Many people dream of becoming a millionaire, but few want to put in the work it takes to make that dream a reality. The majority of millionaires still had to work to hold that title although you may only see the lucky few who win millions in the lottery on the news.
What are some concrete steps you can take to begin your journey towards earning that first million dollars?
Here are some to get you started.
Create And Stick To A Budget
The most critical piece of advice in the pursuit of acquiring wealth is to create a budget. This allows you to see all of your expenses in one consolidated location. Additionally, you can also include your savings and investing goals in your budget as well. By adding savings as part of your budget that must be addressed, you are much less likely to spend this money on frivolous purchases.
To avoid missing your budgeting goals, ensure that you budget some “fun money” to be used for anything you please. This money is perfect for buying that gadget you recently saw and just have to have or that iced coffee you treated yourself to on the way to work. Worried about bills like utilities, which can fluctuate each month? Look at the past 12 months of bills and find the highest bill. If you set this value as your budget, you are likely to always have enough.
Automate Your Savings
The best way to avoid spending money you earn is to have it never hit your checking account in the first place. Work with your employer to have a portion of your income directly deposited to a variety of accounts, ranging from an investment account to a retirement savings account.
By having the money directly transferred here, you are much less likely to spend it needlessly. It is essential to note, however, that just because this money has been moved to these accounts does not mean that it is yet working for you. You must then go into these various accounts and allocate your money to specific investments.
Make Your Savings Work For You
A big part of earning your first million should be to make your money work for you. This is better than merely saving up your first million.
The most common way to do this is to invest your savings so that it grows in value.
Most savings account accrue little to no interest, which means you will have to save roughly one million dollars in a savings account. By investing, you do not actually have to save one million dollars. Instead, your money can work for you to grow into a nice million-dollar nest egg over time.
Keep in mind, however, that not all investments are created equal. For example, it is safer to invest in index funds, which own small amounts of many different publicly traded companies as opposed to investing in single stocks. This way, your risk is spread out over many different businesses. Keep in mind that higher promises of return do not necessarily mean you will make more money. Often, investments with a higher advertised return are far riskier than those with lower levels of return.
Look To The Long-Term
An often undervalued piece of advice when trying to earn your first million dollars is to make decisions based on long term planning. For example, in the short term, taking on student loans to go to college actually moves you further away from your goal. But, in the long run, the time to reach your goal could be shortened by getting a degree, which can lead to a job with higher earnings potential.
Similarly, buying a new vehicle might bring you more value in the short term. But in the long term, the vehicle is a depreciating asset, which is likely to pull you further away from your goal.
The same logic should be applied to those attempting to earn their first million dollars by running their own business. Some decisions may cause you to incur higher costs in the short-term, but benefit you handsomely in the long-term. Companies that operate with their long-term goals in mind often have a higher success rate than those who seek to meet their short-term goals.
Seek Out Career Advancement Opportunities
A budget can only be made so lean based on your salary. So, to speed up the saving process it is essential to regularly seek advancement opportunities within your career. This may require you to take additional classes, get additional certifications, or put in extra hours to ensure that your company notices your worth.
Once you do advance and inevitably receive a raise in your salary, be sure not to succumb to lifestyle inflation. This is the idea that when you have more money you are likely to spend more money. Be sure to immediately increase your savings rate as soon as you receive a raise. If you don’t ever see the extra money, you likely won’t miss it.
Make Investments In Tax-Advantaged Vehicles
Part of acquiring wealth includes minimizing your tax bills wherever possible. To do this, consider investing your money in various ways to take advantage of all available tax breaks.
The most common example of this is a 401k offered by an employer. A 401k lets employees contribute savings to a retirement account before taxes have been taken out of your paycheck. Then, you could deduct your contributions from your total income on the following year’s tax bill. This reduces the amount paid in taxes.
During retirement, when you decide to withdraw your money, you will pay taxes on your withdrawals. Your annual income is usually lower in retirement. You may be paying taxes on a lower income tax bracket in retirement, saving you even more.
If you don’t have an employee-sponsored 401k, you could still have tax-advantaged retirement savings plans that anyone can open.
An Individual Retirement Account (IRA) is a great option to reduce your tax bill even further. IRA’s are divided into two different types. The first is a traditional IRA, which operates similarly to a 401k. Your contributions are taken out of your paycheck before the money is taxed. Then, the money is taxed when you withdraw it. The second type of IRA is a Roth.
The difference between a Traditional and a Roth IRA is that the Roth IRA allows you to contribute money once you have already paid taxes on it. You can think of this as your net salary. Then, because you have already paid these taxes, you can withdraw it in retirement without paying any taxes on this money. The only significant difference between a 401k and an IRA is the maximum amount you can contribute. The maximum annual contribution is lower for an IRA than it is for a 401k.
There is no one way to succeed financially, but there are some shared core values that almost all millionaires share. And if you try any of these tips , you could be on your way to earning your first million.