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What do millionaires do with their money?
When it comes to investment strategies, self-made millionaires were more likely to add equity investments, while those who were born wealthy typically had more real estate investments, according to the study. Diversifying those investments is key among many millionaires.
Millionaires put their money in a variety of places, including their primary residence, mutual funds, stocks and retirement accounts. Millionaires focus on putting their money where it is going to grow. They are careful not to invest large sums into items that will depreciate. A car for everyday driving, for example, will most likely lose value over time.
The key for most millionaires is to save money before spending it. No matter how much their annual salary may be, most millionaires put their money where it will grow, usually in stocks, bonds, and other types of stable investments.
What are the best ways to become a millionaire?
The Fidelity study showed that when considering their financial future, 30% of the millionaires surveyed said they were concerned with preserving their wealth, while 20% said they were focused on growing their fortune. This forms the basis of some basic strategies if you’re hoping to join the millionaire ranks.
“Today’s millionaires are multidimensional, and to really understand them, you need to look not only at their outlook but also at their path to wealth and their financial goals for the future,” said Sanjiv Mirchandani, president of National Financial, a Fidelity Investments company.
Millionaires suggest several paths to building your wealth. Here are a few that you can learn from yourself:
Invest in different places and avenues
Don’t put your eggs in one basket. Diversifying your investments helps manage risk by ensuring that all your money is not at risk if a particular investment goes south.
Have multiple streams of income
Many self-made millionaires have money coming in from several places, including their salaries, dividends from investments, income from rental properties, and investments they have made in other business enterprises, to name a few examples. If one income stream slows down, there’s another that can take its place. Much of this is called passive income, or money being earned without actively spending time and effort in the enterprise.
Save, save, save
One common theme you’ll hear from self-made millionaires is to hold on to your money. Put your money in investment accounts where it can sit and earn interest over time (even though interest rates are much lower than they used to be).
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.
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.
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.
They keep their housing costs low.
A prime example of frugality is that millionaires typically live in a home and neighborhood they can easily afford, according to Stanley Fallaw.
She said that most of the millionaires she studied had never purchased a home that cost more than triple their annual income. The median home value for millionaires in her latest study was $850,000 (3.4 times their current income), with a median original purchase price of $465,000.
They don’t budget.
But millionaires are able to be frugal and save without budgeting. Many of the millionaires John spoke with said they didn’t have a budget.
“While it was not expected, the reasons millionaires don’t need a budget makes sense — they make a lot and have self-control,” he wrote in a blog post. “In other words, they make a ton, spend only a portion of it, and have plenty left over. Who needs a budget?”
He added: “A budget is great for the early phases of a financial plan, but if you can grow your income and develop self-discipline not to spend, it’s not vital to your success later on.”
They invest in real estate.
One side hustle they’re prone to taking on once they’ve built wealth is investing in real estate, according to John.
“Investing in real estate seems like a natural result once the basics are covered and excess cash is generated,” he wrote.
According to Dana Bull, a real-estate investor, the financial advantages of investing in real estate are plentiful: positive cash flow, appreciation in terms of housing values, leverage, and tax advantages.
They spend more time studying and planning for investments.
Millionaires’ preferred investing strategies might be fueled by their research. Millionaire investors spend more time — an average of 10.5 hours a month — planning for investments, according to Stanley Fallaw.
That’s nearly two hours more than under-accumulators of wealth, defined as those with a net worth less than one-half of their expected net worth based on age and earnings, who spend 8.7 hours a month doing so.
“Their literacy in financial matters means that they are more tolerant of taking investment-related risks,” Stanley Fallaw wrote. “Future outlook and financial knowledge typically relate to taking greater financial risk, so the time they spend in managing and researching investments helps in decision-making.”
They sleep less and work more.
But millionaires make a few sacrifices to make the most of their time. They sleep nearly eight hours less a week and work six hours more a week than the average American, according to Stanley Fallaw.
That might be because many wake up at least three hours before their workday actually begins — a strategy to deal with inevitable daily disruptions, according to Corley’s findings.
“Getting up at five in the morning to tackle the top three things you want to accomplish in your day allows you to regain control of your life,” Corley wrote. “It gives you a sense of confidence that you, indeed, direct your life.”
Conclusion
Isn’t it an interesting concept? The question of how does someone become a millionaire? I know it’s on the mind of most people and has been for a long time. It’s intriguing and pulls at your curiosity because we all want what we can’t have — we want that lifestyle, that house, that car, and the money to get there. Are you curious enough to get each bit of information?