A Simple Guide to Becoming a Millionaire

There are many ways to become a millionaire, and a few key reasons why you should aspire to be one. The best reasons center around security and freedom. Financial concerns and constraints may hinder inner peace and forever delay the ability to reject work you don’t find purposeful. Personally, I want to say “yes” to more of the things I want to do, and “no” to everything else. That’s likely true for you, too.

But how? How does one actually become a millionaire? Is it even still possible without a high-paying career or business ownership?

It is absolutely still possible, and below are the key steps:

Steps to Becoming a Millionaire

Step 1: Spend less than you earn

This first step is the most important, and it applies at all income levels. Fundamentally, you can’t build wealth if you spend every dollar that comes in, making it mathematically difficult to become a millionaire.

The only way to get there is to start by tracking how much you’re spending relative to your income. Even if you’ve never performed this review before, you should have a good idea where you stand. If your bank accounts are constantly running low, or you carry credit card balances month-to-month, chances are you aren’t saving.

Step 2: Reach a high savings rate

This step is just the flip side of Step 1. When you spend less than you earn, you are leaving room for your disposable income to become savings (and later, investments). The key here is, you actually need to save, and in order to do that it’s best to automate your savings. Pay yourself first by splitting your paycheck so that money automatically goes to a savings account that you don’t touch. If you can’t split your paycheck, set up a weekly or monthly transfer from your checking account to savings of a fixed amount.

Step 3: Invest in low-cost index funds

Once you have a handle on your expenses and you’re consistently saving, the time has come to start investing. This is perhaps the step where the most help is needed, and if you don’t feel comfortable learning how to do it on your own you can certainly consider a financial advisor. Whichever route you take, ensure that you keep it simple.

Stick with low-cost index funds that track the S&P 500 or the total U.S. stock market as the core of your portfolio – this is the primary recommendation from folks like Warren Buffett. Depending on your age, risk tolerance and time horizon, you can diversify with bonds, international stocks and other assets. Generally, the younger you are, the more equity exposure you want to have.

One thing worth noting here: before investing, consider wiping out high-interest consumer debt like credit cards or personal loans. Once you do, avoid this form of debt moving forward.

Step 4: Increase income, and avoid lifestyle inflation

You’ll reach a point where you have cut all of the expenses you can, you’re saving and investing, but you want to be doing more. There is only so much you can cut, and the biggest lever you have to attain wealth is your income. By receiving promotions at work, building your career, or potentially starting something on your own, you greatly increase the odds that you’ll become a millionaire. As your income increases, avoid lifestyle inflation and increase your saving and investing rates. After all, the higher income won’t mean much if you aren’t actually keeping any more of it.

Final Thoughts

These are the key steps. There aren’t many, but they take discipline to master. Once you have, the only thing left is time. Patience is required on this journey.

As I mentioned, there are many ways to reach a million. It doesn’t have to be through stocks or bonds. It can be done through real estate or equity in a company you started or work for. There are many ways and combinations of ways to get there, it just so happens that the clearest path is the most common one.

As you become a more sophisticated investor and steward of resources, your curiosity and interest may take you in new and exciting directions. That’s great! But beware of shiny object syndrome while maintaining your core wealth-building values.