The pursuit of wealth should be motivated by a desire for financial security, not a longing for status or a luxurious lifestyle. If you start young and develop the right financial habits, a seven-digit net worth is an attainable goal.
In his work with wealthy clients, Jason Flurry, CFP, founder and president of Legacy Partners Financial Group in Woodstock, Georgia, has found that those he calls “true millionaires,” people who gain wealth and keep it, see the role of money in their lives very differently than those who focus on what money can buy.
“Having money for the sake of having money or ‘being rich’ never leaves a person feeling fulfilled,” he says. “Ironically, it can actually lead to a different set of problems most people haven’t thought about much in their pursuit of more.”
With help from financial experts, we have come up with seven tips on how to become a millionaire. The advice is really simple, but reaching the goal is challenging.
1. Develop a written financial plan
Saying you want to be wealthy won’t get you there. You must come up with a workable plan on how to become rich, put it on paper and then execute it.
“The written plan forces you to do something; calculate what you need to earn and how to invest,” says Stewart Welch, founder of The Welch Group, a wealth management firm in Birmingham, Alabama.
“The plan isn’t just the goal: it’s the whole thing,” says Welch. “The dream, the goals, the options.”
The options require “scenario planning” — coming up with all the ways you can accomplish that goal, such as opening a Roth IRA or contributing to a 401(k), says Welch. Bankrate’s investment calculator can show you how much you’ll need to contribute and earn over time to reach your goal.
2. Get into the habit of saving
“Saving money really means putting your own personal finances first,” says Mark Hamrick, senior economic analyst at Bankrate. “So, think of saving money as a way of paying yourself first. By making saving money a priority, you are boosting the chances that your financial future is going to be stronger than your financial present or past.”
Start by building an emergency fund in a savings account so you don’t have to raid the rest of your savings and investments when a big expense arises unexpectedly.
Make a point of saving at least half of every pay raise. Explore high-yield savings account options to make sure you get the best returns on the money.
Additionally, take advantage of your retirement fund. Max out your 401(k) and put any additional funds into a traditional IRA or Roth IRA.
Diversifying your savings is critical to getting the most out of what you put in. If you have a long time horizon before you plan to retire, seek out growth investments like stocks to increase your nest egg over time.
“Don’t be among the many Americans whose top financial regret is the failure to save, either for emergencies or for retirement,” Hamrick says.
3. Live below your means
Buying a big house or driving a very expensive car is too big a price to pay if it will reduce the amount of money you can save and invest.
“This is really one of my favorite financial mantras,” Hamrick says. “Too many individuals, or consumers, are conditioned to think — or allow themselves to think — that their self-worth is somehow tied to their personal possessions.”
Hamrick offers an alternative way to think.
“But wouldn’t we really like for others to admire our resourcefulness and wealth-building, rather than our spending?” he says. “Financial success will be dictated, to a large degree, by how we manage our money, not by overspending.”
People who are serious about becoming a millionaire for financial security are less likely to blow money on expensive cars and lavish vacations.
And they’re not going to buy a house that stretches their budget too thin. Use Bankrate’s house calculator to determine how much house you can really afford.
4. Stay out of debt
Paying yourself is better than paying a bank or a credit card company. Debt is your enemy.
“When you are in debt, it is very hard to make progress toward securing your financial future because you have to pay your taxes and your debts before you can use any of your money for yourself,” Legacy Partners’ Flurry says.
Flurry says you should avoid what he calls “dumb debt,” such as credit cards, car loans and most student loans.
If you have a stack of credit card bills, pay them off and keep just one or two. Try not to put anything on your cards that you can’t pay off in two or three months.
“Debt holds people back,” Flurry says. “They buy liabilities, and they make those payments forever.”
5. Invest in ways that work for you
You don’t need a lot of money to start investing….
Read More: 7 steps to reach your goal