How can I build wealth to become a millionaire?
Any day is a good day to start building your wealth so why not start today? Little steps add up to big results so the sooner you start, the sooner you’ll reach your financial destination. Remember that classic fable about the tortoise and the hare? The way it’s told, the tortoise won because ‘slow and steady wins the race.”
It’s a cute story but if you really think rabbits and tortoises talk to each other we probably need to find you a good therapist. The point of fables, of course, is to teach lessons and not get hung up on whether rabbits and tortoises are buddies. Taking what we can from the tale, when it comes to building wealth, I think it works best to combine the two. Be a little tortoise, a little hare. Your slow and steady tortoise wealth-building is built on the Roth Individual Retirement Account (IRA). If you don’t already have a Roth IRA, today is a great day to open one and here’s why:
- Some day you want to be able to play and not work at all.
- It’s very difficult to save enough to live on just your savings for an uncertain amount of time so you need to save and invest.
- The sooner you begin savings and investing, the bigger the impact you can make because the growth of the investments begets more growth and it’s this wonderful concept called compounding.
- All the growth from investments inside of the Roth IRA is tax free. When you reach your permanent play date and start spending that money, you owe no taxes on it.
- The sooner you start, the more time you have to experience the growth, the more you’ll have to spend tax free.
Now we have your tortoise-wealth covered. With automatic payments that get automatically invested you will be building wealth while you sleep – how nice is that? For some of you, that’s all you need to do. If, at age 22, you invest $5,500 each year in diversified portfolio within a Roth IRA, that money can grow to $1,015,522 by the time you are 60. (assumes 7% rate of return) Voila! Millionaire! And that million dollars is tax-free.
Let’s move on to the hare. What if you want to move a little faster? Great. First thing you need to do is save more; in addition to the Roth IRA, if your employer has a 401(k) retirement savings plan, you can set aside $17,500 (in 2014) of your earnings each year. Invest it like you are investing your brand new Roth IRA and you’ll be a millionaire by the time you are 43. Gagging on trying to figure out how to set aside $23,000 a year? Start smaller and then increase your salary deferrals to the 401(k) a little bit each year until you are maximizing your retirement savings opportunities. Instead of 43, you might join the M Club when you’re around 50.
Need other options? Here are a few – let me know if any of these work for you:
- Get a job in the oil fields. Tough work, long hours, but pretty darn lucrative. Head to North Dakota and you can bust your tail to become a Bakken millionaire.
- Hit a home run in high tech. Maybe you missed between part of Google, Facebook, or Twitter but there are still plenty of high-tech (rocket) ships that are going to come in. Do your research and figure out where you’ve got the best shot.
- Enter a profession that pays extraordinarily well. Surgery and petroleum engineering are a few current options you could choose.
- Start your own business – my personal choice!
Start Your Own Business
According to the authors of The Millionaire Next Door, business owners make up a sizable chunk of today’s millionaires. If you have an idea for a product or service and you aren’t afraid of hard work or long hours, consider launching your own business. I’ve founded several successful businesses (and one not-so-successful one – it happens). My husband has started multiple successful companies as well. It’s not for everyone but it has worked well for us. It’s kind of scary, and don’t kid yourself, the hours will be long and you may have to be really, really poor for a while before business takes off but you will find it rewarding in so many ways.
If starting your own business is appealing:
- Research your product or service idea. Read, talk to people, read some more and talk to more people. One book I recommend is Blue Ocean Strategy (Kim & Malbourgne). It encourages you to think differently and when you are just starting a business, it’s inspiring. Make sure to spend time validating your idea. And don’t just talk to people – listen!
- Figure out how to finance your business. Banks don’t really want to loan you money unless you don’t need the money so skip that route. Realistically, it’s a good idea to keep your day job for a while until you get can your business past the ‘proof of concept’ stage. If this isn’t possible, then save as much as you can before starting the business. Scale back on your expenses in every other aspect of your life. Plan to make your savings last a lloonngggg time.
- Prepare a business plan with budgets. Then, take the numbers and double all the costs and cut in half the revenues. It’s still probably not realistic but it’s a start; everything takes longer and costs more than we think it will.
- Hang out with can-do people. Avoid no-can-do people. I had the opportunity to hear Peter Diamandis speak. If you ever get the chance, I recommend you jump at it to hear him. He’s incredibly inspiring and if you’re an entrepreneur, his message about a world of possibilities is motivating. I was so motivated I bought his book, Abundance and stood in a long line for him to sign it. That’s a first for me. I figured after giving a big keynote speech and signing many books, he’d probably be harried and not say ‘Boo’ when I reached him. Boy, was I wrong. He was friendly, warm, and engaging. We talked and I shared with him my dream to help every young adult in America understand how to achieve financial success. He was so encouraging. He leaned in and said some people call him an overnight success but it actually took 10 long hard years to get XPrize off the ground. If you truly believe something is worth doing, stay with it.
There are as many paths to financial success as there are ways of defining it. We’ve been looking at different ways to fulfill that childhood dream of becoming a millionaire. Whether or not being the next Thurston Howell, III is truly your goal, building a financially successful life is attainable. You now have your Roth IRA off and running and that is great start. And remember, as you build your wealth, share it! You’ll be that much richer.
Questions? Thoughts? Comments? Share ‘em!