Making millions of dollars may feel like a far-fetched dream, but it is possible to join the other 21 million millionaires in the United States if you take certain steps. Unfortunately, these steps and strategies often aren’t taught to us when we’re young. Most often, this is because our parents didn’t know these principles either. This is because no one taught them.
Historically, there have often been racial, gender, and socioeconomic factors at play that have suppressed wealth creation within certain populations of people as well.
With this in mind, let’s dive into the steps you’ll need to take. I hope you find these strategies helpful because I want everyone to have the chance to become financially free—especially people from marginalized groups who may not have had access to this information growing up. You are the ones I want to see thrive, more than anyone.
Let’s dive in.
1. Determine Your Net Worth
The first step is to determine your current net worth. Calculate all your assets to determine your starting point. Add your assets and subtract your debts and liabilities. What remains is your net worth.
If you have a net worth of $100,000 or higher, you’re on your way toward making your first million. In this case, your challenge will be to fund ways to invest your money so that it can start growing. You’ll want to track your net worth over time because, as the old Peter Drucker saying goes, “What gets measured gets managed.”
This may not seem like an important step, but it is, because it will help you to get used to reviewing and tracking your net worth.
When you enter the wealth building phase, watching and tracking your progress will play in important role in keeping you motivated.
If you haven’t yet saved $100,000, then your focus at this stage should probably be on driving your income up so that you can save these funds.
2. Drive Up Your Income (Yes, You Can Control This)
Learning to maximize your income is essential to becoming a millionaire, especially if your goal is to do it relatively quickly. You must be proactive and push to get promotions and raises. You’ll either need to leverage your skills and experience to get a raise at your current job or you’ll need to look at outside opportunities to boost your earnings.
One of the most important parts of increasing your income is increasing your skills. Spend time at work and outside of your work learning new skills that will make you valuable to both your current employer and other companies who might want to hire you in the future.
Here are a couple hard truths:
- Doing your job to the best of your ability is not grounds for a promotion, because that’s what they pay you to do.
- Being at your job for an extended period of time is not a reason to be promoted. (In this case, you could ask for a cost of living adjustment, but that’s about it.)
What will get you a promotion is becoming increasingly valuable to the company over an extended period of time by either:
- Improving your performance,
- Improving your skills,
- Improving your outcomes, or
- Improving your company’s position within the marketplace
Fore more on this topic, I’d encourage you to read this article on “11 (Real) Ways to Increase Your Income in 30 Days or Less.”
3. Save 10 – 40% of Your Pre-Tax Income
The reason that is critically important for you to drive up your income is that you need to be able to save between 10-40% of your gross income and this usually isn’t possible when you are surviving on a lower income.
In most cities, you will need to be making over $70K as an individual, over $100K as a couple, and over $225K as a family of four to have any chance at saving 10-40% of your total pre-tax income.
Of course, there are some low cost of living cities and locations where you can accomplish this on a lower salary. If you’re young and motivated to become a millionaire, I’d certainly recommend that you consider moving to one of these locations. The reason for this is that you can become a millionaire faster if you can both drive your expenses down and drive your income up.
With that in mind, this article shares the 20 lowest cost of living cities in the United States. Currently, Sioux Falls, South Dakota, is the most affordable city in the U.S., followed by Springfield, Illinois, and Wichita, Kansas.
4. Consider Starting a Business
While having a job is the most common to earn an income, it is generally not the most lucrative. The reason for this is that most jobs cap your upper earning potential. (The exception to this is sales and commissions based job where there is no cap to your income potential. Sales jobs can be a phenomenal way to drive up your income quickly!)
For many people, it would be worth exploring what it would take to start a business. There are a few major benefits of starting a business. The first is that it is hugely taxed advantaged compared to being an employee. The reason for this is that business owners can deduct a large number of expenses before they owe pay taxes on the amount that remains. In contrast, employees owe taxes on the full amount that they are paid. Little to no deductions are allowed for employees.
The second benefit of starting a business is that you will have unlimited earning potential. You could earn thousands per year, hundreds of thousands per year, or millions per year.
The third key benefit of starting a business is that you can make money from scalable products and services. This means that you can detach how much you earn from how much time you have to sell.
With this approach, you will no longer be caught in the “trading time for money” trap that limits so many people!
If you really want to get to a million fast, you could simply start a business that does over $1 million in revenue this year.
Because most people think starting a business is hard, here are a few quick ways you could start a business today:
Buy a Reusable Piece of Equipment
One way to start a business is to invest in a piece of equipment whose use you can rent out over time to others. An example of this would be to buy a hyperbaric oxygen therapy (HBOT) unit, which is used for many different health applications, or an Inbody Machine, which is a machine that offers a precision method of body fat testing. You could then partner with a local gym or chiropractor to house your equipment there and sell sessions/access to people who want to use it.
Start a Service Business
Services businesses are in short supply these days, as more and more people want to work from home. Given this, they can be easy and lucrative to start. For example, you could buy a power washer for a couple hundred dollars and go door-to-door selling power washing services. Of course, you would want to go above and beyond by doing extra for your clients. That is, if someone hires you to power wash their driveway, you would wash their sidewalks too. Word will then spread about your excellent service. After getting traction, you could buy two more power washing machines and hire two people to help you complete the work. You would then scale from there.
Start a “Real Estate” Business
I put real estate in quotes there because everyone seems to think that for property to be called real estate it has to be a house and this isn’t true. It just has to be real (aka, “physical”) property. To start at business of this type, you could buy a used RV and rent it out on site like Outdoorsy. Or, you could simply list the land around your house on Hipcamp.com as available for others to camp on.
Start a Consulting Business in a Trending Area
To start this type of business, you would want to learn about a rapidly expanding area, such as AI or cryptocurrencies, for example. Then, you would sell your consulting services by the hour. Of course, you would also keep learning and studying to become a domain expert. After acquiring detailed domain knowledge, you could create a short video course that teaches the topic you now know a lot about to other people. You could sell this course directly through a website or offer it through a platform like Udemy. Currently, Udemy pays a 50% commission to its course creators. Now, you’d have two ways to make money, actively by the hour and passively by selling your course.
Offer On-Site Services
Another way of starting a business is to offer on-site services, such as a pet sitting service. You would want to go above and beyond by taking a huge number of photos of people’s pets as your walk/care for them, leaving hand written cards to thank your clients, and offering freebies to your clients, like free nail trims for their pups, for example. This would create growing demand and would allow you to hire others and scale from there.
Buy a Business with Little to No Money Out of Pocket (Seller Financing)
A final and highly strategic way to get into business is to meet an older (or at least more established) business owner and offer to help them for free or low pay while you learn their line of work. Once they know, like, and trust you, you can talk to them about what it would look like to buy them out of the business over time using the funds you would make from running the business without them.
For example, you might offer to buy their business for $250,000 and then use the proceeds that you would make from running the company without them to pay them back over the next few years. This type of sale is called “owner financing”.
I saw this done with a water remediation company that I used for a home repair project and both parties were very happy with the transition of ownership.
The older owner got a very great buyout price and the younger buyer got to take over a very profitable business.
5. Create Passive Income
As a wise mentor once told me, there are three times that you can be making money, and initially, when you’re in the wealth building phase of your life, you should be focused on all three. (Later, you can focus largely on the passive income side but that step doesn’t come first because it’s easier to create passive money when you have money to deploy.)
These three times are:
- During your prime working hours – This is usually when you make money are your main job
- After hours – This is when you can make money on the side
- When you’re sleeping – This is when you can make passive money
In the sections about, we talked about driving up your main income from your job or business and creating money on the side. So now, the question becomes, how do you make money while sleep? That is, how do you create passive income streams?
You can create passive income many different ways, but some of the most common ways to do this are:
Passively Investing in Real Estate
An easy way to passively invest in real estate is to invest with a real estate syndicator. When you do this, you get to own a small percentage of whatever property (or properties) the real estate syndicator is buying. This means you get to collect a portion of the cash flow, tax advantages, and eventually, the profit when these properties gets sold or refinanced. I love to invest in real estate this way, because gives me most of the upside of owning real estate, with none of the responsibilities of acquiring or managing properties. It also limits my liability (risk) because I’m not buying or operating the assets.
You can view a Master List of Real Estate Syndicators here.
Invest in Dividend Stocks
Dividend stocks are stocks that pay out a portion of a company’s profits as monthly or quarterly payments to its shareholders. Examples of dividend stocks are AT&T (ticker: T), Energy Transfer (ticker: ET), AbbVie (ticker, ABBC), and Healthpeak Properties (ticker: PEAK). As a real estate investment trust (REIT), Healthpeak has to pay out 90% of its income to shareholders. Dividend stocks are another easy and effective way to create passive income for yourself.
Cryptocurrencies
There are now a number of cryptocurrencies that pay you a yield to own them and stake them.
Staking crypto involves holding a certain amount of cryptocurrency to support the operations of a blockchain network, earning rewards in return for helping to secure the network. By staking your crypto assets, you can potentially earn passive income through rewards generated by the network’s consensus mechanisms.
If you’re interested in learning more about this method of passive income creation, Coin Ledger has a good article that describes the process and shows the current rates you can earn.
Peer-to-peer Lending
Peer-to-peer lending involves the act of lending money to other people or businesses in exchange for receiving interest on your money. Basically, you’re acting as a bank and giving out a loan on which you are paid back your original amount, called principal, plus interest by the borrower.If you want to go this route, here is a list of peer-to-peer lending sites that you can explore:
- Upstart – upstart.com
- Prosper – prosper.com
- Lending Club – lendingclub.com
- Funding Circle (Business Loans) – fundingcircle.com/us
- CircleBack Lending – circlebacklending.net
- PeerForm – peerform.com
- StreetShares – streetshares.com
Debt Funds
Debt funds are another great option for creating passive income. A well known debt fund with a great track record is DLP Capital, which uses investor contributions to offer loans for real estate construction and acquisition. When you invest with a company like this, you typically get paid between 8-12% on your money, while it is backed by real estate assets. In the case of DLP Capital, you can also request to have your money returned to you within 90 days (called a “redemption window”) and it will often get returned much sooner.
Of course, it’s important to due your due diligence when investing in debt funds, because some invest in riskier projects and assets, while others are more conservative.
Earn Income on Your Cash Holdings
Finally, right now is a bit of an usual time in history because interest rates are quite high. For this reason, you can also earn 5.0 to 5.5% in many high yield savings accounts, such as Robinhood’s high yield savings account called Robinhood Gold.You can also simply invest in Money Market Mutual Funds, like Vanguard’s Federal Money Market Fund (ticker: VMFXX) to earn 5 to 5.5% on your cash with very little risk. When you invest in a money market mutual fund, you are typically investing in short-term debt securities, usually U.S. Treasury bills.
Currently, I am holding most of my cash in money market mutual funds (like VMFXX) until it is ready to be deployed into higher yielding investments.
6. Multiply Your Money (Your Rate of Return Matters!)
Next, you will need to learn how to put your money to work so that it can multiply itself many times over. If you can earn 10% per year on your money, then it will double roughly every 7 years. Meaning, with a 10% rate of return you can turn $100K into $200K in seven years, and over 14 years, you can turn that $100K into $400K.
If you can earn 15% per year, then your money will double even faster—roughly every 4.5 years. This will accelerate your wealth creation even more.
The two most common metrics that are used to track how fast an investment will grow your money are IRR and ARR. ARR stands for annual rate of return and is a formula that calculates the annual percentage rate of return expected from an investment, compared to its initial cost. IRR stands for Internal Rate of Return and is another similar metric that lets you estimate the future profitability of an investment.
Both of these terms are similar, but IRR does a better job of accounting for the “time value of money”— that is to say, you’d rather have $100 today than $100 a decade from now.
I’d recommend that you get a basic understanding of what the terms IRR and ARR mean, because these metrics impact speed at which your money is predicted to grows. You can learn about these terms here.
Personally, I aim to invest in assets and opportunities that are targeting returns of 15-20% IRR (or more), because these investments help my money to double in value every 3-4 years.
The first time your money doubles it usually doesn’t change your life. However, when it starts to grow by 4X, 8X, and 16X, it can become a game changer. Meaning, this is how you can grow $100K into $200K, then $200K into $400K, $400K into $800K, and $800K into $1.6 million.
7. Make Money on the Side
As mentioned above, an important step of becoming a millionaire is to start creating multiple flows of income. Every cent counts on this journey. For most people, focusing on creating a business or driving up their income at their main gig (their day job) will be the most lucrative approach.
However, for some people who work in areas where income growth is harder to come by (like churches, non-profits, etc.), a side hustle can be an alternative way to make extra money.
There are tons of ways to make extra money on the side. Some simple options include:
- Renting out a room in your house (you can list it for free on Zillow)
- Having AirBnb guests to stay at your place when you’re traveling or staying over at a friend or partner’s house
- Renting our storage space in your garage or basement (yes, there is a strong market for this)
- Renting out a parking spot (i.e., your driveway or garage) or providing long-term vehicle storage
- Freelancing on Upwork
- Sharing your expertise on sites like Clarity.fm
- Giving you opinion in focus groups
- Selling physical or digital goods on Etsy
- Selling unwanted items you’ve accumulated on eBay
- Etc., etc., etc.
The goal is to find work you enjoy and that pays well. Making an extra $100 daily generates an additional $36,000 annually, which will propel you toward your goal.
8. Defer Taxes
Finally, an important way to grow your wealth is to pay less in taxes or to let your money compound tax-free. There are retirement vehicles, like 401Ks and Roth IRAs, that can provide these types of tax advantages.
Contributions to a traditional 401(k) are made using income that hasn’t been taxed yet. Because the funds that go into your 401K have not been taxed, it allows you to have a larger amount of money to contribute. Additionally, by making these pre-tax contributions, each dollar you contribute lowers your current taxable income by an equivalent amount, resulting in a reduced income tax liability for the year.
Understanding your 401k and the tax benefits associated with it may help some people to become a millionaire by 40. Having said that, investing in retirement vehicles also comes with many negative tradeoffs, which you can read about here.
Of course, there are other important ways to defer taxes too, such as using tax credits and deductions.
For example, when you own a primary residence, you can deduct state and local property taxes in the year that you pay them. You can also deduct mortgage interest that you pay on up to $750,000 of mortgage debt if married filing jointly (or $375,000 if married filing separately).
And, you can avoid paying taxes on up to $500,000 in profit when you sell your primary home, as long as you meet a few simple criteria.
Becoming a Millionaire in the Shortest Time Possible
Becoming a millionaire won’t happen overnight, but by increasing your income over time, saving 10-40% of your income, and deploying your savings into intelligent investments, you can grow your wealth quite effectively. Of course, side hustles and passive income streams can accelerate your timeline quite a bit.
To learn more about about how to increase your income, negotiate a raise, or invest in cash flow producing assets, explore the Finance Section of this blog.
Do you have questions about how to become a millionaire? Ask them in comments below.