Becoming a millionaire is a dream for many people, but a reality for only a small percentage of them. Much of becoming a millionaire is doing a few big things right, and the rest can be handled with enough time and patience. Here, we’ll look at five core millionaire behaviors that can help you reach that milestone.
1. Manage your debt properly
Note that you don’t necessarily have to reduce your debt to zero to become a millionaire; in fact, most millionaires carry some level of strategic debt. Borrowing money to invest in higher-yielding assets is a good idea; specifically, this could mean taking on a low-interest mortgage to purchase a home, or even using 0% loans in certain purchasing circumstances.
When people recommend “getting out of debt,” they’re most likely referring to getting out of consumer debt. This means credit cards, high-interest auto loans, and the like. Carrying inflated balances on these lines of credit can decimate your net worth over the long term and do you the second harm of lowering your credit score.
2. Invest passively
Don’t spend time pouring over stock market reports or technically analyzing the newest crypto-coin. It might not be a popular belief, but your best bet is to ignore the noisy world of opinions and invest in passively managed index funds that seek to replicate aggregate stock performance over time.
The real benefit of passive investment management is that you’ll free up time, energy, and resources to focus on earning active income via a full-time job or freelancing. By devoting more of your hours to furthering your education, leveling up a career, or expanding a side job, you’ll be doing all that you can to get yourself into a solid financial position.
3. Know tax basics
Nobody is asking to you become a tax expert overnight, but knowing a few details goes a really long way. Learn the components that make up gross income: wages, tips, interest, dividends, and independent contractor fees are among the most common ones. Learn more about taking the standard deduction versus itemizing. With a bit of reading and practice, you’ll quickly become competent in tax basics.
You certainly don’t need to sit down with a copy of the Internal Revenue Code and study everything line by line to become proficient in the basics. For example, knowing that long-term capital gains are taxed at a lower rate than short-term capital gains can go a really long way in managing your investment income.
4. Max out your retirement accounts
Your Roth IRA and employer-sponsored retirement plan — like a 401(k) or 403(b) — are two of your most powerful tools in growing your net worth. Your Roth IRA provides tax-exempt investing space to grow your money for the long run, while your 401(k) or 403(b) provides tax-deferred space (get a tax deduction today, pay tax when you withdraw money in retirement).
If you maxed out (or even just partly funded) these accounts every year starting in your 20s or 30s, you’d be in an incredibly advantageous position by the time you hit your 50s. Remarkably, this can all happen without saving a penny beyond your retirement accounts, which many people manage to do anyway.
5. Try (or learn about) entrepreneurship
One of the greatest things about the virtual economy is the expanded opportunity for people to branch out on their own and create something using their own expertise. Related to this is the growing societal desire to have more free time and a more balanced, efficient life overall.
If the pandemic taught us anything, it’s that we need to be able to pivot when circumstances call for it. In the years ahead, there will be a premium on flexibility, portability, and improvisation; knowing how to earn income outside the traditional employer-employee relationship will continue to be an especially valuable skill.
Think about what you’re naturally good at (or at least interested in), and see if there’s an opportunity to monetize it in some way on your own. There’s a good chance that “future you” will thank you for it.
Perfection not required
Much of financial planning is about getting most things — not necessarily everything — right. If you can really hit the big-ticket items in terms of your thought process around money, you’ll be able to grow your net worth much faster and save yourself a great deal of time. Be sure to keep these five ideas in mind as you’re looking to pave the way to millionaire status.
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