At first glance, building a net worth of $1 million might seem unattainable, but it’s more realistic than you think. In fact, you don’t even need a winning lottery ticket or a trust fund to join this exclusive club.
Your annual income certainly plays a role, but the way you allocate your funds actually matters more than your salary. When properly planned, a solid work ethic, responsible spending habits and savvy investing can grow your fortune to $1 million — and far beyond.
Achieving this goal will require you to make some sacrifices, but the feeling of financial security is priceless. If you’re serious about becoming a millionaire, it’s time to start making some major moves. Craft a solid game plan by incorporating some — or all — of these 12 tips into your lifestyle and get on your way to making your first $1 million.
Boost Your Profit Margin
A profit margin isn’t strictly reserved for businesses; it also applies to you. “By increasing the gap between what you earn and what you spend, you end up with a profit in exactly the same way a business earns a profit,” said J.D. Roth of personal finance blog Money Boss. “This profit can then be used to pursue your long-term financial goals.”
To specifically reach a million bucks, you’ll need to boost your savings rate substantially more than the normal five percent to 15 percent, said Roth. He suggested saving half of your income, and noted that you’ll have to make hard choices of deferring present spending in exchange for future financial success. For two-income families, he suggested choosing to live on one income, and saving and investing the other salary.
Start with 10 Million
“Start with $10 million” is actually a joke, and it reflects how our brains tend to trick us into doing the wrong thing when investing. The best way to circumvent our “inferior mental angels” is to learn about investing, create a plan and stick with it.
Our psychology often works against us, said Kirk Chisholm, principal at Innovative Advisory Group. It’s not difficult to make a million with investing — if you start young enough and avoid psychological pitfalls, such as following the crowd.
Avoid trading in and out of your investments. Create a sound investing plan, invest through thick and thin and over time you can become a millionaire. Those who buy and sell more frequently tend to underperform compared to those who buy and hold, according to Vanguard Research.
Turn Your Passion into a Business
Passion alone won’t make your first million. There’s no substitute for luck and flexibility. “Find something you are truly passionate about, become the authority and make a business out of it,” said Joseph Carbone, wealth advisor at Focus Planning Group. “Not only will you be happy, but you probably will be very successful.”
The Chipotle story illustrates this. After finishing culinary school in 1993, Chipotle founder Steve Ells was excited about starting a fine-dining restaurant. Lacking funds for the upscale place, he took a small loan from his father and opened his first Chipotle, to raise money for his exclusive restaurant. After selling 1,000 burritos in the first month, his passion for cooking veered from a high-end restaurant into a successful path to wealth, with the popular Chipotle Mexican Grill restaurant chain.
Furthermore, expect to fail along the way. Don’t be surprised if there are some bumps along the way before hitting that million-dollar idea.
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