How To Become A Millionaire
Posted: Thursday, October 01, 2009
by Jim Anderson
Weddings That Last
Becoming a millionaire is not as complicated as people think. It is simply understanding math and using it to grow your savings over time. Most millionaires get that way slowly, it doesn't happen overnight. You also probably don't realize they are a millionaire because they don't look like it. So if you want to become a millionaire too, then let me give you some steps.
Second, you have to save your money and invest it. These days every middle class individual has the opportunity to become a millionaire by simply starting their saving early and putting it in a good long term investment, like a good mutual fund. There is a saying you hear from financial advisors regularly, "pay yourself first". This means you have to treat your savings amount like the IRS treats taxes. It needs to come out of your check automatically before you see it and immediately invest it. Then force yourself to live on what is left. Even if you start later in life, you can still make it happen. You need to sit down and do the math and create a plan.
Third, you have to know how to manage risk. This is probably the most ignored aspect of building your net worth. You have to quantify risk and know when to replace it with insurance. You can't make money on an investment without taking risk, but you need to limit your risk. It isn't either a risk or no risk situation. You quantify it and rate it. Some risks make sense to avoid completely and insurance premiums are a good trade off. Some risks are better handled through self-insurance. Some risks are best avoided completely if possible because they are too high and you are likely to lose either way.
Fourth, you have to aggressively avoid debt. Debt increases financial risk. The lender is going to get paid one way or the other unless you are completely broke. So debt doesn't help you get rich, it enslaves you to the lender. If you can't change your paradigm about debt, eventually it will rob you of your savings. An old Proverb says, "The rich rule over the poor and the borrower is the lender's slave" (Proverbs 22:7). There ultimately is no responsible use of debt if you are properly managing risk. Though the Proverb still holds true, the only exception is if you have a secured loan at no more than 50% of the asset's market value and are willing to lose as much as 50% of the value of the asset to pay the loan on demand. However, this could be considered taking an unnecessary risk. Ultimately, you are still at the mercy of the lender.
Fifth, you have to have discipline. This means you have to be prepared for the bad times and still be able to maintain your saving schedule. If you don't work your plan without fail, your plan will fail. We all calculate how rich we will be when we save X amount every month for 20 or 30 years, but then we fail to keep saving during bad times and wonder why we can't meet our goals. So you have to plan for the bad times before they happen so you can keep things going on your plan. Discipline also means that you have the commitment to live below your means and not have an acquired taste for luxuries.
Finally, you have to protect your heart from greed and materialism. The antidote for this sickness is generosity. You have to be generous with your money. As counter intuitive as it seems to the average American, greed and materialism will destroy your wealth. Being generous with what you have makes your wealth more secure. It builds a more stable society, and it keeps you from getting too attached to your money and belongings. You discover what true wealth is and being a millionaire is not your sole focus in life.
For further discussion about building your net worth see my article about the secret of a millionaire's money on my website.
This Article has been viewed 160 times. (Not updated in real-time.)
Top-level comments on this article: (1 total)A PS I would add to "Being generous with what you have makes your wealth more secure. It builds a more stable society, and it keeps you from getting too attached to your money and belongings. You discover what true wealth is and being a millionaire is not your sole focus in life." Would be along the lines of "what does it matter if you gain the whole world and lose your own soul" (my paraphrase) you sort of touched on it here though! Marijo (maybe a part 2?)Please log in to respond to this comment.Thanks. Something to consider...Please log in to respond to this comment.
We want your comments! If you can read this, you don't have javascript enabled, so you can't use this comment system. Please enable javascript.