A millionaire might be a bit out of your reach right now.
Or is it?
Even if you are looking up from a several-thousand-dollar hole of debt, becoming a millionaire isn’t as daunting as it looks from inside that hole.
It only looks daunting because of the limited view from the bottom of that hole. When you look at it from ground level, you can see that actually, the steps to being a millionaire are actually not that hard. They just take discipline and patience.
And by millionaire, we don’t mean making a million dollars a year. We mean a million dollars of net worth.
What is Net Worth?
Net worth is the first thing to know when we’re discussing millionaire-ness. To figure what your net worth is, you take the total value of all your assets, or what you own (bank account balances, home, cars, investment accounts, etc.) and subtract your liabilities, or what you owe (mortgage, car loan, credit-card debts, personal loans, student loans, etc.). The resulting number is your current net worth.
And yes, you can have a negative number. But that doesn’t mean you’re worthless. It just means you have to take steps to turn things around. But even if you are in this place, you can still think about being a millionaire. No goal is too out of reach to think about and draw up a plan to achieve, and being a millionaire from a negative position is no different.
Here are five key steps you should take that will help you achieve millionaire status.
5 Steps To Becoming A Millionaire
#1. Get Your Mind Off the Money
While being a millionaire is a worthwhile goal, it should not be the thing you think about. Why? Because when you see the goal compared to the number where you are now, it might look too daunting to even conceive and you may mentally quit before you get started. What you should do when you make your plan is not think about numbers but think about what you need to do to make certain milestones.
In other words, rather than think “a million dollars,” think about what success means. Surely you don’t think of success as having a million dollars, right? You do think of yourself as successful or on the way here already? Then think hard about what “success” or “successful” means for you and look to duplicate that.
It might just mean having a goal of getting out of debt and achieving it. Is success something as simple as achieving a daily or weekly goal, no matter how small it seems? Get in the practice of achieving those goals every single day or week. The more “success” you have with that, then the more successful you will be financially, because all little successes pile up. Even the non-financial ones, like achieving all your work for the week, or getting that nagging house chore finally done.
#2. Clean Up Your Debt and Budget
The first thing that got you in that hole is that you started shoveling without a plan. You have to set a budget. Maybe you tried it before and failed, or you never have tried it. But if you are going to be a financial success, you have to do it. No one gets to a million dollars by accident.
Budgeting means to know where all your money is going, and to find a way to live on less than you make. With whatever money you can squeeze out of the budget (even if it means sacrificing cable TV or that brand-name cereal for breakfast), all that money needs to either build up a $1,000 emergency fund (if you don’t already have it) or to paying off your debt.
Work on paying off your debts using the snowball method, where you list debts from smallest balance to largest and pay minimum payments on all except the smallest one, and you put all your excess money toward the smallest one until it’s gone, then work to the next-smallest and so on. Every step you take to eliminate even a small debt will improve your net worth, because the liability side of the ledger will get smaller.
#3. Improve on the Assets
Once you have your debts covered (except your mortgage, unless your balance is less than half your annual take-home pay), you can now work on the asset side of the ledger, which is to save up your emergency fund and start to set aside some money for accelerated growth later. You should build your emergency fund to three to six months of expenses (not income) – depending on the security of your one or two household incomes – to make sure you are covered in case one or both of you lose your job and you need to pay bills in the interim while you search for a new position.
Every little bit you save adds to your net worth in a positive way, as all savings and account balances at your bank contribute to your net worth. But don’t overdo it. You don’t want too much money in savings and not enough money working for you in the next step.
This can actually be two parts. The first part is investing. This can be a brokerage account, an IRA, a 401(k), even a college savings plan for the kids. You may need an initial investment of a couple thousand dollars, but if you are invested in mutual funds, usually just a $20 or $50 contribution each month will go a long way in your goals.
But don’t be cheap. While you may only need $50 a month to invest, go ahead and be aggressive, especially now that you don’t have any debt payments. Use the money that you were putting toward debt and apply that to your investments.
I would suggest, though, that you don’t spread your investments out too far and try to divide your investment among five or six different instruments. Focus works here, and money goes a lot further when it is focused like a laser on only a couple instruments at a time.
Oh, I did mention a second part. Don’t be afraid to invest in yourself, especially if there is a talent that you have, or a skill that you really enjoy exercising, and you can get people to pay you for it.
While you can get to a million dollar without creating a small business, turning a hobby or a skill into a marketable business opportunity can accelerate you well past a million dollars, especially if you handled it as a cash-only operation without taking on any new debt. Working slowly and deliberately on growing your base cannot hurt your net worth, it only enhances it.
The key to this part however, is to think of it as an investment in yourself. You have a skill that you excel at, and you should continue to learn and grow and be more excellent at that skill, whatever it is. Invest the time you need to learn the latest technology or techniques in your field. Get to know people who might use your skill or you might consider as a vendor or supplier of materials.
This budding business is part of you, and you have to have a love and passion for it to succeed, or there is no point in doing it. You might as well skip this part and focus on the rest of it, because a negative or fearful attitude will actually dig your net-worth hole deeper in the long run.
#5. Stay the course
Whatever plan you have in place, don’t waver from it just to take advantage of some trendy or fad opportunity that may present itself to you. Whether you start a business or not, if you stick to these steps, you will find yourself a millionaire more quickly that you realize. The keys are focus and discipline. Your money does more good when it is focused, and when you are focused on each step and not on the money aspect, you will find that money comes your way in more abundance that the math looks like it should.
Don’t do these steps concurrently. Focus your energy on each step as they come, but then when you are at this step, don’t change the plan. And don’t suddenly start frivolous spending on new cars or house remodels that aren’t necessary. As long as you stick to these steps and remain consistent in saving and investing, you can become a millionaire before you know it.
Jon writes at Penny Thots, a personal finance blog that talks about all things personal finance. The goal of the site is to improve your finances one day at a time.
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