Did you know that only 20% of the millionaires of the world have inherited their wealth? The rest, 80%, made it to the top on their own. And it makes you think if they can, why can't you?
If you also aspire to be a millionaire, then this article can help you in making your dreams a reality, presenting you the most effective steps that can help you get closer to becoming a millionaire!
Disclaimer: We do not guarantee that the reader will become a millionaire. The following steps are part of suggestions on effective financial planning, and the result depends entirely on how they are implemented.
Steps to become a Millionaire
How can you expect to be a millionaire when you don't even have solid financial planning in the first place? Therefore, the first and foremost step of becoming a millionaire should be to build a financial plan. The simplest way of doing so is to analyze the risk to reward ratio.
A wise person always tries to earn the highest possible returns by taking the minimum risk. If you just keep on running after risky projects in the hopes of high returns, you might end up losing your investment too! Hence, it's better to compare all the financial alternatives and then choose the most suitable one.
Let's take an example to understand it better:
Debt Mutual Funds are relatively less risky than stocks; however, they offer around 6-10% returns. Index Funds are the least volatile funds among all equity schemes are regarded as the safest. Some mutual funds even offer more than 20% returns!! Sounds thrilling, right?
So, decide considering the desired returns and the risk involved.
If you don't know how to be a millionaire, then research about them. Research about their lifestyle and their routine. You will observe that the majority of them read consistently, proving that "Leaders are Readers." Besides this, they also maintain a healthy lifestyle to keep themselves fit. One thing that differentiates them from others is their habit of getting adequate sleep and waking up early.
After observing them, try to implement them in your life. You will find an enormous difference over time, which will help you in fulfilling your goals.
If you get a chance to own shares of the company you’re currently employed at, then think thrice before refusing it. Why be an employee when you can become the boss?
Owning equity shares will motivate you to work for yourself. Even when you are not working, you can get returns by way of dividends and capital appreciation. If your company is unlisted but has become an established brand like Byju's or Zomato, don't commit the mistake of refusing or selling the shares. You will remember this the day they become public.
As rightly said by the Father of Value Investing, Benjamin Graham, "Successful investing is about managing risk, not avoiding it."
Investing is the skill of allocating your savings in different financial instruments like shares, bonds, mutual funds, real estate, etc. It is one of the most effective ways of earning smart money, and if done right, it can even pave the way for the investor to become a millionaire!
Building the correct investment portfolio will help you get more returns than you get through banks, all while minimizing the risk. Besides letting the principal invest, you should also re-invest the returns instead of withdrawing them. This practice will help you to attain the results of compounding.
Have more than one source of income
In this uncertain world, merely having one source of income may be enough for your survival, but it’s not enough to become a millionaire. Besides having an active, regular income, an individual should also earn passive income.
You can invest in real estate to get rent, stocks to earn dividends, do affiliate marketing to earn a commission, etc. Having an additional income source can supplement your income without much effort.
Borrowing money should always be treated as the last option in order to properly manage your finances. If the debt is uncontrolled, you may have to live in debt forever. Failure to pay the debt in time will make you borrow more, further increasing the interest to be paid, which can ultimately lead you into a debt trap.
Avoiding unnecessary expenses and comparison
Have you ever noticed the way top-tier billionaires like Mark Zuckerberg and Bill Gates dress? Rarely seen in fancy clothing, they can often be seen in a simple t-shirt/shirt and jeans.
On the other hand, there are some people who are obsessed with looking rich to such an extent that they even borrow money to buy luxuries! Instead of incurring such wasteful expenditure, it is better to make a budget and save money for your future. The amazing 50/30/20 Rule can be your guide in doing so. Always remember, your goal should be to become a millionaire and not to look like one.
Another trend emerging due to the increased popularity of social media is the comparison game. People tend to compare themselves with the “social media influencers” and want to live like them. What they fail to realize is that very often, these so-called influencers are actually getting paid to influence people.
Working with a finance professional
The best way to understand the thought process of professionals is to work with them. If you find it difficult to manage your finances, you can render the services of a financial planner to help you design your financial plans.
For becoming a millionaire, a proper financial plan is a prerequisite. For building it, you should consider the various investment options by comparing each of their returns with the risks involved. Researching about millionaires and learning from their lifestyle will make you want to live like them and take you one step closer to your goal.
Also, one must also understand that health is the most neglected but the most crucial aspect of life. “People who sacrifice their health to earn money have to spend it later for their health.”
Owning shares of a company you work at makes you the part-owner of that company, besides being an employee, which further increases your productivity and satisfaction. Even if you don't get the shares of your company, you should invest in other companies. To make your goal easy to achieve, you should also re-invest the returns you get from your initial investments. It will diversify your portfolio and enable you to earn passive income.
Debts and unnecessary expenses should be your enemies and be avoided as much as possible.
Remember, "If you are BORN poor, it's NOT your fault. But if you DIE poor, it's your fault".