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

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 [3] 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 [4] and save some cash. Look for some trimmables in your budget [5] 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!