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Do you want to know how to retire a millionaire? (Of course! Don’t we all?)
While you may think getting “rich” is impossible, the truth is that with consistency and discipline, almost anyone can drastically improve their financial lives and may even build substantial wealth.
While there are a few tricks to becoming wealthy, and some have benefitted from good timing, the ways to wealth are surprisingly simple and could even be considered mundane. It’s crucial to know your focus and stay the course over time.
How To Retire a Millionaire: 8 Steps to Wealth
Aside from cryptocurrency millionaires or the Jeff Bezos of the world, most rich people followed a reasonably simple formula over many years to reach their level of abundance.
Follow these steps, and you’ll be well on your way to getting rich too.
1. Make It Your Goal
First and foremost, you must make getting rich a goal of yours.
Studies have shown that those who take the time to set goals are up to 10 times more likely to achieve them.
However, setting a goal of “getting rich” won’t be enough. You’ll also want to make sure that you focus on your goal by making it more specific and realistic.
What does rich mean to you? Do you want to have a million-dollar net worth? A million dollars invested? Will a million do it for you, or do you need more, or even less?
2. Educate Yourself
Bill Gates is undeniably rich. He also reads on average a book a week. The wealthy are always looking to improve their knowledge, whether that be keeping up with the news, studying their craft, or reading biographies of successful people.
But what if you don’t have an hour plus per day to read? No problem – start small!
What To Read if You Only Have 5 Minutes a Day
One of my favorite things to read every day is Morning Brew. It’s a free email newsletter delivered to my inbox every weekday with the latest business and financial news. Morning Brew cuts through the clutter and delivers a concise, witty, and intelligent dose of current events.
Learn Personal Finance
Whether you already have a solid financial foundation, are a finance professional, or know nothing about money, it’s essential to be proactive with your finances and not shy away from them. Educating yourself and making an effort to be smart with your money is the only way you’ll become rich and stay rich (most lottery winners lose their winnings after a few years).
Luckily, it is easier than ever to improve your financial literacy and get the help you need to put yourself on the path to wealth.
Many personal finance blogs and podcasts offer their expertise on a myriad of money topics entirely for free. You can check out the Wealthtender personal finance blog directory to find some great resources or simply Google whatever questions you have. Reddit and Facebook also offer groups on personal finance.
If you’ve scoured the internet and still don’t feel confident about your money, you may look into working with a financial coach to establish a plan that works for you. Coaches can help you get out of debt, create a budget, or create a plan for getting rich.
While you may be able to find community services offering free financial planning (such as nonprofits or through your local credit union), also consider the possibility of hiring a financial advisor. Many financial advisors are very affordable and can get you started on your journey until you feel confident enough to take the reins.
However, you choose to educate yourself, know that this step will be an ongoing process as you move toward your goal. Financial literacy is something you should strive to continue to improve throughout your life.
3. Know Your Personal Finance Numbers
Once you’ve set your money goals, calculated the number you want to reach, and started educating yourself on money topics, the next step will be to know and understand your finance numbers so that you know where you’re starting from.
There are several critical personal finance numbers you need to know, including:
These numbers will serve as the starting point on your journey and help you formulate your plan to achieve whatever goals you’ve set.
4. Make a Plan
You’ve now laid the groundwork for getting rich, but simply deciding you want to become rich in and of itself and calculating some numbers won’t get you there.
Now it’s time to make a plan for how to get rich.
A critical step in building your plan will be to develop or review your budget and adjust it as necessary so that you can start working toward your goals. Most hate budgeting, but some sort of budgeting method is critical to know where your money is going and make a plan to redirect money to where you want it to go.
After all, you can’t change where your money is going if you don’t know where it’s currently going.
Once you have a budget, look at what changes you can make, where you’d like to start allocating money, and what you’ll need to do to accomplish those things.
Your current budget and financial situation will determine where you’ll need to focus and how your plan will take shape. If you have a negative net worth, you’ll probably want to start paying down debt and building savings. If you have a good amount of savings, you’ll probably want to look at investing. If you already invest, how can you increase your income to max out your investments?
This stage of the journey may be where a financial coach, advisor, or simply a friend or colleague may help you make a plan and break it down into manageable steps.
5. Focus On Debt Payoff
A significant part of your plan for getting rich should be debt pay off.
Unfortunately, the majority of Americans have some debt. While some debt can be seen as a necessary evil (such as buying a home, vehicle, or student loan), much of it results from living beyond your means.
That is especially true with consumer debt, such as credit cards. Of course, some credit card debt incurred is due to unforeseen circumstances, but a good chunk is due to overspending.
Whatever the reason for incurring debt, it will be critical to pay off your debt and avoid accruing more if you want to get rich. Debt and the interest paid, as a result, take away from your net worth, your spending power, and your ability to save and invest.
Start with the highest interest debt, and try to pay beyond the minimum payment every month to pay it off sooner. Once you’ve paid a debt, take that monthly payment and apply it to another debt, and so on, until you’ve paid off all high-interest debt and any debt going toward depreciating assets such as a car.
6. Increase Your Income
The other side of the coin from debt payoff is increasing your income. When considering how to get rich, increasing income is probably the most impactful thing you can do. You can only cut so much from your budget, after all.
You can increase your income in several ways, including:
- Developing new skills
- Going back to school
- Negotiating your salary
- Hacking your 9-5
- Side hustling
- Building passive income streams
I’d recommend starting with your current job and seeing how you can leverage it to increase your income. Is there training or extra hours you can take on for extra pay? Does your job offer tuition assistance? Are there opportunities to move to higher-paying roles?
Once you’ve squeezed all the income you can out of your current job, start looking for other ways to bring in more money.
For most, the quickest and lowest barrier way to start increasing your income will be side hustling. Side jobs can be as simple as picking up a part-time job or as complex as starting a side business.
Whatever routes to increasing your income are most accessible to you, rest assured that bringing in more money is a critical component of building wealth.
Along with paying off debt and increasing your income, you’ll have to invest if you want to become rich.
With traditional jobs, you exchange time and effort for money. With investing, you put money in, and over time your money makes more money without you doing anything. Invest long enough, and compound interest starts to kick in, which is where you make money off the interest you’ve earned from investments.
The ability to make money without having to exchange your time and effort is the key component of proper wealth building. There is no other reliable way to make money on the same scale over the same amount of time (unless you strike it big with the next Amazon).
However, not all investments are created equally, and there are risks involved. In general, best practices that help mitigate these risks are diversification and a long-term outlook.
And the good news is you don’t have to be a stock-picking expert to make money. Index funds and target-date funds are a great way to diversify your portfolio with little work, as these funds allow you to buy shares of a swath of the market rather than individual companies. Target date funds also automatically adjust to become less risky as you move toward the target date.
Once you’ve set up your principal retirement investments, you may also want to branch out into alternative investments like real estate, REITs (real estate investment trusts), crypto, or others.
8. Stay the Course
The last, but possibly most critical, aspect of getting rich is staying the course, and potentially over decades.
All of the above tells you how to get rich, but all your hard work will go to waste if you’re not prepared to persist for the long haul. A study assuming the median household income with conservative investments found that, on average, it would take 61 years to reach millionaire status.
While that number may seem depressing, it serves to show just how long it would take the average person to become rich. The good news is, you can speed up that timeline by increasing your income and your investments. Many individuals with moderate to above-average income and little to no debt can reach millionaire status within about ten years.
And remember, even if it takes you longer to get rich, the improvements to your finances and your life along the way are well worth the journey.
In short, becoming wealthy is a long-term goal and one that may take you the majority of your life to attain. Persistence and dedication will likely be the ultimate determinants of whether you reach your goal.
For those of you wanting to know how to get rich, the formula is relatively simple.
Set yourself the goal, determine your number, educate yourself, then get to know your current financial numbers. Once you have the foundation laid, make a plan to increase your income, pay off debt, and invest. Finally, be prepared to execute this plan for decades.
And even if you don’t quite reach that rich number goal, I guarantee your life will be better having pursued it.
This article is originally on Wealth of Geeks.