So you want to become a millionaire? The path isn’t easy. Those seeking millionaire status are going to have to make some extreme lifestyle changes to get there, and here are six ways to start.
Snowball Existing Debt
If you're in debt now, start by getting out of it. Credit card debt, student loans, and mortgages can feel overwhelming, but if you make a plan and stick to it, you can be out of debt and preparing for your millionaire retirement in no time. Try using the debt snowball method. Pick the account with the smallest balance and put all your extra resources into it until it's completely paid down, then start on the next smallest balance.
Move Money into Your Savings While You Consider
While making up your mind over a large purchase, move the money you would spend into your savings account. If you don't miss it after three days, you know you can afford it. Furthermore, if you can't remember what you wanted to spend it on or why you wanted to buy it, you've now committed to saving extra for the month! Alternately, apply this extra saved money to your debt snowball to get rid of your debt faster.
Maximize Your Investments
Ultimately, the three factors that will maximize your investments are the amount saved, the return rate, and the time. In an ideal world, we would all save a large portion of every check, get a great return rate and leave it for the next 50 years! But for those of us without perfect planning skills, there are lots of other ways to maximize your investments: diversify. Diversifying your holdings keeps your investments safe—don't put all your eggs in one basket, as they say. Buy stocks in companies that you personally support, put some money in a mutual fund, contribute to a 401k, and keep money in a regular savings account (or a CD if you really want to make your savings work!). Spread out your investments to make sure you get the most for your money.
Cut Frivolous Spending
Millionaires don't magically become rich overnight; they save well and spend judiciously. Before buying something, ask yourself two questions:
1) Do I need this?
2) Why do I want this?
If you can't think of a very good reason to open up your wallet, don't buy it! For more ideas on where to cut back, take a look at your spending trends from the last month; for example, you might be surprised how much you spend on eating lunch out. If it feels like something you can't live without, try cutting it in half and see how you do.
Set a Goal and Use Applications to Stay on Track
When do you want to retire? Decide today and start planning around it. Without setting a specific goal, it is difficult to accomplish anything. Once you decide, pick an application that will help keep you on track and keep you honest. One resource is mint.com, which helps you track your spending trends, make budgets, and can suggest accounts options that better fit your spending. With Mint, you can decide how much you want to save and when you want to be done with the goal, and it will automatically calculate how much you need to save monthly.
Be Patient
The reality for most of us is that it takes time to become a millionaire. Just remember that you are playing a long game, with a comfortable retirement as a prize. Keep your goal in mind, and celebrate small victories along the way. Soon, you'll be living it up.
Image by Enkhtuvshin's 5DmkII / flickr
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Great post! Patience is definitely the key here. These things don’t happen overnight and like most things it takes hard work and effort to reach your goals.
Very true. It has taken me years to get to where I am, and I am a long way from millionaire. Keeping focus and being patient for the long-haul is hugely important.
Great post Angie. I think we all strive to be millionaires and these are great tips to get us there slowly but surely.
I think cutting frivolous spending is key. We try not to spend on unnecessary things… but still, looking back on the past year, we could have easily cut our spending by $5,000… and saved that much more!
$5,000 is a lot of cash to save. Where did it go?
We spent $5,000 on vacations alone! We also bought some “big ticket” items like a canoe, an iPad, a laptop computer etc. It’s tough to balance out the “needs”, the “wants” and the “savings”
A CANOE! Whoa. I hope you get lots of good use out of it. I used to take the canoes out when I worked at a summer camp, but it has been a long time.
I think patience is the most important one on here. You can do all the other things, but if you get tired of all the waiting and give up, you’ll never get there.
Being patient is certainly important, but sound investing is just as much. Not losing your capital through bad investments is important as growing your capital. I tend to focus on dividend payers who have a history of increasing their dividends. Generally means they are cash rich, growing earnings, and unlikely to disappear over the long term.
I think it takes a combination of patience and smart decisions. I usually guide people toward low-fee mutual funds, many of which are heavy in dividend stocks, so they don’t have to make difficult “stock picking” decisions.