There are numerous ways to become a millionaire. Some of them take time, and some of them take hard work. Some of them even seem like they could never happen to you. To find out the most common way to become a millionaire, we’ll first take a look at what millionaires spend their money on and then explain why it is that you don’t need to go into extreme debt to build wealth and retire early.
Here, I clearly illustrate the common paths to becoming a millionare. I hope you stay glued to your chosen path!
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:
- 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.)
- They had a low cost of living and preferred to save, rather than spend lavishly.
- They saved 20% or more of their income.
- 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.
Based on research from Thomas Stanley in “The Millionaire Next Door,” and the many “first-generation rich” millionaires she interviewed, she come across commonalities that led their successes. You can read some of her case studies on her website.
She writes that the one proven way to become a millionaire is not by investing, nor is it real estate. Instead, more millionaires have made their money by owning their own businesses than by any other means.
They usually have an idea or a product in mind to help them grow their wealth, and they’re going to be the one to sell it. It can be just about anything.
For instance, Masters spoke with Brad Deal of Sticks and Stones, which creates custom wall art; Hanny Lerner of Mod Restoration, an upholstery company; Craig Wolfe of CelebriDucks, which makes rubber duckies that look like celebrities; Joy Gendusa of postcard company PostcardMania; and Derek Sivers of CDBaby, an online CD store for independent musicians.
Instead of doing it under someone else’s watch or time, the millionaires were able to do what they wanted, manage their own priorities, and do something they love.
“When you own your own business you control your own destiny, you control the work/life balance, and you take risk but also reap the rewards,” writes Masters.
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.
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.
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.
Fall in Love With Your Work
To get rich, you’re going to have to work for it. Choosing work that’s deeply meaningful to you is likely to make those long hours as pleasurable as they are lucrative. When you love what you do, you’re more productive, engaged and connected at work. All of this can lead to greater success.
Get Out of Debt
Debt is dangerous if you want to be a millionaire. At best, it robs you of opportunities to save and invest. At worst, it can create financial chaos that can take years to escape.
For example, using a credit card to pay for purchases is convenient — and might even earn you a small amount of cash back or reward points that save you money. However, charging $5,000 at 16% APR would cost $3,140 in interest and take you 82 months — or almost seven years — to pay off if you only pay the minimum payment due each month of $100.
Find Out: 65 Splurges of the Filthy Rich
Start Saving
The formula for building wealth is simple: Save more and spend less. You can become wealthy over time if you do nothing more than saving diligently and investing wisely. But you have to do it.
Good To Know
It’s important to live within your means, but that doesn’t mean you have to spend all the money you have. As your income grows, avoid the temptation to buy more. Every dollar you spend is one less dollar working for you.
Insured savings accounts through a bank or credit union are safe places to keep — and build — your savings. Choose a traditional savings account, money market account or certificate of deposit with an interest rate that compounds monthly. For best results, shop around to find the highest return on your money.
4. Cut Down on Expenses
Eliminating unnecessary expenses is another way to accumulate the wealth of a millionaire.
The more money you trim from your budget, the more money you have to save and invest. For example, instead of borrowing money to buy a car, you could purchase one with cash. Then you — and not the bank — get to use the monthly payment to make more money.
Learn More: Just How Rich Are Oprah, Bill Gates and Other Big Names?
Work With a Financial Advisor
A financial advisor may be just what you need to guide you on the path to becoming a millionaire. These professionals can help you define your financial goals and steer you toward the best investments to reach them.
You should interview potential financial advisors to make sure they’re a good match for you. Choose someone who operates as a fiduciary. This means they must act in your best interest instead of their own or their employers.
Here are a few additional questions to ask potential financial advisors:
- How are you compensated?
- Are you held to a fiduciary standard at all times?
- Do you provide comprehensive financial planning?
Invest Early
While you may be interested in how to become a millionaire day trading, that’s not the path to millions for most. It’s extremely risky, time-consuming and stressful. Plus, it can result in catastrophic financial losses.
Instead, the more time you give your investments to work, the more money they can potentially earn. Compound interest — interest earned on the principal plus the interest you’ve already earned — is a powerful tool in your financial toolkit.
If you invest $25,000 in an account that earns 3% interest compounded monthly and don’t invest any additional funds, you’ll have $45,518 in 20 years. Leave that money in the same account for 30 years, and you’ll have $61,421.
See: The World’s Most In-Demand Jobs That Don’t Require a Degree
Invest In Real Estate
For many Americans, real estate is an essential wealth-building tool. Property values tend to increase over time, which boosts equity that you can later use. If you buy a house for $200,000 and sell it for $300,000, you’ve essentially earned $100,000 just by holding on to the property.
Conclusion
Now that you are finally on track financially, what’s next? The first thing you need to do is learn to live on the budget you created. While making a budget may seem like a boring task, it can help you to realize how much money you actually bring in each month and how much you really need to save for retirement. Not only will this help now, but it will also help you throughout your lifetime as you can now put extra money into savings for your future.