As the old saying goes, it takes money to make money. There's no denying a bit of extra cash affords you money-making opportunities less fortunate people just don't have. It is possible, however, to start with nothing -- or even start out in debt -- and still become a millionaire. It just takes more time and effort.
With that as the backdrop, here's a rundown of the five most important and most actionable steps anyone can take right away to begin their 20-year journey from being broke to having $1 million in savings. Notice that saving money is just as important as earning it -- as long as money that's saved is put to work in constructive ways.
Pay off your (most expensive) debt
It's painfully obvious but needs to be said all the same: The financial damage that debt can inflict is far greater than any investment gains you may be able to reliably achieve on a comparable amount of capital. You can count on paying interest on money you've borrowed, but you can't rely on money you put at risk in search of growth generating consistent returns -- or even any returns at all in the short run. .
This isn't an absolute. Some debt makes good sense. Mortgages on personal residences, for instance, tend to be offered at lower rates and are used to purchase an asset that increases in value over time.
Other debt, however, can be shockingly destructive. And credit cards can be the worst. For perspective, making the minimum payment on a credit card balance of $5,000 carried at a typical interest rate of 16% will take 22 years and a total of $11,126 to fully pay off.
Before doing anything else, do whatever it takes to get the high-interest "debt monkey" off your back.
Take advantage of employer contributions to workers' retirement accounts
Not every investor will enjoy this option, but employees of companies offering 401(k) plans and SIMPLE IRA plans will be pleased to learn their employer is handing out free money in the form of retirement plan contributions. For SIMPLE IRAs, companies can match an employee's contribution up to between 1% and 3% of his or her total earnings. For 401(k) plans, a company can match as much as 100% of an employee's contribution up to a limit calculated as a percentage of his or her salary. These contribution schemes can vary widely.
Unfortunately, many employer-sponsored retirement plans chip in nothing. You'll have to check with your company for the specifics.
Put $1,500 into the stock market...every month
Assuming an average 9% return on stocks, an investment of $1,500 each and every month for the next 20 years should grow to just a little over $1 million. That's the power of compounding investment returns.
It's probably a daunting figure for the typical investor. The Bureau of Labor Statistics says the average worker in the U.S. makes on the order of $50,000 per year, while the average household annually earns less than $70,000. After taxes and the bills incurred just by living life, there's rarely $1,500 per month left over.
Don't sweat it too much though. You may not have that sort of disposable income right now, but you'll likely be earning more later. Besides, the next two steps both steer you toward greater disposable income sooner than later.
Buy a home, and then live in it for the long haul
Admittedly, it's not a plan that works for everyone. Some younger workers may need to accept another job offer in another place. In some markets, homes are prohibitively more expensive than renting an apartment is.
For anyone willing and able to stay put for a while though, home ownership can be a savvy financial move.
Sure, there's the whole "building equity" thing. That's nice. Real estate also tends to increase in value over time. Even if its price growth isn't consistent, home prices increase in value at a pace of about 4% per year.
That's not the only or the biggest upside of home ownership, however. A largely overlooked nuance of a mortgage payment is that while home values, prices, and incomes rise during the life of that mortgage, the payment on a fixed mortgage stays the same throughout the lifetime of the loan. Resisting the urge to upgrade your home -- and pumping up your monthly payment as a result -- can prove to be its own kind of windfall. This alone could eventually produce the aforementioned extra $1,500 per month to sock away in the stock market.
Start a side hustle you love
Finally, there's a lot to be said for starting a side hustle. Generating an extra $1,500 with it every month is certainly possible.
Side hustles can just be second jobs. But I think starting an actual business has greater upside.
However, to be successful, I think a side hustle business has to meet three conditions. First, it's got to be something you love doing. Second, it's also got to be a legitimate business; merely finding people to do your hobby with you isn't a recipe for success. And third, it's got to be a business that's simple and cheap to run, and scalable with no extra cost or time.
If any one piece of that triad is missing, a part-time entrepreneurship will never quite thrive. The good news is, most everyone's got some sort of passion they can monetize from their kitchen table a couple of times a week.
And a smart side hustle can certainly be worth the time and effort. While most hustlers only earn a few hundred bucks a month, some make well over $1,000. The bigger earners, of course, take their small businesses pretty seriously.