5 Realistic Ways to Make Your First $1 Million
At first glance, building a net worth of $1 million might seem unattainable, but it's more realistic than you think.
At first glance, building a net worth of $1 million might seem unattainable, but it's more realistic than you think. In fact, you don't even need a winning lottery ticket or a trust fund to join this exclusive club.Your annual income certainly plays a role, but the way you allocate your funds actually matters more than your salary. When properly planned, a solid work ethic, responsible spending habits and savvy investing can grow your fortune to $1 million -- and far beyond.Related: The Best Career Advice From Bill Gates, Mark Zuckerberg and Other Billionaire College DropoutsAchieving this goal will require you to make some sacrifices, but the feeling of financial security is priceless. If you're serious about becoming a millionaire, it's time to start making some major moves. Craft a solid game plan by incorporating some -- or all -- of these 12 tips into your lifestyle and get on your way to making your first $1 million.
1. Boost your profit margin.
A profit margin isn't strictly reserved for businesses; it also applies to you. "By increasing the gap between what you earn and what you spend, you end up with a profit in exactly the same way a business earns a profit," said J.D. Roth of personal finance blog Money Boss. "This profit can then be used to pursue your long-term financial goals."To specifically reach a million bucks, you'll need to boost your savings rate substantially more than the normal five percent to 15 percent, said Roth. He suggested saving half of your income, and noted that you'll have to make hard choices of deferring present spending in exchange for future financial success. For two-income families, he suggested choosing to live on one income, and saving and investing the other salary.
2. Start with $10 million.
"Start with $10 million" is actually a joke, and it reflects how our brains tend to trick us into doing the wrong thing when investing. The best way to circumvent our "inferior mental angels" is to learn about investing, create a plan and stick with it.Our psychology often works against us, said Kirk Chisholm, principal at Innovative Advisory Group. It's not difficult to make a million with investing -- if you start young enough and avoid psychological pitfalls, such as following the crowd.Avoid trading in and out of your investments. Create a sound investing plan, invest through thick and thin and over time you can become a millionaire. Those who buy and sell more frequently tend to underperform compared to those who buy and hold, according to Vanguard Research.
3. Turn your passion into a business.
Passion alone won't make your first million. There's no substitute for luck and flexibility. "Find something you are truly passionate about, become the authority and make a business out of it," said Joseph Carbone, wealth advisor at Focus Planning Group. "Not only will you be happy, but you probably will be very successful."Related: How Richard Branson Built His $5 Billion FortuneThe Chipotle story illustrates this. After finishing culinary school in 1993, Chipotle founder Steve Ells was excited about starting a fine-dining restaurant. Lacking funds for the upscale place, he took a small loan from his father and opened his first Chipotle, to raise money for his exclusive restaurant. After selling 1,000 burritos in the first month, his passion for cooking veered from a high-end restaurant into a successful path to wealth, with the popular Chipotle Mexican Grill restaurant chain.Furthermore, expect to fail along the way. Don't be surprised if there are some
4. Invest early.
Getting rich can be a matter of mathematics. It's well documented that investing in the stock market over many years, reinvesting your dividends and letting that money grow and compound can make you a millionaire. But it's also a matter of knowing how much to invest, in what types of mutual funds and for how long.
You can find out how much you need to invest, for how long and at what return with a simple calculator. Todd Tresidder, former hedge fund manager and owner of wealth-building website Financial Mentor, developed a calculator to help with this. For example, you can calculate that if you invest $500 per month in a diversified stock market index fund -- such as the Fidelity Total Market Index Fund -- and earn an average 7 percent return 00 assuming a 2 percent inflation rate -- you will be a millionaire in 36 years.
If Henry starts at age 25, by age 61, he'll be a millionaire. If he starts later, he'll need to save and invest more. If Henry chooses lower-return investments, such as money market funds or certificates of deposit (CD), he'll have to save thousands of dollars more to compensate for those investments' lower annual rates of return.
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5. Be patient.
Regardless of the path you choose to get rich, it will take time. Investing in the stock market takes years for your money to grow and compound. Starting a business and nursing it to success doesn't happen overnight. When it comes to the math of compounding returns, the greatest financial growth occurs in the later years."Making your first million will often take longer than making your second," said Daniel Zajac, certified financial planner and partner at Simone Zajac Wealth Management Group, and founder of the blog Finance and Flips Flops. "Whether it's through building a business, or years and years of saving, the first million is often the hardest. Stay committed, stay patient and keep your eyes focused on the goal."Don't let the initial slow growth through compounding or the pitfalls of starting your own business thwart your long-term wealth aspirations. Fear and impatience can be your worst enemies when