How to Become a Millionaire – 16 Dos and Don’ts

How to Become a Millionaire

It’s no longer “Who Wants to Be a Millionaire” but how to become a millionaire. You don’t have to be a contestant on a game show, win the lottery, or receive a windfall from a relative. Just follow the 16 Do’s and Don’t in this article, and you’ll be on the road to becoming a millionaire.

Four Money Mindsets Used by Millionaires

While it might be easy to think that millionaires are just lucky, they think about how their money can work for them, not just how they can work for money.

1. Use Time to Your Advantage

Most people look for concrete paths to becoming a millionaire. But the essential ingredient to becoming a millionaire is intangible. It’s time. The majority of millionaires utilize the compounding nature of time, where growth builds on itself over time.

My favorite imagery to describe compounding is to imagine the growth of a tree. In the first five years of a tree’s life, it will only grow a few feet. Its shrubbery is the size of a basketball. It’s a small, weak plant. In the next five years, will the tree double in size? No! It’s more likely to quadruple (or more) in size. And, it’s growing in all three dimensions—height, depth, width; not a simple doubling.

We’ve all seen the social media megastar who goes from broke to millionaire in less than ten years. But they are exceptions, not the rule. Most millionaires grow their wealth at a slow pace. Over time, they utilize an explosion of compound growth—like a tree—to become a millionaire.

2. Create Financial Goals

Millionaires develop written financial plans that serve as roadmaps to reach their destination. These plans allow them to make financial decisions based on their goals. A good financial plan means that to reach millionaire status isn’t an if; it’s a when. They know where they are going to get there because their personal finance is all planned out.

If you’re unsure how to create a financial plan, then a certified financial planner (CFP) might be an excellent place to start. They might suggest you start investing or open a Roth IRA retirement account or first fill up your emergency fund. A financial advisor is there to share millionaire wisdom with you.

Becoming a millionaire goes hand-in-hand with retirement planning and retirement savings. For some, reaching the millionaire club will enable their financial freedom or the ability never to work again. Saving money allows a high net worth, and financial independence is the reward.

Big financial success requires big financial goals. A written financial plan sets those goals.

3. Millionaires Increase Earnings

There are a few ways to go about increasing your earnings on your path to becoming a millionaire.

The fact is that most millionaires have a full-time job. And they might work it for a full 40 years. If routine work is how you make money, you could ask for a raise. Easier said than done, sure. But there are sure-fire ways to speak with your management about increasing your base salary. The best part? An increased salary affects your income every year from now until retirement. You aren’t just doing it for your current self, but for your future self too.

You could switch jobs. Self-made millionaire Steve Adcock attributes changing jobs (and getting raises each time) to be one of the critical factors in becoming a millionaire. Steve also focuses on the need to work hard and start investing as early as you can. Or you could find sources of passive income or secure a second job. Surprisingly there are easy ways to generate passive income, tons of side hustles to start, real estate ventures, and other easy ways to earn money and build wealth.

Increased earnings can be invested and grow into future millionaire wealth. A simple rule of thumb is that a dollar invested today will grow into $10 in 30 years. Using this fact, one can quickly see how a few thousand dollars in extra earnings can make significant headway on your path to future millionaire status. The bottom line: increasing your earnings is how to become a millionaire. There’s no “best way” to do this, but it’s critically important to reach your millionaire financial goals.

4. Millionaires Also Decrease Their Spending

Many financial writers point out that the stereotypical “millionaire lifestyle” is antithetical to becoming a millionaire. Why? We think of millionaires as having a big house, a fancy car, the nicest clothes. But if you spend all your money, then you aren’t a millionaire anymore. The truth is that most millionaires find ways to decrease their spending. They don’t buy dumb crap.

This behavior—spend less, save more—is how to become a millionaire. It’s counterintuitive to our traditional thoughts. The people who don’t look like millionaires are the ones who frequently are millionaires. It’s the adage of the “millionaire next door.”

They might drive used or old cars or wear non-designer clothes. Maybe they enjoy low-cost or free activities. They don’t dine out too much and vacation economically.  These are all ways that millionaires decrease their spending without feeling deprived.

There are plenty of counter-examples. We all see millionaires on T.V. who genuinely live the millionaire lifestyle. But for the average reader, the simple path to wealth involves decreasing your spending, not increasing it.

Five Ways to Invest Like a Millionaire

Did you know that millionaires put 44% of their investable assets in stocks?  And that 2/3 of millionaires lean on experts by consulting with advisors? Let’s take a look at the most common path to Millionaire Road.

1. Millionaires Do Simple Stock Investing

The stock market is one of the most common methods for people to become millionaires. One investing strategy is simple to describe. Invest a regular percentage of every paycheck into a low-cost index fund. Rinse and repeat for ~35 years. Boom—that’s how to become a millionaire. But let’s take some time to break down those terms and that math.

First, what’s a low-cost index fund? Many people mistakenly believe that successful stock investing involves picking individual winners and losers. But that’s not true, and an index fund helps explain why. An index fund owns every stock in a given stock index. It doesn’t pick winners and losers but buys entire swaths of the market instead.

You’ve heard of some indexes—like the S&P 500 or the Dow Jones. An S&P 500 index fund chooses to own every stock in the S&;P 500, regardless of its recent success or failure. Other indexes and index funds are less well-known. For example, some indexes track the energy industry, the automotive industry, or precious metals.

History shows that index fund investing is very successful. One of the key reasons is that index funds charge meager fees. Since there is less expertise required—no “skilled” picking of winners and losers—there is no need to charge high fees.

2. Millionaire Investors Leverage Time

Next, let’s discuss the long-term aspect of stock investing. Many people see the most expensive stocks—like Tesla—and think it’s typical for stocks to grow by 10x in five years. “If only,” they ponder, “I can discover the next Tesla.” Index investing circumvents that wishful thinking. Since brokerages design index funds to be average (they own everything), index funds return average profits.

Over the history of the stock market, that return has been about 10% per year. Once inflation is accounted for, the stock market has a “real return” of about 7% per year. 7% is not a lot until it starts compounding. One year of 7% turns $1000 into $1070. But what do 30 years of compounding do? The average person might think 7% times 30 years equals 210%…turning those $1000 into $1000+$2100 = $3100.

But the truth is that stock market returns compound over time, just like our tree from before! A 7% return compounded over 30 years equates to (1.07)^30 = 761%. Your $1000 investment turns into $8610. But $8610 doesn’t make you a millionaire.

3. Regular Investment, Regular Frequency Is the Path To Millionaire Status

That’s why many experts suggest the average person invest using a regular frequency and a uniform amount. That’s how you reach $1 million net worth. For example, Americans could choose to utilize their 401(k) account. They’d be investing a consistent fraction of their paycheck (uniform amount) each time they are paid (regular frequency). Some people call this “dollar-cost averaging,” although the exact definition of dollar-cost averaging is up for debate.

Let’s look at an example of dollar-cost averaging using a 401(k). Mikey invests $400 out of each of his paychecks. He does this from age 22 until he retires at age 60. Some quick math tells us that Mikey’s contribution is $400 per check * 26 checks per year * 38 years = $395,200. The technical term for this contribution is principal.

But once we account for investing growth (again, using the 7% per year historical average), Mikey ends up with a whopping $2.07 million. Remember, our 7% is the “real return,” meaning that Mikey has $2 million in today’s dollars. He hits 1 million dollars at age 51. That’s the power of consistent stock market investing over decades. In this case, 30 years of simple investing is how to become a millionaire.

4. Millionaires Invest in What They Know

Cryptocurrency has undoubtedly created many millionaires (and even some billionaires). Whereas stocks return an average of 10% per year, Bitcoin has grown by 196% per year since its invention in 2008. Crazy! But your correspondents here suggest the following when it comes to cryptocurrency: invest in what you know.

If you understand how Bitcoin works and feel confident in its long-term growth, then you likely have the constitution to withstand any ups and downs it sees in the future. But if you invest in crypto ignorantly, simply hoping to make a quick buck, then you might be in it for the wrong reasons. If prices dive quickly—which we know can occur—it will scare you into selling after a significant loss.

Investing in stocks—which represent ownership in the companies comprising our economy—is much more tangible for the average investor than the boom in digital currencies.

5. Millionaires Invest in Themselves

While a smaller percentage, another path for millionaires is to “invest in themselves” via starting a business. Most business owners will tell you how this is a high-stress, high-risk, high-reward path.

First, there is stress. Business owners typically work long hours. They often take a little-to-no salary during the early years of the business. Instead, they opt to invest any earning to allow the company to grow. They are responsible to their employees (and those their employees care for) and responsibly for their customers to provide the best service possible. These responsibilities contribute to high stress.

And then there is the risk. Businesses frequently use debt (or borrowed money) to get started. This debt creates financial risk associated with the business failing. Some businesses utilize outside investment capital. In this case, the outside investors trade a share of the risk for a company’s percentage. This trade decreases the business owner’s risk but increases their stress (they now must answer to their investors) and reduces the owner’s reward (they share it with the investors).

After the risk and the stress comes the reward! Perhaps the most satisfying aspect of capitalism is that those who invest their capital (money and time) can later reap huge rewards. Business owners certainly fall into this category. Let’s go over a few quick examples of those rewards.

Bill Gates founded Microsoft with, essentially, zero start-up dollars. The company is worth $1.7 trillion today (though Gates is no longer close to being a majority or plurality shareholder). Elon Musk contributed $6.5 million to Tesla in 2004—yes, he was already a millionaire. But Musk earned his millions from cash-strapped start-ups, most notably PayPal. Jeff Bezos founded Amazon using “a few hundred thousand dollars” as a loan from his parents. The company is now worth $1.5 trillion.

Yes,  this data set was cherry-picked in the “worst” way. These are possibly the three most successful entrepreneurs in the past 50 years. But it serves to drive the point home. A business can filter risk and stress to create an asymmetric reward.

Four Personality Traits of a Millionaire

Millionaires and other successful people tend to share similar personality traits. You might already have some guesses as to what those are. Authors Chris Hogan and Tom Corley identified the following characteristics the millionaires share.

1. Millionaires Seek Feedback and Have Mentors

Millionaires don’t exist in a silo. They often seek out external feedback to improve. In particular, millionaires frequently utilize experienced mentorship to help them stay on the path to wealth. Sure, some people strike gold by doing things their own way. But those people are exceptions to the rule.

2. Millionaires Persevere

The road of life is never smooth, whether you’re a millionaire or not. But one character trait that sets successful people apart is their ability to persevere through thick and thin. This perseverance might mean overcoming hardships. It might equate to ignoring critics. They keep pushing on, no matter the obstacle. It’s not guaranteed to make you millions. Plenty of hard-working people don’t end up as millionaires. But it’s even rarer for a lazy quitter to end up a millionaire.

3. Millionaires Are Consistent

Millionaires know that the tortoise beats the hare. Its slow and steady strategy wins the race. In other words, consistency wins in the long run. Consistency can take many forms. It can show up as hard work. It manifests as daily responsibility and intentional thinking. When these behaviors are practice day after week after month after year—consistently—then good results are sure to follow.

4. Millionaires Are Conscientious

Millionaires tend to be responsible and thorough. They follow through. They complete their duties to the best of their abilities. In other words, they are conscientious. Their inner conscience guides them.

Three Things Millionaires Don’t Do

On your journey to becoming a millionaire, it’s important to avoid some behaviors, or you’ll sink your efforts. You’ll be trying to fill your bank account with a leaky bucket.  Let’s now discuss the actions that millionaires don’t do.

1.Don’t Accrue Dumb Debt

Debt is a double-edged sword. You can spend more money than you have and achieve wild growth. Or you can stumble into a pit of misery, stuck in debt for decades. Student loans, for example, are one of the most common debt vehicles today. Many current and future millionaires have suffered student debt. Why? Because education kickstarted their growth as nothing else could.

While some student loan debt is dumb, most people find their student loans manageable and worthwhile. Trading education for some debt was a good deal. But credit card debt is rarely worth it. It’s dumb debt. Purchasing consumer products using credit card debt is not a millionaire behavior.

2. Don’t Make Rushed Decisions

Remember when we said that “time is on your side.” That idea applies to more than just long-term investments. Millionaires realize that big decisions require significant time commitments. And how to become a millionaire is a big question to answer! It’s not something to rush.

Millionaires rely on well-researched decisions, rarely succumbing to hasty, irrational choices. What’s one example of a foolish choice? Millionaires don’t follow the crowd. According to author Tom Corely, the millionaires he has interviewed tend to separate themselves from “the crowd.” They don’t make decisions based on popular choices. Why? Because the popular opinion is often wrong!

3. Don’t Be Stagnant

Millionaires seek growth in both their personal and financial lives. They aren’t stagnant. Millionaires are constantly seeking to learn new skills and expand their knowledge set. They don’t settle for the status quo. And in their finances, millionaires understand the balance between risk and reward. They don’t use a savings account other than for their emergency funds.

In general, the most impactful rewards come from the highest risks. But there’s a “risk-adjusted” way to measure those rewards. Millionaires often strike a healthy balance between risk and rewards.

Even if (somehow) this advice doesn’t land you in the millionaire club, think of where you’ll end up. You’ll be a reasonably wealthy, high-earning, low-spending, self-invested, self-improving, perseverent, consistent, and conscientious person who avoids debt, doesn’t rush decisions, and never settles.

Not bad, right?

This article originally appeared on Your Money Geek and has been republished with permission.

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Jesse Cramer is an engineer and an avid reader/writer. He runs the blog The Best Interest, which started as his creative outlet but gained recognition for explaining complex personal finance ideas in simple terms.Jesse discusses money basics, like your net worth targets by age or the most common unknowns in personal finance. He writes about successful behavioral concepts, like the Fulfillment Curve or learning the biggest lesson from the COVID-19 pandemic. Habits matter too. Developing the habit of tracking every expense with YNAB helped boost his savings rate to over 60% in 2019.Many of his posts have been directly influenced by his readers’ feedback. He says it’s the most fun part of writing his blog.