How Millionaires Make Money

How do millionaires make money? The answer is as varied as the people who attain such heights. There are no two paths to wealth that look alike. While some millionaires earn their money through real estate, others earn theirs through various forms of investing or getting a solid education and developing a lucrative profession. And while some use hard work and grit, others use genetic gifts and even luck and inheritance to make millions.

Do you want to know how to become a millionaire? I’ve done a lot of research for this book and I will teach you the proven 7 step system that millionaires use to make money. The truth is that they have a secret system that allows them to earn even more money then normal people like you and me. It’s not some big secret or magic trick, I’ll show you how it work and what they do, but first I’ll tell you why it works.

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.

Graduating with a 3.78 GPA helped me land a job at Goldman Sachs. But it still wasn’t easy. I spent six months aggressively applying for jobs and went through 55 interviews before getting an offer.

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.

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.

 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.

 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.

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.

Try to save at least 20% of your after tax income every year, no matter what. Remember, if you’re not in pain from the amount of money you’re saving each month, you’re not saving enough.

 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.

When I was 22, I only had about $4,000 to my name. Regardless, I invested 80% of my money in one stock and got a 5,000% return. Part of it was luck. But I did my research, took a big risk and it paid off.

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.

I’ve been using a free online wealth management tool since 2012. By diligently tracking my net worth, I’ve been able to optimize my wealth to the fullest.

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.

Once I became a millionaire, I purchased a six-year-old car and drove it for the next 10 years. After that, I leased a Honda Fit and drove it for three years. I still wear the same casual athletic clothes I wore in my 20s.

There are 4 main paths to becoming a millionaire

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.

They also had four things in common:

  1. They typically had a middle-class income (many reached a six-figure salary early in their career, and if they didn’t, they lived very frugally.)
  2. They had a low cost of living and preferred to save, rather than spend lavishly.
  3. They saved 20% or more of their income.
  4. They started investing their savings early in life and continued to do so prudently for many years.

No matter what their day job was, this group made saving and investing part of their routine; they were constantly thinking about smart ways to grow their wealth.

The Savers-Investors path isn’t for everyone. It requires enormous financial discipline and long-term commitment.

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.

All of them told me that pursuing their dreams was one of the most rewarding things they had done in their lives. They loved what they did for a living, and their passion showed up in their bank accounts.

Those who want to take this path, however, must be willing to work long hours and able to handle financial stress. The Dreamers in my study worked more than 61 hours per week before finally achieving their dreams. Weekends and vacations were almost non-existent.

Trying to make ends meet was not easy. At first, getting a steady paycheck was “nearly impossible,” one Dreamer said. It was even harder for those who had families to support. To finance their dreams, some decided to put off buying a home, while others dipped into their retirement savings.

If you’re risk-averse, this path may not be for you.

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.

To be a Climber, you must have strong relationship-building skills. Networking and making lasting connections with powerful people in your industry is essential.

Like Dreamers, however, Climbers also have long work hours. The ones I interviewed all arrived at the office early and left late. Many were required to travel frequently and even had to sacrifice a lot of their vacation time.

Profitability is a huge factor in determining a Climber’s success. If their company struggles financially, their time and investment there might not be rewarded to the extent they had expected.

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.

Of course, Virtuosos aren’t necessarily born with natural intelligence. They must spend many years continuously studying and learning. Formal education, such as advanced degrees, is usually a requirement.

This means investing an enormous amount of money and time before seeing any payoff at all. Not everyone has the ability to devote significant hours every day practicing their skill or the financial resources to pursue advanced degrees.

Conclusion

How Millionaires Make Money takes you behind the scenes to show you how millionaires really make money. Whether you are an entrepreneur or are looking for a second job, you’ll learn how to decide on opportunities, build cash flow, manage time, invest appropriately, establish your team, and create the life of your dreams.

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