Three easy steps to become a millionaire
Would you be surprised that there are three easy steps that you can follow and become a millionaire?
Everyone wants to know the secret of riches, but rather few are willing to put in the required work. I realized that for me it would take ten years, which actually passes by really fast. And best of all, it requires zero physical work.
Step 1: Save money to make money
Step one is to start saving. Most people will take the easy road and immediately decide that they do not earn enough to start saving. Is the only possible way forward to start earning more? While that certainly might help it will actually be easier to pay attention to our spending habits. Without focus on the spending habits it is easy to earn more, but still end up saving very little.
I started tracking all my cash inflows and outflows. Special attention to my cash outflows showed that I was spending quite a lot of cash on things that did not actually make my life any happier. After cutting all the unnecessary spending I am able to save roughly 2,000 dollars a month. That’s 24,000 dollars a year! That’s not to say that it will make me rich over night, but it will provide a solid base for building equity
It is important to note that you should not cut all the things you enjoy from your budget. Eating only noodles and hiding in your apartment might save you money, but have quite a negative impact on your quality of life. I still eat out every now and then, have a cup of coffee with friend or go to the movies (at least once corona is in the past).
Step 2: Create multiple streams of income
It is very beneficial to start looking for additional streams of income once you are able to live below your means and stick to your budget. At this point it will mean that every extra dollar you earn is saved. Finding multiple streams of income is excellent way to supercharge your journey to wealth.
There are endless number of opportunities to earn extra income, but this depends very much on your free time. Usually time is required for all extra sources of income and most likely in a front loaded way.
For me the first step for extra income is a small business we are purchasing with a friend of my mine. As a small business it requires quite limited cash from us and has potential for quite nice growth and cash flow. My input will be limited to my part of the initial cash and working on the financial side of the business as my time is rather limited with work. As my friend has more time he will take care of the operational side of the business.
In addition I am writing this blog, which might hopefully some day have nice traffic and possible earn few bucks. This is something I enjoy doing so this would be an extra, but just to highlight that there are endless number of options to earn extra income.
Step 3: Make money multiply
Third step is to start investing and the earlier you start the better off you will be. This is due to compound interest, which will grow your equity exponentially over time. The simple truth is that time is money and it is especially true for investing.
Everyone who just starts investing will soon realize that early on the returns in absolute dollars will be quite small. Lets say you have saved up 10,000 dollars and you get stellar return of 25% for the years. In dollars that will be 2,500 dollars. While a nice amount of cash that is hardly enough to retire in the Bahamas.
The key is to understand that next year you will have 12,500 dollars earning money for you. That is of course in addition to all the extra money you have saved up.
My plan to become a millionaire as an example
My plan is to follow these steps and make million dollars by end of 2030. Few figures to demonstrate the plan.
For my investments I will expect 15% annual return. That is quite ambitious goal considering that S&P 500 total return has been in range of 8-10% depending on the calculation period. Reaching 15% return will require picking single stocks and much more risk compared to index investing.
My initial portfolio at the start of 2021 was 45,000 and I expect to realize 50,000 dollars profit from selling my home. Additionally, my intention is to save 25,000 dollars this year. In the coming years my goal is to increase the savings 5% each year.
Initial portfolio will earn full 15% return this year while the additional 75,000 dollars is expected to realize at mid year with 7.5% return. Going forward the additional savings is always expected to be at mid year with 7.5% return in the first year.
With this plan I should be able to reach portfolio value slightly above one million dollars in 2030. The main risk will be whether I will be able to reach 15% return each year for the next ten years. Settling for 8% return would mean that in 2030 my portfolio would only be worth 660,000 dollars and reaching one million would required additional three years.
While the basis for this plan was to reach 15% annual return this is not my actual return target. I am ambitious guy and aim for 25% return, which would cut almost three years out of the process. We should always set high targets for ourselves.
Anyone can easily become a millionaire
The truth is that anyone can become a millionaire. Only the required time varies and depends on your current situation and ability to save money. It might take five years or twenty years, but all it takes is a decision and consistency. Start saving early and you can retire early.
Comments are closed