Personal Finance 

How To Become A Millionaire (In 6 Easy Steps!)

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Becoming a millionaire used to be hard back when gum was a penny and comics were ten cents. Now that a pack of gum costs a buck and comics suck, becoming a millionaire is much easier but still a laudable goal. Don’t believe me when I say that becoming a millionaire is easy? I’ll give you six easy steps that, if you have the diligence and the discipline to discard the temptations of a world filled with easy credit and consumerism, will leave you a millionaire. $1,000,000 buckaroos. If you don’t follow them, you’ll likely have to start a dot-com that Google will buy or work 16 hour days and climb that corporate ladder (that’s if you don’t hit some glass ceiling because you’re not in the old boys network).

Many of these ideas are so simple the could make you crazy. None of them are sexy. None of them have you racing down the autobahn in a convertible going 150 MPH. None of them have you throwing dice in Vegas and none of them involve games of poker against James Bond. That’s part of the reason so few people do them… that’s exactly why if you do them you will become a millionaire.

Step 1: Participate In Your 401(k)

If you contribute a meager $3,000 a year to your 401(k), get no match, and it appreciates at 8% a year – after 40 years you will have a balance of over $777,000 on contributions of $120,000. That one little step gets you three quarters of the way there. That one little step that anyone with a job can, and should, do (if you don’t have a job, becoming a millionaire will be very difficult) immediately. Unfortunately, the purchasing power of that $777,000 in 2006 dollars (assuming 3% inflation), will only be $238,000 so we still need some more help to get to the millionaire status but we’re well on our way to millionaire status.

Step 2: Contribute To A Roth

The Roth IRA and it’s tax-free growth is one of the best investment vehicles out there. It also diversifies your tax profile when it comes to retirement because it balances out for your pre-tax 401(k). If tax rates go through the roof, you still have a Roth IRA to tap into tax free. What’s unfortunate is that if your salary keeps increasing, there may come a time when you reach the phaseout contribution limits for the Roth IRA so get your contributions max’d out as early as you can.

Step 3: Find Another Source of Income

Whether it’s selling knick-knacks, performing some freelance work, writing a blog, or taking on a second job; increasing your income and saving that extra income is yet another way to get your precious net worth into the seven figure range. Take that extra money and put it into a brokerage account (if you have no debt) and watch it grow. Since this second income isn’t “necessary” or “expected,” putting it all away should be trivial and something your future self will thank you for as he or she sips mai thai’s in Waikiki.

Step 4: Cut The Fat (Your Budget and Your Belly!)

Do you really need some of the things you always buy? Consider taking a little breather on Netflix and save some cash. Look for some trimmables in your budget and cut them out. Much like losing weight, it’s far easier to reduce your spending than it is to increase your income. If you don’t buy that cup of coffee, you can save yourself $2. Can you think of a quick way to make $2? Probably not.

Step 5: Cut Down On Fees

Adding just half a percent in fees severely reduce the appreciation of your assets. In the earlier example with the 401(k), I did the math and said you get $777k after 40 years at 8%. If you were to add a half percent annual fee, you end up with less than $675k after 40 years instead of $777k. If you add a full percent in annual fees, your nest egg is now worth less than $587k. One percent in annual fees results in a difference, over 40 years, of nearly $200,000. If all other things are equal, find yourself a cheap fund!

Step 6: Buy A House, Then Rent It Out

At one point or another you’ll probably want to buy a house and live the American dream (it’s become the American nightmare for some now!). Be smart about it and don’t overpay, don’t get rushed, and you could be unlocking one of the great wealth building strategies. As they say, they aren’t building any more land. When you buy, remember that after you live in it for two years, you can sell it and the profit is tax free as long as you buy another home with it. If you don’t want to sell, consider renting out the home. In renting, you can go after positive cash flow or just tread water, content in banking on the appreciation of the home at a later date. Either way, it’s a great way to leverage your assets into something bigger.

There you have it, six powerful steps that will turn you into a millionaire in no time!

{ 25 comments, please add your thoughts now! }

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25 Responses to “How To Become A Millionaire (In 6 Easy Steps!)”

  1. Minimum Wage says:

    I wouldn’t call those “easy” steps. The only one that looks possible to me is #3.

    I don’t have a 401(k) at work, I have no disposable income for a Roth, there isn’t really any fat left in my budget, I don’t incur fees, and I have no hope of buying a home.

    • tim says:

      dear minimum wage,
      don’t say you have no hope of buying a home. anything is possible if you have a plan and stick to the plan. real estate is my specialty and there was a time when i remember thinking i could never own a home. i now have over 17 units i currently rent out and look forward to purchasing 10 more in the next year. you just need a more education.

  2. saladdin says:

    Step 7
    Sucker some rich old lady with a bad ticker into marrying you.

    I know you are talking specifics but what about “Living Below Means”?


  3. Minimum Wage says:

    Great idea. Now do you think someone earning minimum wage with student loan debt and high medical expenses can live below their means?

  4. Dan says:

    Minimum Wage, just remember that there are plenty of millionaires that are unhappy and plenty of people living near poverty that are happy. The goal is to control money instead of letting it control you. If you send me an email, I can help you find ways to get that control back. I am offering free financial planning help to my readers.

  5. Monevator says:

    @minimum wage, I don’t think the list is easy but I do think its feasible. Naturally if your income is too low to make any of the doable, you’re going to have to work on increasing your basic or starting a business before you can really save.

    Where I do disagree with the post is the phrase ‘in no time’. The slow route to riches does work, but it’s going to take decades, even if you’re socking away $500 a month say into the market (which should make you a millionaire in 20-25 years, with average luck).

  6. wanzman says:

    I think the beginning of this post should have read:

    “Step #0: Have a positive attitude at all times, and learn to deal with the lot you are dealt in life. There will be people all around you whining about why they cannot do something. Simply decide what you want to do, and spend your time making it happen, while everyone else tells you why they cannot achieve their dreams. (Please see comments below from Minimum Wage as an illustrative example).”

  7. I’m in my second house and wishing I applied step 6 to my last real estate investment. I have a few buddies who rent old properties and have enjoyed the extra income. I plan to rent my current home the next time I move…

  8. Matt says:

    I think step 3 needs to be repeated a few time to really make a significant impact. I know that you can only take on so many extra jobs but you can set up additional sources of income.

    Overall very good tips (though the first two don’t apply the same way for everyone, us Canadians don’t have 401’s or Roths just RRSPs and Mutual funds)

  9. Frank says:

    In regards to #6:
    I was under the impression that as long as you lived in your house for two out of the past five years, you got $250,000 ($500,000 if married and file jointly) tax free. The last part about buying another house with the proceeds is left over from the old tax laws

  10. Posco says:

    Step 6: I didn’t know you could “treat water” by renting your house out!

  11. adfecto says:

    For those who are in the lowest income brackets there is the saver’s credit which returns 50% of what is saved up to $1,000 into a Traditional IRA or Roth IRA. The credit gradually phases out to 10% as you approach the 25% bracket (where it goes away entirely). If you put $166 per month into a Traditional IRA it would cost you only $150 (assuming the 10% tax bracket). At tax time (or if you adjust your withholding) you would get $1,000 back. In the end it would cost you $800 out of pocket to put $2,000 (or $66 a month) into a tax sheltered retirement account. ANYONE can put in a few extra hours of work or find a small part time job to make that happen. After a full career that money would grow to over half a million dollars. If each year you save a little more to keep up with inflation at 3% you will end up with $810,000!!! HUD and the FHA have multiple programs in place to help those with low incomes buy a home with as little as 3% down without resorting to predatory lenders. If you truly make minimum wage there is no reason not to relocated to a lower cost part of the country such as the Midwest where a nice starter home can be found for well below $100k. With a mere $3,000 saved you can buy a house to build wealth. There are systems in place to make a comfortable retirement available to anyone who is willing to take responsibility and WORK FOR IT.

  12. Sick of Debt says:

    Step #6 sounds easier than you think. Make sure you have enough $$$ to cover both mortgages and your normal expenses. Otherwise you’ll have a foreclosure in your future when your renter doesn’t move out and doesn’t pay the rent. I know from personal experience with family renting from me.

    I’m doing a modified 6 now, I call 6b: Have people rent while you live in the house with them. We rent out 4 bedrooms in our 5 bedroom home, which end up covering all the household expenses. Since it’s rental income, we don’t pay taxes on the income due to the expenses offsetting the income.

  13. jim says:

    Tread water Posco… tread. 🙂 (yeah yeah i fixed it after he said it, haha)

  14. Anonymous says:

    Step 6: I didn’t know you could “treat water” by renting your house out!

    That was TREAD water, and it’s a good strategy for people who have lived in their home long enough for rents to rise sufficiently to meet or exceed expenses.

    For example, if you’ve lived in your home for five or ten years, in most areas the current rent will be high enough to at least break even with your cash flow.

    If you can at least break even with the cash flow, you can continue to pay down your mortgage, thereby reducing the principal you owe, plus you get to enjoy all the appreciation in the home’s value.

  15. Stacy says:

    If you don’t make enough income to do these steps, then go to college and get a degree. My income more than tripled once I got a degree (and I continued working while I went to school). The payoff is I can now afford to pay off my student loans, pay my other bills and save for my future, while still having spending money. Don’t settle for what you have, believe that you can get something better.

  16. Don B says:

    I totally agree with Stacy. I graduated college in 1995 I’ve always had a good paying job and have grown in my career. I also had over 35k in Student Loans but have been paid off for some time. They key is to get a degree and the money will follow. I would add a step of having an emergency fund. If you set up a dollar amount to be taken out at every pay check you won’t believe how quickly this money grows. Don..

  17. H Lee D says:

    We did the rental property thing and it was a nightmare. We had trouble renting it out, could barely get enough to cover the mortgage (but couldn’t cover taxes, insurance, repairs, etc.), renters didn’t pay the last month’s rent and trashed it (good luck getting money from them – the security deposit was nice but sure didn’t cover it). We lost so much money in the two years that we had it – it really messed up all other aspects of our finances. We sold it and invested the profits and are much happier (and more financially secure) now.

    The other tips make sense to me 🙂

  18. I am a graduate of Economics.I hunted for jobs for almost five years now living from hand to mouth.I have no penny to start business and if i do which type of business can it thrive in this poverty ridden country like mine.I want to join millions to create wealth.Please,send me details,necessary tools probably on credit which i might pay later.i do not mind in entering into any agreement with you.

    Thank you.

    Yours faithfully,
    Atanlusi Ojo Femi.

  19. I think the ultimate way to become a millionaire is to EARN MORE and DESIRE LESS. Earning more increases your income i.e. (taking a second job, investing your money, buying assets that provide passive income, etc.) while desiring less lessens your spending (i.e. budgeting, frugality, etc.)

    Make it a habit and definitely, you would become a millionaire someday

  20. David Joe says:

    Millionaire Act said it. If you want more money, get an income, develop a budget, (some sort of control) and shape it however you feel comfortable so that your partial income isn’t becoming an “out-come”. Stacy’s attitude is on key as well. So…Are you not satisfied with our current cash flow? We get paid for two reasons. What we know and what we do. Put your Knowledge into Action! It’s the *doing* that’s going to enable you to get your foot into that millionaire door. It’s going to take practice with what ever route/egg-nest your choosing. Whether if it’s going to be a high yield savings, stock, Cd’s, mutual funds, or any other wise investment. Pick one that is best of your knowledge and take action. If it’s millions that you want, millions you’ll get.

  21. Nana Peret says:

    In many cases, we offer decide learning the most suitable on top of that desirable. I think it is to prime we perform this.

  22. DR, ARTFREDO C. ABELLA says:

    Make money your slave and not your master

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