The game show Who Wants to Be a Millionaire is one of the most popular TV game shows of all time. The title plays off the round figure of $1 million, which for many people is the culmination of a lifelong financial goal.
Becoming a millionaire is certainly a worthy financial goal. Depending on where you live and the lifestyle you lead, accumulating $1 million could enable you to live a comfortable retirement lifestyle. There are approximately 15 million millionaire households in the U.S., comprising about 12% of all U.S. households.
There are several different paths to becoming a millionaire. One is to pick the right numbers in the lottery, but the odds of winning $1 million this way are extremely long. Another is to inherit the money from parents or other family members. However, this is less a matter of planning and more a matter of being born into the right family.
For most people, the best path to becoming a millionaire is careful planning, diligent saving and wise investing over the long term. Here are 5 steps that could help you become a millionaire:
- Set financial goals — and stick to them. It’s one thing to say you’d like to become a millionaire one day. It’s another thing to set this as a goal and, most importantly, stick to it.
Since becoming a millionaire is probably a long-term goal, break it down so it’s easier to measure your progress toward the goal. For example, if your goal is to become a millionaire by age 55 and you’re 35 years old now, figure out how much money you’ll need to save by certain age milestones (such as 40, 45 and 50) to reach the goal.
- Strive for employment stability. Millionaires come from all walks of life: not just doctors, CEOs and lawyers, but also plumbers, middle-managers and small business owners. It’s often not the kind of job that makes a difference in becoming a millionaire or not, but keeping a steady job year after year without big employment gaps.
During and after the economic downturn a decade ago, many people who were laid off from jobs decided to strike out on their own as self-employed professionals or start their own businesses. This can be a path to becoming a millionaire if you have years of experience and strong connections in a highly sought-after industry or field.
- Save money early and often. It’s usually not how much money someone makes, but how much is saved that determines long-term financial success. And due to the power of compounding, the sooner you start saving money, the better your chances could be at becoming a millionaire.
But it’s never too late to start saving. There’s an old saying that the best time to plant a tree was 20 years ago and the second best time is now. Even if you’re getting a late start, you can still set financial goals and formulate a plan for reaching them.
- Invest in the stock market. Yes, investing in the stock market generally entails more risk than investing in fixed-income instruments like bonds and cash equivalents such as money market accounts and CDs. Due to the short-term volatility of the stock market, these types of investments may be more appropriate than stocks for short-term financial goals.
But for long-term goals like becoming a millionaire, the stock market usually presents the best opportunity for the kind of capital gains that can make this dream a reality. According to Ibbotson, the compound annual return of small stocks between 1926 and 2010 was 12.1%, compared to 5.5% for government bonds and 3.6% for Treasury bills.
- Live within your means. The Millionaire Next Door, a book written by Thomas J. Stanley, told the stories of many millionaire individuals and families living very average, non-extravagant lives. Most of them didn’t drive luxury cars, live in big fancy houses or go on expensive vacations.
By not splurging on things like this, but instead living well within your means and avoiding consumer debt, you may have more money to put toward your long-term financial goals. This kind of delayed gratification could pay off if it helps you reach your ultimate goal of becoming a millionaire one day.
Please contact us if you have more questions about setting long-term financial goals or one day becoming a millionaire.
There’s no guarantee that the suggestions listed above will ensure the desired outcome of success. Please speak with your investment professional to discuss your specific situation and plan accordingly.