Do you dream of being a millionaire?
Many entrepreneurs and hard-working career professionals have big money goals for themselves. The idea of becoming a millionaire is appealing – but the steps you need to take to get there can be less than clear.
Some people might assume that becoming a millionaire isn’t possible without a hefty inheritance or a 6-figure salary. The truth is, with time and a strategy, anyone can increase their wealth to millionaire status.
Set Smart (and Specific) Goals
Setting money goals is a big part of growing your wealth, but it’s not good enough to set a general goal and hope that you achieve it in the long-run. For example, if your goal is to be a millionaire, you’re thinking too broadly about your money. Setting more specific goals that break “millionaire status” into smaller, actionable steps are key. These might be:
1. Paying down your debt – and staying debt free.
2. Maxing out your 401(k) and HSA.
3. Leveraging a Roth IRA (or backdoor Roth IRA) to grow your savings tax-free.
4. Reducing taxable income with saving-specific strategies.
5. Increasing your salary by gaining experience, searching for better-paying jobs, and advocating for regular raises or pay increases.
6. Increasing your income by starting a side-hustle, growing your own business, or finding alternative revenue streams.
7. Setting and sticking to a budget each year.
These goals are specific, and still put you on the path to reach your bigger goal – becoming a millionaire. It can also be helpful to set goals that are rooted in “why.”
What does becoming a millionaire mean to you?
Having a million dollars in the bank provides an appealing level of financial freedom and security, but I’m willing to bet you have other reasons for wanting to grow your wealth. Maybe you want to provide a college education to your kids. Maybe you want to quit your job and start a business or retire early to travel the world. To stay on track, set financial goals that are rooted in these motivational “why’s”.
Increase Your Human Capital
The best way to increase your salary and cash flow is to grow your human capital. Wondering what that means? Take a look at the business owners, CEOs, and other professionals you admire. What do they all have in common? Each of them is taking the time to grow and improve. This might mean that you continue your education. It may mean that you ask for more responsibilities in your current job or role so that you can learn and grow. Setting personal and professional growth goals for yourself increases your value in the workplace and beyond – which can help you to achieve your dream of being a millionaire someday!
Avoid Lifestyle Inflation
Millionaires often don’t live like millionaires. Even as you see your wealth grow, that doesn’t mean you have to start living like Elon Musk. Lifestyle inflation strikes when people start to make more money than they have in the past, and they want to live in a way that “proves” they have the money to spend. While it can be rewarding to spend your hard-earned wealth in a way that brings you joy and fulfillment, it’s still important to keep yourself in check. Buying the biggest house in an expensive neighborhood just because you can may not be the best idea.
In fact, if you’re working to become a millionaire, you should probably work to keep your expenses low and create a budget that fulfills you emotionally to avoid overspending in other areas of your life. Avoiding lifestyle inflation means you have to prioritize your expenses. For example, you may want to opt in for a more-expensive gym membership that comes with perks like an on-site daycare, or different fitness class options.
To do this, you might have to give up another expense – like spending $100 every Friday on an upscale date night with your spouse. When you’re pursuing a goal that’s as big as being a millionaire, you’re going to have to make some sacrifices. That’s not to say that you have to give up everything and live on a shoestring budget, but there are going to be times where you need to pick and choose.
Diversify Your Income
Millionaires don’t have just one income stream. That’s because it’s tough to save enough money on just a salary. Finding ways to diversify your income is key! There are several different types of income streams you can look to build out:
1. Your traditional salary. Don’t forget to advocate for regular pay increases or bonuses for a job well done!
2. “Passive” income. Many people look at creating passive income through buying a rental property. Although this type of income isn’t truly passive (being a homeowner is tough work – even if you’re not living on the property!), it can help to boost your net worth over time.
3. Interest and dividends. Investing, or being a part-owner in a business, can provide an additional stream of income beyond your traditional salary.
4. Active income. This might be a side hustle, or an entrepreneurial venture that you pursue alongside your full-time job.
Leveraging as many of these as possible helps you to grow your wealth quickly, and it compounds in growth over time.
Max Out Retirement Savings
Being a millionaire is a goal that many people will likely achieve as they retire. Retirement savings vehicles can help you to grow your wealth through smart investing strategies while also reducing your taxable income right now. A few good places to start focusing your retirement savings might be:
1. A 401(k). The maximum allowable contribution to this account is $19,000 in 2019, with an extra $6,000 if you’re 50 or older.
2. A Traditional IRA. Contributions to a Traditional IRA are pre-tax, and they lower your current taxable income. In 2019, you can contribute up to $6,000 to your Traditional IRA, or $7,000 if you’re 50+.
3. A Roth IRA. Roth IRAs are funded with after-tax money. You can contribute up to $6,000 under age 50 through a Roth IRA, plus a $1,000 “catch up” contribution if you’re over age 50. So, while they don’t reduce your taxable income right now, they do help you save on taxes in retirement when (theoretically) your income will be higher than it is now, and you’d owe more in taxes on the gains your IRA funds have earned.
Create a Financial Plan
Finally, if your goal is to become a millionaire, you need a financial plan in place that’s revisited and adjusted regularly. Becoming a millionaire is a big goal to set for yourself, and a plan can help you to outline the clear steps you and your family need to be taking to get there.
Speaking with a financial planner who can walk you through every element of your financial life, and how it impacts your long-term wealth goals can be a huge help in both keeping organized and looking at all of the options you have available to you. Interested in learning more? Get started by scheduling a call today.