How to Become a Millionaire

In my July 13, 2009, Investopedia article, So You Want to Be a Millionaire?, I examined how long it might take a person to become a millionaire under a couple of different scenarios. (And if I may shamelessly brag for a moment, my article appeared on the homepage of Yahoo! Finance earlier this week.)

Becoming a millionaire is clearly an achievable goal: A June 2008 New York Post article reported that there were 3,028,000 millionaires in the United States, defining a millionaire as someone with investable assets of at least $1 million. And in the world as a whole, there are around 10.1 million millionaires.

This article looks at some specific steps you can take to make it to that goal, regardless of your time frame.

Cut loose from the man. Thomas Stanley and William Danko, authors of The Millionaire Next Door, report that “[a]bout two-thirds of [millionaires] who are working are self-employed.” Indeed, starting a business paves the way to wealth for many people. While a salary can be viewed as guaranteeing a specific annual base income, it often also limits you to that number. Work for yourself, and your rewards become more directly linkd to your efforts and abilities--which is ideal if you’re ambitious and talented.

Stanley and Danko report that “self-employed people make up less than 20 percent of the workers in America but account for two-thirds of the millionaires. Also, three out of four [millionaires] who are self-employed consider [themselves] to be entrepreneurs. Most of the others are self-employed professionals, such as doctors and accountants.”

Get a high-paying job. If self-employment isn’t for you, a high-paying job certainly won’t hurt in your quest to become a millionaire. To earn this kind of money, it helps to have a college degree, since so many employers use it as a screening mechanism. Kurt Badenhausen, writing for Forbes.com, reports that the highest-paying field for college graduates in 2008 was computer engineering, with an average salary of around $60,000 for workers with fewer than five years of experience. Ten to twenty years of experience gets you into the low six figures. Economics, finance, and math majors should see even more meaningful percentage increases in earnings once they have experience. Careerbuilder.com’s Laura Morsch reported in December 2008 that the 10 highest-paying careers that don’t require a college degree have average salaries ranging from $57,290 (for ship engineers) to $105,820 (for air-traffic controllers). But the second-highest-paying of these jobs, real estate broker, averages only $76,930.

Diversify and choose investments with minimal fees. Alan Corey, author of A Million Bucks by Thirty, states that one of the reasons he was so successful is because he diversified his investments. When he realized the potential of real estate, he put most of his money there, but if he had noticed an upward trend in another investment category, he would have put himself in a position to profit from that instead. Of course, you shouldn’t count on there being any sort of investment boom during the period when you decide to fast-track your millionaire status (nor should you count on your ability to identify it or to buy and sell at precisely the right moments). In addition to diversifying, don’t spend your money on loads or commissioned brokers. These will diminish your returns and delay your day of financial freedom.

Avoid get-rich-quick scams. John Beck's Free & Clear Real Estate System and other “programs” and “investments” that offer something that sounds too good to be true are just that. If it were easy to get rich, we’d all be sleeping soundly beneath 1,000-thread-count sheets instead of contemplating the offerings of infomercials at 2 a.m. Putting your time, energy, and money into these schemes will only delay your plan.

Live in a state with low or no taxes. The states with no state income tax are Alaska, New Hampshire, Tennessee, Florida, South Dakota, Washington, Nevada, Texas, and Wyoming. State taxes can really take a chunk out of your take home pay and, over the long run, your net worth.

Eliminate your housing expenses. Since housing is the largest monthly expense for most people, finding a way to eliminate, even for just a few years, can help you save a chunk of change. Living with relatives, live-in work arrangements, and living in a portion of a property that you own and rent out are all good ways to accomplish this savings feat.

Live on one income.If you’re fortunate enough to not be going it alone and if you and your significant other both work, stop spending everything you bring home. Gradually cut back until you are able to live on just one paycheck. Then you’ll be able to save thousands, even tens of thousands of dollars a year and increase your savings at a fantastic rate.

A million dollars may not be worth what it used to be--once considered the ultimate standard of wealth, it’s now seen by some people as merely a milestone on the path to financial freedom. But being a millionaire isn’t terribly uncommon, either. If 10.1 million other people can do it, why shouldn’t you?

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Post by Amy Fontinelle