Let’s face it, times are tough. Pretty much everyone is feeling the pinch of the economy to some degree or another. And, because of that, there probably aren’t too many millionaires running around that aren’t millionaires already. You might start thinking that your chances of making it big are pretty slim. But you’re dead wrong. The things you can learn by studying how millionaires make their money can help you do just that: Make your own million dollars!
It’s pretty clear that it takes money to make money, but most people really have no idea how millionaires make their money. While many of them inherited their wealth or started off with an advantage, earning it the hard way is the surest way to reach seven figures.
How Most Millionaires Got Rich
Ever wonder how self-made millionaires earned their fortune?
- There are two types of millionaires: self-made millionaires and those born into wealth.
- More than two-thirds of individuals with a net worth of $30 million or more are considered “self-made.”
- No matter how millionaires get their money, they all share some core traits, including prioritizing savings and diversifying investments.
- This article is for those curious about how self-made millionaires got to where they are today and hoping to learn something from their success.
Most of today’s millionaires weren’t born into their wealth, research shows.
A 2019 study published by Wealth-X found that around 68% of those with a net worth of $30 million or more made it themselves.
Further, a second study by Fidelity Investments found that 88% of all millionaires are self-made, meaning they did not inherit their wealth.
The Fidelity study also revealed that self-made millionaires’ top sources of assets were investments/capital appreciation, compensation and employee stock options/profit sharing. This path is markedly different from those who inherited their wealth, who are more likely to cite entrepreneurship, real estate investment appreciation and the inheritance itself as asset sources.
For self-made millionaires, though, coming into wealth isn’t always a simple process – many of them worked hard to achieve the financial success they did, and then had the smarts and savvy and put their new wealth in the right places. What do some of these self-made millionaires have in common, and what lessons can you learn for your own investment strategy?
There are 4 main paths to becoming a millionaire
1. The Saver-Investors path
Just less than 22% of the millionaires in my study chose to take the Saver-Investors path. Not only is it the easiest way to build wealth, but if you start early, it almost always guarantees a lot of money.
The Saver-Investors in my group reached their first $1 million around their mid-to-late 30s, and accumulated an average net worth of $3.3 million by their mid-50s.
2. The Dreamers path
This is perhaps the hardest path to building wealth because it requires the pursuit of a dream, such as starting a business, becoming a successful actor, musician or author.
Approximately 28% of the folks in my study were Dreamers, and they accumulated an average net worth of $7.4 million — far more than any of the other groups — over a period of about 12 years.
3. The Company Climbers path
Climbers are individuals who work for a big company and devote all of their energy into climbing the corporate ladder until they land a senior executive position.
This is the second-hardest path to becoming a millionaire, and about 31% of the rich people I studied fell into this group. It took them an average of 22 years to accumulate a net worth of $3.4 million or more. In most cases, their wealth came from either stock compensation or a partnership share of profits.
4. The Virtuosos path
Roughly 19% of the participants in my study chose this path. Virtuosos are among the best at what they do in their profession. They are paid a high premium for their knowledge and expertise, which sets them apart from the competition.
It took the Virtuosos in my study about 20 years to reach an average net worth of $4 million. Some worked in the medical field, while others worked in law. A handful either worked for large, publicly-held corporations, or they were small business owners with highly profitable enterprises.
10 money rules that helped me become a millionaire at 28
1. Stay focused in school
Slacking in school won’t get you anywhere. Your binge-watching habits will only hurt your GPA. There are tons of people who graduate in the top 1% of their class every year. Be one of them. You’re paying thousands of dollars for your education, so why not take advantage of it?
You can keep insisting that grades don’t matter, but it won’t change the job market competition. While some prestigious companies will tell you that “GPA isn’t the whole story,” it doesn’t mean they won’t ask for your transcript — because believe me, they will.
2. Save until it hurts
I was once a poor college student, so just landing a job with any consistent salary made me feel rich. But I continued living like a student for years even after my first full-time job. It took a lot of willpower and discipline to save as much as I did.
I didn’t make excuses as to why I needed nice clothes or a new car. I shared a tiny studio with a friend for two years to keep my living costs low. That allowed me to max out my 401(k) on a modest salary and also save another 20% of my 401(k) cash flow.
3. Work hard and know your place
Working hard takes absolutely no skill. I promise that if you’re the first person in the office and the last to leave, you’ll get ahead. Pay your dues early and you can relax when you’re older. Will your social life suffer? A little bit, yes. But you’re young, remember? Your energy is limitless!
Early in my career, I got to work at 5:30 a.m. and left after 7:30 p.m. I learned a lot, got more done and gained the respect of my peers. And because my boss recognized my hard work ethics, I was able to save my job during the 2000 dot-com bubble burst.
4. Consider both aggressive and conservative strategies
Investing in an S&P 500 index fund is fine, but if you want to get rich fast, I recommend making more high-risk bets. You can land bigger wins for a small portion of your portfolio.
Don’t go crazy and blow all your money away, but be willing to experiment with aggressive investment strategies. Like I said, when you’re young, you have very little to lose.
5. Make property your best friend
Inflation is a beast. Make it a goal to own a primary residence as soon as you know where you want to live for the next five to 10 years. If you put a 20% down payment on a home and it goes 3% up per year, that’s a 15% return on your cash.
At 26, I used the lucky win I made from one stock investment and bought a two-bedroom, two-bathroom condo in San Francisco for $580,500. The mortgage has since been paid off and the property now generates a steady stream of income.
6. Live like you’re poorer than you actually are
The richer you become, the more frugal and low-key you should be. Too many young people waste money on things they don’t need — simply to show off to their friends or on social media.
There’s no shame in being young and poor. Drive a cheap car. Live in a modest home. Don’t eat out every day. Don’t buy clothes you don’t need (thanks to Mark Zuckerberg and Steve Jobs, wearing the same thing every day is cool). And then be the unassuming millionaire next door.
7. Start a side hustle
You can make money by working a full-time job or by starting a business. Better yet, you can do both. Over time, your side hustle might turn into a big business that will generate even more income than your full-time job.
In 2009, I launched Financial Samurai as a way to make sense of all the financial chaos. Little did I know that the site would grow so big and so fast. It gave me the confidence to negotiate a severance in 2012 and leave my full-time job for good.
8. Build a strong support network
To get ahead, you’ve got to build as many allies as possible. Being a hard worker isn’t enough. You have to talk to people, show an interest in them and get them to like you.
Once you have someone with significant power on your side, your entire career will advance much faster. I always made it a point to take a colleague out for coffee at least once a week. Building deep relationships helped me get promoted to vice president at 27.
9. Invest in your education
Your brain is your greatest asset. A strong education is the most valuable thing you have, so keep expanding your knowledge — even after college. Thanks to the Internet, you can now learn almost anything for free.
After completing my part-time MBA program, I continued taking courses to stay up to date with everything finance-related. That also fueled me to keep writing on Financial Samurai — and the more I did, the more money I made.
10. Keep track of your progress
The amount of money you save is more important than the amount you earn. I know tons of people who made millions and then ended up broke a few years later because they had no idea where their money went.
Take advantage of free financial tools online. Track your cash flow, analyze your investment portfolio, calculate your financial needs in retirement — just stay on top of your finances.
Conclusion
Millionaires make their money in different ways. Some make it by inheriting it, some by winning it as lottery prizes and some through the success of their own businesses. While this makes up a sizeable portion of millionaires, those who make their money solely from their careers are genuinely the ones making the most out of themselves. This is not to say that those who simply inherited money or won a lottery jackpot do not work hard and earn it, all we’re saying is that those who made their own businesses and market them successfully — especially those with a net worth of over $10 million — genuinely work hard for their money and deserve every penny they’ve made.