The Three Ways a Regular Person Can Become a Millionaire
Today I want to take a very serious attempt at answering the question of how can a regular person like you really become a millionaire?
If you’re honest with yourself, you want to be rich. You don’t want to have to worry about how much is in your bank account, or what bills you have coming up, or whether you can really afford to add guac at Chipotle every time (seriously though, how good is their guac?). You probably want to be able to take nice vacations and indulge in the occasional extravagant purchase without guilt or worry.
I’m right there with you.
The problem is that it seems like these things are the privilege of the lucky few and that everyone else is doomed to struggle to make ends meet.
So, we need to ask: is it even possible for a regular person to work up to become a millionaire? I think if we really take a hard look at the possibilities, there are three solid, reliable ways for anyone to become a millionaire.
(As a side note, you might have noticed that I switched from talking about being “rich” to becoming a “millionaire.” The term “rich” is too ambiguous, especially considering I want to crunch some numbers for the purposes of demonstration. Becoming a millionaire is still viewed as a major and impressive financial milestone so that’s what we are going to work with in this post).
Before we get there, let me just say that the money itself isn’t the most important thing. Money is only significant if it can help you get whatever it is that you actually want. So, if you haven’t done some real soul searching to get in touch with what you really, truly want out of life, you need to do so before you start chasing the wrong thing.
If you need help figuring things out, check out my post on the 10 year plan for a remarkable life. That exercise guides you through thinking about what you really want life to be like in 10 years. Just wanting to be “rich” or to have “more money” doesn’t count. You need to know why you want the money and what you plan on doing with it.
The Ways that WON’T Work
Before we get to the good strategies for building wealth, it’s important that we at least recognize the dead ends. Some of these are obvious but at least one is more subtle.
First things first: you’re not going to win the lotto, or pick the perfect bracket, or hit it big gambling. You just aren’t. These things are just distractions from taking real steps to improve your financial situation.
We also already know that you’re not going to be making millions playing sports, or else you’d already be doing it and not reading this article.
Not so obvious though is that getting a college degree and having a good job with a decent income won’t cut it either.
Let’s run the numbers to see why this method is unreliable.
Let’s say you make $50,000 a year your whole career and work for 40 years. I realize that no one makes the same amount every year, but we’re going to keep the math simple for the purposes of the illustration. The assumption of working 40 years shouldn’t be too far off, most people start working at age 22 and retirement age is theoretically 62 and a half.
If you were to just save up your money by spending less than you earn, you would need to save half your income every single year to have exactly $1 million when you retire.
Is that possible? Certainly. Is that probable for the average person? Not by a long shot. The reality is that some people can be disciplined enough for this kind of saving, but most people would have a very tough time with it.
Now, if you are somehow able to rise up the corporate ladder and land an enormous salary, you can save more money and get to millionaire status faster without feeling so much pressure to be a tightwad. The problems with that strategy are that the big-money positions are difficult, stressful, and hard to get. You face a lot of competition if you want to hold a senior leadership position at your company.
One of the big problems with just getting a job and trying to raise your salary is that you are the only thing working to make money for yourself. All the pressure is on you.
The best way to grow your income and your wealth is to find a way to leverage something other than yourself to make money.
You need to stop trading hours for dollars and instead find something else to trade for money.
The Ways that Work
1) Investing (e.g. the stock market)
The first thing that you can leverage to earn money is…your money!
Now, I’m not suggesting you go quit your job and become a day trader, but I am saying that investing in the stock market as a whole has proved a reliable method for growing your money. It has its ups and downs, but over the long term it grows at a much higher rate than you would get from a savings account or a bond.
Let’s take another look at the example above of making $50,000 a year for 40 years. We had found that with this strategy you needing to save an unrealistic 50% of your salary every year that you worked in order to hit a million dollars.
So how much would you need to save if you invested in the stock market?
Let’s assume that over the long term you averaged 7% growth, Your mileage may vary, but 7% is not a terrible guess for a long term return in the stock market. In this scenario you would only need to put away $5000 a year to have a million dollars by the time you retire. That’s a pretty big improvement over the last scenario where the stock market wasn’t involved.
The easiest way to do this is to contribute to your 401k plan at work. Your company may even offer an employer match that makes it even easier to git your goals. Let’s say your employer matches 4% of your 401k contributions. This means that if you make $50,000 a year, they will match any amount up to $2,000 a year. So in this situation you only need to put away $3,000 a year to become a millionaire, your employer, compound interest, and time take care of the rest. At the time you retire you would have saved up $120,000 but you would have a solid chance of your balance being over a million.
Pretty much all personal finance writers will tell you to always make sure you’re contributing at least enough to your 401k to get your full employer match and they are exactly right.
And the more that you give above that, the more you can grow your wealth.
Again, this is actually a pretty safe way to do things. There are ways to invest in a way that is aggressive and risky, but a low-cost index fund that you slowly contribute to over a long period of time is actually a pretty conservative investment.
One weakness is that in the exact situation I just mentioned, you still need to wait a long time to become a millionaire. Who wants to wait 40 years?
One thing to keep in mind is that virtually any method of amassing huge wealth is going to take at least a little bit of time (which is why the post on Friday will be about delayed gratification, grit, and long-term perspective). The important thing is to get started and make sure that time and compound interest is working for you.
The next step is to see if you can contribute more; the more you contribute, the faster you’ll get there
The other thing you can do is incorporate one or both of the remaining two methods. The more systems that you can set up to get you to your goal the better and honestly, the next two probably have even greater potential to speed things up.
2) Real Estate
Real estate isn’t going away anytime soon. People are always going to want land and are always going to want access to buildings.
The first step of getting involved with real estate is actually fairly simple: buy yourself a home.
You might need a mortgage to do so, but as long as you buy a home you can afford, you shouldn’t be paying much more than you would have paid for rent (you might even be paying less). Unlike with rent, your mortgage will eventually be paid off and you will own an asset worth a lot of money. It will probably even go up in value.
Beyond simply owning your own home, you can venture into the world of rental properties. The idea here is simple: you make a down-payment on a property that you plan on renting out and charge the tenants enough money in rent that they are paying for the mortgage and related expenses and that you are earning a positive cash flow, which you can then use to buy a new property.
If you repeat this process enough times, you end up with lots of wealth in the form of property, and lots of monthly income.
Like anything, there are risks involved and there’s definitely some hard work needed to pull it off, but the benefit is that it’s not just your own investment of effort and time that are earning you money, the property itself is doing most of the heavy lifting.
Once you start managing multiple properties, this path can be a lot of work, but it can scale much faster than the first method. While it’s possible to become a millionaire long before retirement with any of these three methods, Real Estate allows you to improve your net worth in multiple ways:
- When you buy a new property your net worth goes up because as you pay off your loan you have an asset you can sell for money.
- As you hold the property over time real estate has a tendency to increase in value so you will likely be able to sell it for more than you paid for it.
- It provides a monthly cash flow in the form of rent.
3) Starting a Business
Starting a business sounds intimidating, but the concepts are pretty simple. The basic idea is that you are going to invest your time into coming up with a product or a service that you can sell instead of your time.
People with normal day jobs are selling something: they are selling their time. They are either paid by the hour and we call it a wage, or they are paid by the year and we call it a salary. There are a couple problems with selling your time:
- Time doesn’t scale well; you only have ~17 waking hours in a day
- Time is your most precious resource and it is non-renewable, once you use it up it is gone forever
The takeaway? Don’t sell time, invest time in creating something to sell besides time.
With a business, you are trying to provide value to people by solving their problems (real or perceived). Anything that someone is having trouble doing, or wants to pass off to someone else is a potential business in the making.
In the age of the internet, it is absolutely true that anyone with a laptop (or heck, a smartphone) can start a viable business right from their home. Depending on how much work you put into it, how long you persevere, and how lucky you get, your business could become a solid side hustle, or maybe replace your day job, or possibly even make you rich beyond your wildest dreams.
If you want more info on how exactly this works and how you can get started, I wrote an in-depth blog post that you can check out.
Putting It All Together
You may have noticed by now that you don’t have to limit yourself to just one of these methods. Even if you focus on one, it’s not very difficult to dabble in the other two.
In fact for the sake of diversification, it’s wise to at least get started in each of these three areas.
Right now I have at least a toe in all three of these areas and I’m looking to grow in all of them, especially in growing my online business.
As far as investing in the stock market goes, I’m fortunate in that the company that I work for offers a generous 6% match which I am taking advantage of, and have been the entire time I’ve worked here (I’ve contributed as high as 10%, but never lower than the 6% required for the full match). I also have a Roth IRA that I contribute to. Hopefully in the future I can increase my contributions there.
In the area of real estate, my wife and I bought our first home at the end of 2014 and have been systematically paying extra on the mortgage each month so that we can pay it off faster and save tens of thousands of dollars in interest.
If my online money making endeavors pay off, I eventually want to take some of that money and invest it in a rental property to set up a separate income stream. The more income streams you have, the better.
My “business” is being a blogger/solopreneur. I’ve been making money online for about a year now. Right now it’s a solid side hustle, but I know that there is lots of room for growth for me. Based on the feedback that I have gotten over the past year I know that my fledgling content has helped a lot of people and so I know I can succeed in this space. Ultimately, I’m hoping to earn a full-time income from my online endeavors, but I know that I have a lot of work that I need to put in to make that happen.
Final Thoughts
What about you? Do you want to become rich? If so, what are you doing to get there?
I know what I want, and it’s going to require some extra cash to accomplish. That’s why I’m using the strategies above and that’s why I plan on trying to scale them.
Thanks for reading.
Your Next Move
If your serious about chasing your dreams, willpower won’t work. You need an unbeatable system to keep you consistent over time. Take enough steps forward and you’ll get where you want to go.
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