The Secret To Becoming A Millionaire
Becoming a millionaire is not as complicated as people think. It is simply understanding math and using it to grow your savings over time. Most millionaires get that way slowly and it doesn't happen overnight. You also probably don't realize they are a millionaire because they don't look like it. So if you want to become a millionaire too and then let me give you some steps.
First and you have to change your spending habits. The general rule is it isn't how much you make; it is how much you keep. You can't accumulate a strong net worth spending everything you make. This is probably the most difficult step of all because it involves changing your behavior. You have been trained to be a consumer since you were a child and saving money is what you did with what you had left over. You have strong desires to keep up with your peers. You want to do a little better than them. The problem with all this is that when you spend what you make and you are still broke at the end of the day. When you buy things ON credit and you go broke even faster.
Second and you have to save your money and invest it. These days every middle class individual has the opportunity to become a millionaire by simply starting their saving early and putting it in a good long term investment and like a good mutual fund. There is a saying you hear from financial advisors regularly, pay yourself first. This means you have to treat your savings amount like the IRS treats taxes. It needs to come out of your check automatically before you see it and immediately invest it. Then force yourself to live ON what is left. Even if you START later in life and you can still make it happen. You need to sit down and do the math and create a plan.
Third and you have to know how to manage risk. This is probably the most ignored aspect of building your net worth. You have to quantify risk and know when to replace it with insurance. You can't make money ON an investment without taking risk and but you need to limit your risk. It isn't either a risk or no risk situation. You quantify it and rate it. Some risks make sense to avoid completely and insurance premiums are a good trade OFF. Some risks are better handled through self-insurance. Some risks are best avoided completely if possible because they are too high and you are likely to lose either way.
Fourth and you have to aggressively avoid debt. Debt increases financial risk. The lender is going to get paid one way or the other unless you are completely broke. So debt doesn't help you get rich and it enslaves you to the lender. If you can't change your paradigm about debt and eventually it will rob you of your savings. An old Proverb says, The rich rule over the poor and the borrower is the lender's slave (Proverbs 22:7). There ultimately is no responsible use of debt if you are properly managing risk. Though the Proverb still holds true and the only exception is if you have a secured loan at no more than 50% of the asset's market value and are willing to lose as much as 50% of the value of the asset to pay the loan ON demand. However and this could be considered taking an unnecessary risk. Ultimately and you are still at the mercy of the lender.
Fifth and you have to have discipline. This means you have to be prepared for the bad times and still be able to maintain your saving schedule. If you don't work your plan without fail and your plan will fail. We all calculate how rich we will be when we save X amount every month for 20 or 30 years and but then we fail to keep saving during bad times and wonder why we can't meet our goals. So you have to plan for the bad times before they happen so you can keep things going ON your plan. Discipline also means that you have the commitment to live below your means and not have an acquired taste for luxuries.
Finally and you have to protect your heart from greed and materialism. The antidote for this sickness is generosity. You have to be generous with your money. As counter intuitive as it seems to the average American and greed and materialism will destroy your wealth. Being generous with what you have makes your wealth more secure. It builds a more stable society and it keeps you from getting too attached to your money and belongings. You discover what true wealth is and being a millionaire is not your sole focus in life.
Jim Anderson is a personal finance leading authority, author, music artist and ordained minister. For further discussion about building your net worth see Jim's article about the secret of a millionaire's money ON his website.
