How I plan to become a Millionaire

J. Money over at Budgets are Sexy has a challenge that I found on his site, it is the Million Dollar Club- and he has lots of Personal Finance Bloggers who have posted how they plan to make a million dollars.

I thought to myself, “I plan on being a millionaire, I should post about it…” so today I will share how I plan to become a millionaire. This isn’t just about me though. If you do these same things, you too will become a millionaire.

The old “how to become a millionaire” question is quite simple to answer – even a person making a modest income their entire life can become a millionaire by simply saving and investing a big enough chunk of their income over a long enough time period.

I plan to use a combination of increasing my professional income via my career, running successful businesses, and saving to become a millionaire.

Currently, I put aside 5% of my salary to a 401k with a company match and plan to save at least an additional 10% of my wife & I’s salaries each year. Assuming modest salary growth, this alone should give us a $1 million dollar next egg by age 65.

Of course, I want to get to $1 million a lot sooner than age 65.

As it stands, my wife & I’s net worth is approximately $0. We have quite a bit of stock and savings, but also have quite a bit of debt. Also this year, our businesses were in the negative by a few thousand dollars.

However, next year we will be paying down this debt and ramping up savings, which should allow us to grow our net worth to over $30,000. Plus, our businesses should go from the negative to the positive. Being 26, I feel that this is a pretty good base to go forward from.

NOTE: My home is the only non-cash/stock asset that I include in calculating net-worth. I do not include vehicles, furniture, etc – and I include every debt.

My goal is to be a millionaire by age 40. So how do I translate a “good base” to start from into $1 million in the next 14 years?

I recognize that I won’t get rich being an employee, but I still plan to grow my career because this combined with avoiding “lifestyle inflation” will allow me to increase my savings exponentially. With increased savings, I can invest more into businesses. With bigger and more successful businesses, I can dramatically grow my income in a relatively short amount of time.

Owning your own business is the key to building real wealth over a modest time span.

Let’s say that we grow our income by 10% per year, while our annual expenses only increase by 5%. We save $30,000 next year, $35,000 the next, $40,000 the year after that, and on and on. In 10 years (4 years shy of my goal), we will have a net worth of over $1 million – assuming a 6% annual return.

Is this realistic? Soft of - here’s how:

This kind of steady income and expense increases aren’t likely. Real life just doesn’t work like that. Sometime within the next 5 years my wife & I will be having kids, and getting a bigger house sometime in the next 10.  Assuming only modest salary increases, the 10% annual income growth will have to come primarily from the businesses – again, not likely to be quite the steady progression that I’ve laid out.

Regardless, the real key is to get our annual household income over $100,000 (after taxes) within the next 5 years while keeping our expenses relatively low. At that point, we’ll be able to save and invest a significant portion each year. Saving $40 – $50,000/year will make it pretty easy to get up to $1 million by age 40.

Related posts:

1. Debt is a Tool – It’s Not Evil or Bad!
2. The Five Key Factors that I Consider in Stock Investments
3. Why Contribute to Your 401K if You Want to be an Entrepreneur
4. Return on Investment (ROI) on Everything in Life
5. The High Cost of Instant Gratification & Entertainment Today

Tagged as: About Me, Build Wealth, Career, Millionaire, Personal Finance, Save Money, Young