So, you want to know how to make a million dollars? Great question.
It might surprise you to learn that there’s actually a formula for achieving that goal. Most people don’t realize that the only thing you need to do to be successful is to model other successful people’s actions.
If you take notes on the patterns and behavior’s that rich people take in their lives, you’ll start to see common threads emerge.
Millionaires have a different approach to how they handle and manage money. If you model what they do with it, then you can follow the same financial path, and hopefully produce similar results.
In this article, we’ll unpack some basic strategies than over 90% of wealthy people use to get rich.
Adjust & Account for Your Spending Habits
- 1 Adjust & Account for Your Spending Habits
- 2 Clear Your Debt
- 3 Start Forced Savings Programs
- 4 Add Extra Income Streams
- 5 Invest in Yourself
- 6 Start Investing Early
- 7 Invest in Rental Real Estate
- 8 Start or Buy a Business
- 9 Wrapping Up – Build a Team Around You
The first aspect of the millionaire mindset is to reduce your expenses. You need to account for every dollar that flows in and out of your bank account.
By learning financial responsibility, you prepare yourself for handling the financial affairs of your estate as your wealth grows. Money attracts more money, and you’ll find that if you’re more responsible with how you handle your money, more of it will find its way to you.
Get Your Finances in Order
A financial app like Personal Capital (download for Free) can come in handy for helping you manage your financial affairs. You can build custom expense categories, allowing you to track every cent you spend, and where you’re overspending.
Read our full review of Personal Capital to find out more.
Cut back on things you don’t need in your life that offer very little value. Sure, you might think you deserve that second cup of Starbucks on the way into work, but do you need it? Can you settle on one streaming service instead of subscribing to two or three?
Identifying expenses, you can get rid of help to keep your cash in your bank account. Living a frugal lifestyle means that you avoid spending cash wherever you can. Some of the most successful people in the world don’t even carry wallets; they get everything for free wherever they go.
By being frugal, you’ll conserve your cash flow, and that’s a useful strategy when you’re starting your path to financial riches. With more money available, you can start saving and investing earlier.
Clear Your Debt
After adjusting spending habits and cutting back on non-essentials in your life, turn your attention to clearing your debt as soon as possible. Debt hangs around your neck like a stone, limiting your financial opportunity in life. Americans are now a nation of spenders, not savers, and the average outstanding credit card balance is over $6,000.
There is a good and a bad side to debt. Bad debt takes money away from your monthly income, minimizing your cash flow. Good debt allows you to buy assets that generate income, adding to your monthly cash flow position.
Funnel all of the savings you make on your cost-cutting exercise to your outstanding debts like credit cards, car loans, student debt, or your mortgage. The sooner you get debt-free, the sooner you’ll find yourself in a position to take on the good kind of debt that leads to financial freedom.
By showing the financial lenders and credit bureaus that you’re responsible with credit, you build your credit score. By the time you’re ready to start investing, you should have an 800+ score, allowing you to access the cheapest funding costs for deals.
Start Forced Savings Programs
There are many ways to start a forced savings program. By forcing yourself to learn how to save, you start to build a cash pile that you learn to leave alone.
When you have a financial crisis in your life, it comes out of your emergency fund, not your long-term savings. This structure to your savings plan, you begin to compartmentalize your finances, ring-fencing them from risk if you experience a financial disaster.
Forced savings programs can take the form of investment or savings account where you have a responsibility to put money away every month. Certificates of Deposit (CDs) are available from almost any bank across the country.
When you open a CD, you commit to paying the bank a fixed sum for a fixed period, for example, $100 over 6-months or 5-years. The banks rely on your capital commitment to bolster their cash reserves, which they lend to the public in the form of home loans or personal loans. They pay you a return for borrowing your money, and it’s usually above the inflation rate.
If you try to withdraw your CD savings early, the bank will penalize you for breaking the agreement. Therefore, it’s an incentive to leave the money alone.
Other forced savings plans include the 401(k) you get at work, as well as a Roth IRA. Both of these vehicles allow you to send a fixed amount of money to a broker or money management firm every month. The form then pools your money with other investors and invests it in the stock market.
You benefit from a good return on your money that you can only access when you turn 59.5-years old. These types of forced savings programs can help you build a tidy sum for your golden years, especially if you start early.
A mortgage is another great example of a forced savings program that also offers you some utility. You get to live in your home while you pay it off, and when you finish paying your mortgage, you have an asset that has a market value.
Add Extra Income Streams
After starting your forced savings program, it’s time to look at ways to add other income streams into your finances. Sure, you might be working in a job right now, but that doesn’t mean you can’t work on your financial freedom in your spare time.
There are numerous ways to build secondary income streams. You could get a second job in the evenings, or start working in the gig economy from home. You could even drive for Uber if it brings you in more money each month.
Keep applying the earnings from your new work into your savings and investment accounts, and watch your net worth begin to grow. The idea of saving and earning more money is that you want to increase your cash pile. Having a cash pile allows you to start taking risks with your money.
For instance, if you decide to invest in a business, your cash pile can help carry you through periods where you experience a downturn. If you blow up a stock investment, it won’t end up ruining your finances – Why? Because your cash pile provides you with a cushion that gives you a “soft landing.”
Articles to Help You Make Money
- Best Online Jobs for College Students
- How to Make Money Online at Home
- How to Sell your Art Online
- 8 Tips for Turning Your Hobby Into a Business
- Make Money Online as a Teen
- How to Get Free Money Fast
- Passive Income Guide
- Best Work from Home Jobs
- Best Side Hustles
Invest in Yourself
Building a cash pile can take years. Along the way, you can use the time to invest in yourself. This type of investment typically doesn’t cost very much, and you’ll find almost everything you need online for free.
As a budding entrepreneur and investor that’s looking to make a million dollars, you need advice and education. Increase your financial literacy by studying everything you can on successful people. YouTube is an incredible resource that puts you in touch with a landslide of useful information.
You can check out talks and seminars with world thought leaders in business and investing, tune in to podcasts, download audio and e-books, and so much more. Fill the empty hours of your day with financial education, and start learning more about how money works, and how successful people use it to grow their wealth.
Remember, we talked about modeling earlier? Well, by listening to all the information online from successful people, you start to absorb the same ideals and beliefs they hold that made them rich. While it might seem like a struggle, you’ll find it benefits you tremendously later in your career.
Start Investing Early
After a few years of frugal living and saving, as well as educating yourself, you can start your investment plan. The trouble is that you’ll need a plan. Since you’re a newbie, you need to take advice from experts that know what they’re doing. Meet with a financial advisor for a detailed financial plan that can get you to where you need to go.
A financial advisor can help you figure out your net worth and create a plan that grows exponentially using assets like stocks, bonds, forex, and index funds. Advisors specialize in every area of estate planning, and that’s vital for when you start earning the big bucks.
Invest in Rental Real Estate
After you take care of your initial forced savings programs, and you start to accumulate a cash pile, it’s time to put that money to work for you. “Passive income” describes a form of income that doesn’t require any effort on your part to earn.
Rental real estate is the best example of how to earn passive income. If you have enough money to put a 40% deposit down on an apartment or single-family home, then you can rent that out to tenants at a price that higher than your mortgage payment and the costs of managing the property.
Whatever you have leftover is “positive cash flow” that you can pump back into the investment to clear the “good debt.” Eventually, when you have more equity in the home, you can start to scale the model, and continue to buy more rental properties that accumulate positive cash flow for you every month.
Real estate investing is nothing like buying the home you live in at the moment. Real estate investment is about building passive income. Many investors never even view the homes or apartments they buy, and they could purchase real estate in the country’s outside of the U.S as well, as long as it provides positive cash flow.
Your primary residence is more like a liability. You need to pay the mortgage every month and cover the property taxes and maintenance costs on managing the property. Therefore, this comes out of your income, rather than adding to it.
Start or Buy a Business
After expanding your real estate empire, it’s time to look at buying a business to generate more passive income. The critical thing to remember when buying a business is that you want to buy a cash business that’s already operating profitably.
Many people make the mistake of trying to found a startup when forming a business. A startup is not a cash business; it’s a drain on your finances. You might struggle for years trying to build your startup. Along the way, you could sink everything in your estate into making the company work, only to have it finally fold and leave you broke.
It’s a much better idea to buy companies that are already a going concern. These companies have a track record and the financials to prove it to you. A cash business is always preferable because all sales are final, and you don’t have to deal with client accounts that could damage your cash flow.
Businesses like car washes, corner stores, gas stations, and vending machines are all examples of cash businesses that bring you more passive income every month. These businesses already have systems, management teams, and employees in place; all you do is take over ownership. By using this strategy, you work “on” your business, not “in” your business.
Wrapping Up – Build a Team Around You
As your wealth grows and you start investing in assets and businesses, you’ll need some help. Every successful person states that they are only as effective as the team they build around them. We already talked about the importance of a financial advisor.
Other professionals you’ll need to add to your team include a CPA to manage your books and vet your business deals. You’ll also need a legal team to help you analyze deals and help you with the legal paperwork.
By building your team, you keep freeing up your time to focus on growing your wealth, instead of the details.
There you have it, the blueprint to a million dollars, start taking action right now.