Lots of people dream about becoming a millionaire and “living the dream”, but only a relative few do anything about it. Today roughly 8.5% of American households are millionaires. While that’s up significantly from the 3.5% in 1996, I personally would like it to be much much higher. That’s why I’m writing this blog. To help make more millionaires and help people enjoy more freedom in their life.
Quite a few people have a warped view of wealth. They either believe they will never have it, or they believe it is bad. Both of those views of wealth are broken. Attaining wealth is a good and worthy goal. And guess what, wealthy people can help more people than poor people can. So if you have a choice of being wealthy or not being wealthy, why not choose wealth?
Now, in talking with many of my friends, I’ve realized that quite a few are just stuck. The idea of being wealthy or being a millionaire is a bit unrealistic to them, as it was for me until I turned 26. At 26, the lights came on, and I set off to become a millionaire. Now, 20 years later after I made it, I’ve come to understand that sometimes all people need is a little prod, a little knowledge, and a plan.
Too many of us spend our income wasting it away on frivolous things. I’ve been as guilty as anyone, but fortunately, I put a ton of money back as well. I started investing at 26. $500 a month into mutual funds and dabbling in stocks like Intel, Dell, Nvidia, and others. I made some decent money for a young guy making $40,000 a year, but I should have and could have done better.
I’m a numbers nerd, so understanding how it all works comes pretty easy for me. Now I want to make it a bit easier for you. Let’s get started.
A Spending Plan (a.k.a. Budgeting)
If you want to build wealth, you have to get your spending under control. Planning your spending intimidates a lot of people. That’s why “budgeting” is such a dirty word for a lot of people.
Now you can do a complicated spending plan if you want to, but a simple one can help get you on track for building wealth. You can count the pennies and nickles later to fine tune your spending plan.
Break your money down into 4 categories.
- Living Money: Money that you need to support your basic lifestyle. This includes housing whether you are renting or buying a house, food, utilities, car, insurance, clothing, education, and medical.
- Play Money: This includes the things you do to make life enjoyable. Date nights, gym memberships, hobbies, vacations, a four wheeler, a boat, etc. Generally you could call this “the perks of life” category. You have to have some play money in your life of you’ll dry up and become miserable. However, you have to be balanced as well. Put too much money in this category and you’re wealth plans could be toast. Quite a few formerly rich people have put too much money in this category only to see all of their wealth go up in smoke. Don’t make that mistake as you are trying to build your wealth.
- Wealth Money: Now as you can guess, this is the most important category for someone wanting to become a millionaire. This is the category that is going to determine if you become a millionaire, and if so, how fast. The more money you can get into this category on your spending plan the better. We use this category in a couple of ways. If you’re in debt, you need to get out as quickly as possibly. Debt will rob you of your ability to build wealth. We use this category to accelerate paying off your house if you want to do that. Third, we use this category for investing. That’s what most of this post is about. Wealth Money.
- Other Money: This is anything that doesn’t fit cleanly in one of the other categories. It includes things like birthday gifts, church tithes if you attend a church, Christmas presents, and things like that. Generally things in this category aren’t required to do and the amounts may vary quite a bit. You have wiggle room to adjust things a lot in this category as long as you don’t leave off your mom or spouse’s birthday.
Now I’m not going to cover the spending plan in today’s post. I’m going to only focus on the wealth money part of your spending plan. If you want to be wealthy, you have to put as much money into this part of your spending plan as fast as you can. Wealth can be built really fast if you’re a .com startup like facebook, or it can be built over time. The most common way to build wealth is over time through good financial decisions and investments.
Wealth Money. So many people miss building wealth because they are busy spending their money on lattes, cable and new cars when they could be building wealth. I like to keep things simple…well, that’s exactly not true. I like complicated things, but sometimes things can be simple. We just over complicate them. Building wealth doesn’t have to be complicated. In fact, it really isn’t complicated. What do I mean?
Take $10,000 for example. It’s a simple number. It intimidates a lot of people. Have you ever held $10,000 cash in your hand? Try it. It’s pretty cool. Once you hold it, $10,000 doesn’t seem like a big number anymore.
Now, if you take $10,000 as your base investment number, what happens is pretty interesting.
- $10,000 over 20 years becomes $67,275
- $10,000 over 30 years turns into $175,000
- $10,000 over 40 years turns into $452,000
- $10,000 over 50 years turns into $1,173,000
- $10,000 over 60 years turns into $3,044,000
- $10,000 over 70 years turns into $7,897,000
These numbers are all based on a 10% rate of return which is an acceptable and available rate of return in the mutual fund and stock market. With the right investment, you can beat 10% and build even more wealth. I like using the 10% number because its simple to calculate, understand and readily available. Let’s go with it.
Now, you may be saying “Where do I get $10,000?” or “Are you kidding? I’m 45. No way I’m going to be wealthy. You just proved it to me.” Scrap those thoughts. Wealthy people all have one thing in common. When they run into problems, they figure out a way to deal with them. So what if you don’t have $10,000 right now, figure out how to get it. So what if your 45, find a way to increase your income and make up for lost time. Heck. Colonel Sanders started KFC in his 60s. Most people are retiring in their 60s. He was just getting started! $10,000 isn’t that much money when you break it down. $10,000 spread out over 1 year is $833.33 a month. Now how can you find $833.33 a month? There are tons of ways. At $10 an hour, it’s only 80 more hours of work a month. 20 hours a week. Or if you work at Costco and make $15 per hour, it’s 56 hours. Find a way. Don’t stop looking until you find a way.
As part of your spending plan, put as much money as you can into that wealth money category. In fact, scale everything back that you can until you hit a really good wealthy money number. If you can’t get to $10,000 year, start with what you can, then work towards $10,000 year as fast as you can. Once you hit $10,000, see if you can multiply it. Can you get to $20,000? Always up your goal. The more wealth money you can sock away, the faster it will grow. The bigger it will grow. Your first stop on this journey is the millionaire milestone. Once you do that, you’ll dream even bigger. You can do it.
Now, your homework. Play with your own wealth money numbers. Take that $10,000 and multiply it. What if you did that every year for 30 years? Well, I’ve already done the work for you and I’m including it in this post. Dream big! The more wealth you create the more good things you can do in this world, and guess what, it’s a lot more fun too when you have some wealth. I love traveling and I’ve got a long bucket list of places I want to go.
You’ve Got Your $10,000 Investment Money
Congratulations. You’ve figured out how to get your hands on $10,000 to invest. Now what do you do with it? You invest it. Where you say? Great question.
You can invest in a multiple of ways, but if its your first $10,000, you should probably play it a little bit safer. Stay away from single stocks. Mutual Funds are a better investment for you. Your first investments should go into your 401k or a Roth investment usually through your workplace. Even inside of those investment tools, you want to make sure you pick the right investments. Again, you’re looking for investing returns of 10% or higher for over 10 years.
Outside of your workplace, you can invest through an financial advisor or you can go direct to some of the best mutual providers like Janus, Fidelity, Oppenheimer or Vanguard. They have research tools that help you select funds. Again, you want funds that return 10% or more over the long haul. That’s averaging 10% growth per year over 10 years or longer. You can also use Morningstar.com to help you with your research.
Find a solid growth stock mutual fund at 10% or more and there you go. You’re off to the races. Oh, and one more thing. Don’t freak out if the stock market and your mutual fund drops. You leave your money in. The people that freak out and pull their money out, lose. Only take money out at retirement (59 1/2 years old) and preferably only when the market is up.