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5 Steps to Becoming a Millionaire

{ Posted on Apr 25 2010 by Marcus Alston }

1.  Create a budget.  You need to identify all your income, all your necessary expenses, and all your discretionary expenses.  Only then can you accurately plan for your financial future.

2.  Live Below Your Means. Control Spending and Reduce Debt.  After you have established your budget, you can see if your income exceeds your expenses.  If your income exceeds your expenses, congratulations, you are in a good position to save this money and increase your wealth.  If not, either you need to cut your expenses or increase your income or else your expenses will eventually lead you into debt (or more debt).  Not sure how to save and cut expenses?  Below I have listed a few helpful articles on how to do this:

My Top 9 Favorite Extreme Saving Methods
My Top 7 Eco-Friendly Saving Tips
15 More Eco-Friendly Savings Tips

3.  Create a Retirement Fund.  The money that exceeds your expenses should be invested for your future.  If you invest $500 a month for 25 years at an 8% average annual return, you would have $478,683 at the end of 25 years.  Put away $1,000 per month, you would have almost $1 million ($957,367) at the end of 25 years.

Start early.  If you are 20 years old, you only need to invest about $199 per month to save $1 million by the time you’re 65, assuming your investments returns 8% per year on average over 45 years. But if you wait until you are 30 to start, you’ll need to set aside about $446 per month to save $1 million by age 65.  If you wait until you are 40 to start, you’ll need to set aside about $1,046 per month to save $1 million by age 65.  See the chart below for more examples (assumes an 8% return in an investment such as a stock or mutual fund and 3.1% inflation).  I used a millionaire calculator to compute this:

Age Starting to Save Amount Needed to Save Per Month to Save $1 million by Age 65
0 $42
5 $62
10 $91
15 $134
20 $199
25 $297
30 $446
35 $676
40 $1,046
45 $1,664
50 $2,784
55 $5,141
60 $13,610

The message here is the earlier you start, the less you have to invest in order to reach a million dollars by age 65.  To see how much you should be saving, click here.

4.  Buy a House.  A house still remains a great foundation for your financial future and is a good place to invest.  With home prices declining over the past few years, many have questioned whether they should still own a house.  If you are not planning to sell for at least 5-10 years from your date of purchase, a house is still a pretty safe bet, but it’s not a sure thing anymore.  If you buy now in a relatively low down market, you are also likely get a great value that should appreciate.  Housing prices were a little inflated over the last few years which went along with the relaxation of lending standards, but this has changed with the downturn in the economy.  Do your homework and pick a house in a stable neighborhood, preferably with a good school system.  A house in a neighborhood with a good school system is more desirable than one that is not located in a good school system.  Even if you do not have kids, when you go to sell, you can attract those that do care about a good system or others that know the school system helps stabilize housing prices.  Desirability is the big driver for housing prices and will make your house appreciate faster and worth more when you are ready to sell.  Check out the crime rate, taxes, and proximity to your job and other desirable destinations.  Buy a house that you can really afford that will not be a burden on you financially.  Remember to make sure it fits in your budget.  Also, make sure you have your house inspected by a professional and reputable home inspector.  If you choose not to buy a house and rent instead, take the money you save by not buying and invest it wisely or pay off debt.  But don’t use it to spend more on things you don’t really need.

5. Buy an Inexpensive New Car or Better Yet, Buy Used.  If you buy an expensive new car at say $600 per month, this is $7,200 per month or $36,000 over 5 years, not including interest!  If you bought a used car for half the price and invested the other $300 per month at 8% interest, you would have $22,190 at the end of 5 years (even at 3% interest, you would have $19,442).  If you are 25 years old and you follow this strategy until age 65, you would have $1,054,284 at age 65.  As for leasing, I recommend that you buy used instead.

Conclusion. Becoming a millionaire seems to be a part of the American dream.  By taking these 5 steps, you will put yourself well on your way to reaching the American dream of becoming a millionaire.

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4 Responses to “5 Steps to Becoming a Millionaire”

  1. Nice writing. You are on my RSS reader now so I can read more from you down the road.

    Allen Taylor

  2. Thanks. Its nice to get this feedback about my writing. I will be sure to check out investingworldtoday.com as well.

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