3 Simple Steps to Becoming a Millionaire

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There's little magic involved in becoming a millionaire. It's more about discipline.

Key points

  • Becoming a millionaire involves a simple formula.
  • Building wealth is a matter of making tough, everyday decisions.

Approximately 13.61 million households in the U.S. have a net worth of $1 million or more, excluding the value of their primary residence. Of those, about 20% inherited their money, so we'll knock them off our stats. That leaves over 10 million households who found a way to make their own million(s). They're the folks we're going to look at here. How did they do it?

Here's what we know about millionaires

Most people don't win the lottery or start a Fortune 500 business. Most people who end up with a million dollars in their bank accounts and investments did it the old fashioned way. They came up with a straightforward plan and stuck to the script.

And here's the script: Earn more than you spend (no matter how much that is) and faithfully invest the difference.

Ideally, you will put 15% of your take-home income away each month. Even if you have to start saving 5% (or less), the goal is to build up to 15%. Let’s take a closer look at the three steps to becoming a millionaire.

1. Build an emergency savings account

According to HealthCare.gov, fixing a broken leg can cost up to $7,500 – and that's if you don't need surgery. Whether you have health insurance, paying your portion of the medical costs upfront is less expensive than charging the amount you owe and paying it back with interest.

The same is true if your employer lays you off. Having money in emergency savings for such an event means not borrowing to get by.

2. Earn more than you spend

If your goal is to become a millionaire, it's the seemingly inconsequential decisions that have the biggest impact. You can earn several hundred thousand dollars a year and make so many poor, small decisions that you end up with nothing invested for your future. Or, you can earn a modest income and through frugal spending, stash away a healthy chunk each month. It is genuinely up to you.

If you're fighting debt

If you're paying off one or two high-interest credit cards, double down on payments, even if it means cutting your budget somewhere else to do so (more on this in a moment). If you're buried in debt, it may be time to work with a non-profit debt counseling service. Not only will a great counseling service work with your creditors to come up with a repayment plan you can stick to, but they will help you understand why the debt grew so large in the first place.

READ MORE: Credit Card Debt: What You Can Do to Get Out

If you don't earn enough

We understand that saving and investing 15% of your pay each month is a big deal. And truly, if you start out saving less, that's okay, as long as you keep your eye on the ball and work up to 15%. What do you do if you don't earn enough? We're going to get real with you here: You'll need to make tough choices.

Earn more

If your current job does not pay enough, ask for a raise. If the answer is no, look for a job that pays more. Suppose you need additional training to land your dream job. In that case, you can complete a free online certification in a wide range of studies through platforms like Udemy, Udacity, Coursera, and edX. There are also inexpensive courses available (costing as little as $100). If what you need to move into a higher-paying position is more training, it is available.

Spend less

Rather than cut an expense completely, why not minimize it? For example:

  • Shop around for a lower insurance rate. If you haven't checked out your insurance company's competition lately, now is the time. Premiums vary by company, and you're likely to find the same coverage at a lower cost. Remember to look into bundling policies.
  • Switch from expensive cable or satellite service to the streaming channels you'll actually watch. Netflix and Hulu are a great place to start.
  • Eat at home more. Why pay a chain restaurant to warm up food that you could easily warm yourself at home? For those of us who loathe time in the kitchen, meal prepping over the weekend makes life easier.
  • Cut anything you don't use, like gym memberships, magazine subscriptions, gift box subscriptions, and streaming music.
  • Pay less for clothes by buying from online resellers.
  • Buy fresh bread, fruits, and vegetables from a local farmers market rather than the grocery store. The prices are lower, and the quality is higher.

3. Faithfully invest

Once you begin to invest, your money benefits from the power of compound interest. This is the easiest way to get started:

  • Put as many pre-tax dollars into your employer's retirement plan as possible. Not only will you save on taxes now but you'll thank yourself later.
  • Your company's retirement plan may offer free financial planning services. If they do, take advantage of it. If not, consider paying a financial planner an hourly rate for help mapping a plan that works for you.
  • Don't let it stop you if you don't have a company retirement plan. Work with a stock broker to open an IRA or other retirement plan. If you're self-employed, you have several great options, like the Simplified Employee Pension (SEP), Solo 401(k), and Savings Incentive Match Plan for Employees (SIMPLE IRA Plan).
  • No matter what happens, give your investments time to grow. There will be great years, and there may be terrible years. Treat them all the same. It's during downturns in the market that you can scoop up bargains and increase the value of your portfolio.
  • Think like a millionaire. When other people upgrade their lifestyle with every raise and bonus, use your extra funds to build wealth.

In a nutshell, becoming a millionaire is more about choices than luck. Building wealth of any kind boils down to the decisions you make each day. Today would be a great time to get started.

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