The Secrets to Become a Millionaire

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I live about 20 miles from work and spend about 1.5 to 2 hours in traffic a day. If it weren’t for audio books, I wouldn’t be the happiest camper. (On a side note, the average commuter stuck in traffic is more stressful than fighter pilots!) One morning when the carpool zipper lane was closed, the 4,000 extra cars in the regular lanes compounded the traffic doubling commute times. That day I couldn’t help asking, wow, is everyone doomed to this for the rest of their working careers? Day in and day out people go to work to make money, come home to family, sleep, and then start it all over again. What is the purpose? Regardless of what you think of wealth, people want it. They want to be financially comfortable. They want to become a millionaire so that they can work less, have more fun, be with their family, or devote more time to a cause they believe in. 

The adage that the rich grow richer and the poor go poorer is misleading. It denotes that the rich are getting richer at the expense of the poor, which is not exactly true. The rich get richer because in many cases they understand how to make smarter financial decisions and take advantage of market conditions. When the 2008 crisis started, people who had money swooped in to buy real estate and stocks at an all-time low and have increased their net worth considerably. Sometimes it is a matter of SMART financial planning, SMART investment planning, SMART tax planning, and much more. Here are some tips that the wealthy use and you can too!

  • CASH FLOW, CASH FLOW, CASH FLOW. What are is your income and what are your expenses? Spend less than you bring in. Whatever stage you are in life, watch this number like a hawk. If income goes down, bring your expenses down. If income goes up, try to keep your expenses the same. Live in your means, not beyond it. Even look for investments that have good cash flow. Some of the wealthiest invest in master limited partnerships (MLPs) that generate strong yields and cash. MLPs like REITs pay no taxes. Many have beaten the S&P 500 and concentrate on many sectors.
  • Stay out of bad debt. The reason why some financial institutions and lenders become wealthy? Because they borrow money at cheap rates, and lend it at higher rates, making the difference. What a great way to make money! Interest is one of the top expenses for households. Imagine putting that interest towards investing and savings! Not all debt is bad though. Some debt can be good, especially if you are able to use it as leverage to create more assets. That is the key, debt should only be used to multiply or add to your assets, not subtract from it.
  • Educate and emulate the strategies of the wealthy. Maybe not how some flaunt it around for everyone to see, but how they invest, what they invest in, and the strategies they use. Some use corporations as a way to write off expenses and lower their tax burden, some use trusts to protect their money, and some use insurance to reduce personal income taxes and delay their tax bill. The wealthy don’t pay unnecessary taxes so they can have the money working for them now. Get a mentor or do some research. There is plenty out there but make sure you don’t fall into a get rich-quick scheme.
  • Invest It. I had a banker friend tell me that his top 30 clients had over 50 million in cash. When offered a chance to invest it, they refused. While they may not need the money, it is unwise to not invest it, especially to beat inflation or if they want to pass it down to their children. The greatest risk people face now is longevity, outliving their money. Investing it helps keep the money appreciating, it helps beat inflation, and over the long-run, compound interest kicks in, creating a huge growth in assets. Don’t put it under the couch, but don’t invest it unwisely either. Make sure you have a good asset allocation and diversify! Buy investments that you don’t plan on selling for a long-time. If you haven’t started, do it today. The best time may have been in the past, but the second best-time is today!

time money compoundTime investment

  • Put Money In Qualified Accounts. Use your 401(k), IRAs and other retirement accounts to work for you. They grow tax-free, and depending on the type you have, the withdrawals can be tax free or the contributions deductible.  See the chart below for the big differences!

taxdeferred growth

  • Start Your Own Business. Almost all of the 1,426 billionaires made their money through starting their own business. Taking risk is something that successful people do, but they take smart educated risks. Whether it be a side business, a business after retirement, or something that you want to do full-time, starting a business is the number one way to become a millionaire. It isn’t easy, which is why not many do it. But if you follow your passions and can make money do it, the sky is the limit!

Feel free to leave comments on your tips to become a millionaire! The top comments will be updated in the blog!

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