There are 5.3 million millionaires in the U.S. Given that millionaires make up just 2% of the U.S. adult population, those folks are very much in the minority. And if you're an average earner, you may be resigned to the fact that you'll never join their ranks.
But hold on just a hot second there.
Yes, it's true that the more money you earn, the easier it becomes to grow wealth over time and reach millionaire status. But that doesn't mean you have to give up on that goal so easily. Here are a few things you should try doing before assuming that becoming a millionaire is out of the question.
1. Building up a solid emergency fund
What does having cash reserves in the bank have to do with becoming a millionaire? A lot, actually.
One thing that tends to stop people from accumulating wealth is debt. And that makes sense. If you charge a $1,000 expense on a credit card that ends up costing you $1,500 after you account for interest charges, that's $500 you're not putting to work by investing it.
An emergency fund, meanwhile, could be your ticket to avoiding debt when unplanned expenses land in your lap. So over time, aim to build up enough cash in your savings account to cover at least three months of essential living expenses. It'll serve as a nice foundation for growing your net worth.
2. Buying a home
Homes are incredibly expensive to buy right now not just because of elevated prices, but also, sky-high mortgage rates. But housing market conditions are apt to change eventually. And if you end up in a position where you're able to afford a home, doing so could help you grow your net worth to $1 million or more.
Homes tend to appreciate in value over time. So if you buy a home for $300,000, in 20 years, that home might be worth $800,000. At that point, you have $500,000 in equity, which is half of what you need to have a net worth of $1 million.
Now that said, let's be clear that buying a home is not the only way to grow wealth. Rather, it's one of several things you can do. If homeownership isn't desirable to you, and you'd prefer to keep renting indefinitely, rest assured that doing so won't necessarily mean that you'll never become a millionaire. You may just need to invest more money in other assets, like stocks.
3. Investing in the stock market
Investing in assets like stocks that usually gain value over time is a great way to grow your personal wealth. And the good news is that you don't need to invest a ton of money monthly to eventually become a millionaire.
In 2021, the average U.S. household income was $97,962. But let's say you don't even earn that much. Rather, let's assume you earn a $60,000 salary. It may not be reasonable to invest more than 5% of your income for the future. But if you're able to do that, it means investing $3,000 a year.
Meanwhile, let's say you invest that sum over a 40-year period. Over the past 50 years, the stock market has delivered an average annual return of 10%. So if you're able to snag that same return in your portfolio, you'd be looking at around $1.3 million right there.
You might think your chances of becoming a millionaire are pretty slim given your income. But you might also be pleasantly surprised at how attainable millionaire status actually is if you manage to avoid debt and invest in assets whose value increases nicely over time.
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