclipses this 8% target. However, as billionaire Warren Buffet advised: “The best time to plant a tree was 20 years ago. The second-best time is now.” So, better to start now than not at all.
Save Until It Hurts
You might have heard that you should save at least 10% of your income to generate long-term wealth. While that’s a great start, if you want to become a millionaire, you’ll have to save until it hurts. This means different things for different people. If you’re only earning $25,000 per year, saving 10% of your money might hurt a little — but try pushing it to 15% or 20%. If you earn $200,000 per year, you might be able to push that savings rate to 50% or more. Or, to put it simply, listen to Buffet: “Do not save what is left after spending; spend what is left after saving.”
Invest in Appreciating Assets, Not Depreciating Ones
One of the most important steps in reaching millionaire status is to only put your money into investments that will generate a positive return for you. In plain English, this means you should be investing in assets that have demonstrated long-term earnings potential, like the stock market and real estate, not in assets that lose value every day, like new cars or consumer goods.
Continually Increase Your Income
The cost of living goes up nearly every year, so if your income doesn’t grow as well, you’ll never generate true wealth. Regularly ask for raises at your job so your income rises faster than the inflation rate. If you can’t squeeze any more money out of your current job, consider taking on a side gig or some type of additional work so you can continue to raise your income.
Generate Passive Income
Millionaires and billionaires agree: Passive income is incredibly important to amassing a fortune. As Buffet said, “If you don’t find a way to make money while you sleep, you will work until you die,” It’s hard to get wealthy just from earning a salary. But you can get to millionaire status a lot more quickly if you generate income that you don’t have to work for, known as passive income. A classic example is rental income. Once you buy a rental property, you’ll get paid every month by your renters without having to do any additional work beyond routine maintenance and repairs. If your rental income exceeds the amount you pay for your mortgage, property tax and other costs, you’re essentially using other people’s money to pay for your property while you sit and watch its value increase. Be like investor and author Robert Kiyosaki, who said, “my passive income exceeds my expenses. That’s financial independence.”
Pay Off Credit Card Debt
Knocking down your credit card balances won’t earn you any money, but it might still be the best “investment” you ever make. If you carry a balance on your credit card, you may be paying interest of 20% or more annually. No investment you make can reliably generate those types of returns, so paying off any outstanding balances you have is one of the best possible uses of your money.
Maximize Your 401(k) Match
If you’re lucky enough to have a 401(k) match at your job, you absolutely must take advantage of it each and every year. A 401(k) match may be the closest thing to free money you’ll ever receive, and best of all, it’s deposited into a tax-advantaged investment account. Even if you can’t contribute the absolute maximum to your 401(k) every year, at least contribute enough to claim your full employer match.
Maintain a Top-Tier Credit Score
As financial guru Suze Orman said, “A good credit score is better than money.” A top-tier credit score won’t put any money in your pocket directly, but it can save you literally tens of thousands of dollars over your lifetime, perhaps even more. With a credit score above 740, you can usually qualify for the lowest available interest rates on everything from home mortgages to auto loans, and the savings can really pile up. A $300,000, 30-year mortgage at 3.0% vs. 4.5%, for example, will save you over $74,000 in interest over the life of the loan.
Live in an Affordable Community
America is a vast country with plenty of comfortable places to live. If you can live in a lower-cost area while still earning the same salary, it’s the same as if you got a significant raise. As more and more companies are allowing their employees to work remotely, see if you can move to a less-expensive area and boost your savings rate to help you achieve millionaire status.
Be Entrepreneurial and Take Calculated Risks
“The only limit to our realization of tomorrow will be our doubts of today,” said U.S. President Franklin D. Roosevelt. Millionaires are often willing to take smart risks to grow their money through new business ventures. Calculated risks and entrepreneurship can lead to greater reward.
Network and Seek Mentorship
Surrounding yourself with knowledgeable peers and mentors accelerates learning and unlocks opportunities. As Shark Tank’s Daymond John said,”Finding mentors has been key to my success.” Millionaires invest time in networking and mentor relationships.
Learn Constantly and Improve Your Skills
“Risk comes from not knowing what you’re doing,” said Buffett. Education and skill development are lifelong pursuits. Millionaires continually learn to expand their knowledge, abilities and opportunities.
Practice Intentional Goal Setting
Millionaires set clear goals for their money and review them regularly. Intentional goal setting and tracking progress are keys to success. “Decide what you want, decide what you are willing to exchange for it. Establish your priorities and go to work,” said American tycoon H. L. Hunt.
Laura Beck contributed to the reporting for this article.
More From GOBankingRates
This article originally appeared on GOBankingRates.com: Want To Be a Millionaire? Embrace These 13 Habits Now