Have you ever dreamed of how to make a million dollars and what you would do with it? You could buy your dream house, take a faraway vacation, get the car you’ve always wanted, pay off your mortgage, or send your kids to college (worry free). Better yet, you could invest the money into investments that paid you every month so that you had stable income for the rest of your life.
But, a million dollars is one of those impossible figures that only people like Jeff Bezos ever achieve, right?
Not true! More than 11.8 million people in the United States are millionaires.
That means there are more millionaires in the U.S. than there are people in the countries of Portugal or Greece. If you want to make a million dollars, the key is to not fall for the get rich quick schemes. Read on to learn what you can do to earn a million dollars, the realistic way.
1. Increase Your Income
The first step to making a million dollars is absolutely essential: You need to increase your income.
No matter how much you work on saving, you can only save a finite amount of money. But your potential for how much money you can earn is literally infinite.
There are many ways to do this, so don’t let any small minded thinkers tell you otherwise or limit your potential for abundance.
First (and often easiest) is to increase your income by negotiating a raise with your current boss.
Second, you could generate referrals or sales for your employer in exchange for commissions. If this option doesn’t clearly exist, then ask after it, because most employers will be more than happy to create this type of opportunity for you since they will get to keep the majority of the revenue you bring in (making it a win-win).
For example, if you work at a gym as a personal trainer, ask if you could get paid a referral for bringing in new members who commit to a 6 or 12 month term. If you work at a bank as an admin or teller, ask your boss if you could earn commissions from having your friends and family open up a new bank account or a credit card with the bank.
Third, you could apply to a new higher paying job. If you send out 20 well-written and thoughtful applications, it is highly likely you could land a new job with at least a 10-20% pay bump.
Fourth, you could learn new skills through Udemy (an online learning platform aimed at professional adults), online courses, or YouTube to command more money from the marketplace.
With an increased skill-set in a high-demand area, you’ll be well-positioned to get higher pay from your current employer, a new employer, or to go into business for yourself – a rising trend in the American workplace.
Your goal should be to reach $100,000 per year in income or more (ideally more).
If you’re far from this figure right now, don’t despair. That simply means you need to increase your skills or your need to acquire skills that are in higher demand in today’s modern marketplace.
If you’re getting paid a low wage, it’s because a lot of people can do what you can do.
Consider your salary to be feedback from the market and learn from it, pivot, and adjust.
Examples of skills that you might want to learn are running Facebook or Instagram ad campaigns, running YouTube ad campaigns, doing brand or product photography, copywriting (writing to sell) or doing high-ticket sales. You can learn all of those skills in a 30-90 days and earn more money fast.
There are lots of other in-demand skills you could learn too. Be creative, search online, and whatever you do, don’t be too concerned about your formal education. Instead, continually self-educate and you will continually become more valuable to the marketplace.
Plus, here’s another 11 tips to help you increase your income today!
2. Save Your Money (Aim for 40%)
You also need to have a strong saving plan if you want to become a millionaire. You could be making all the money in the world, but if you’re spending it as fast as it comes in, you might as well be making nothing.
You’ll need to find a balance so you can be financially secure before you enjoy your earnings.
To get to a million dollars, you will want to save between 30 to 40% of your income.
This is because it has been documented that rich people save approximately 40% of their income.
As mentioned above in the income section, the best way to save this amount of your income is to increase your income. Once you get to $100,000 or more per year, then saving 30-40% of your income becomes much more realistic.
Of course, if you’re frugal, you may be able to accomplish this savings rate at a lower salary. If you’re in that situation, take a look at your unnecessary expenses and cut them out.
3. Learn About Taxes (Yes, Taxes!)
Taxes are one of the single largest expenses you will ever incur during your lifetime.
Most Americans can can expect 20-50% (or more) of your income to go to taxes every year. In other countries, this percentage may be higher or lower, but it will always represent a substantial cut of your total income.
Because sending a large percentage of your gross (total) income to the IRS substantially reduces your ability to create wealth, paying too much in taxes can really set you back.
Please note that you DO need to pay what you owe. It’s the law.
However, you also need to learn about the tax code to best position yourself for legal deductions and write-offs that apply to your situation.
If you want to get ahead, it is critical that you learn about tax deductions and tax write-offs in order to reduce your tax burden to the IRS.
First, any amount you donate to charity can get you a great tax write-off, so don’t forget those donations.
Next, take a look at any business expenses you can write off, especially if you work from home or are self-employed. If you bought a house or got married in the last year, you can write that off. If you own rental property, even better because you’ll get major tax saving.
I’ve also listed 6 common tax deduction examples for you here to help you get started on the process of learning more about taxes.
4. Learn About Compounding
Warren Buffet says compounding is the key to wealth. Albert Einstein called it the 8th Wonder of the World.
Compounding is how you multiply money in an investment account, and it’s something you’ll need to master if you want to make a million dollars.
Let’s say you have $1,000 in a savings account that’s earning 15% in interest per year. After a year, even if you add nothing to the savings account, you’ll have $1,150, which will continue accruing 15% interest. In another year, you’ll have $1,322.50 and within five years, you’ll have more than doubled your money ($2,011.35), without adding a single cent to that account.
If you extend those figures up into the thousands of dollars, you can see how compounding can help you grow your wealth over your lifetime.
A quick tip for calculating how fast your money will compound is the “Rule of 72.”
This rule let’s you rapidly calculate how long an investment will take to double in value if you get a fixed rate of return. Specifically, if you divide 72 by your annual rate of return (15% in the example above), it will give you an estimate of how long the money will take to double.
In this case 72 divided by 15 is 4.8 years, which is what we discovered above by calculating the rate of return for 5 years in a row. With a 15% rate of return the money is worth $2011.35 after 5 years.
Use this trick for calculating investment gains around your friends and you will get quite wealthy during your lifetime.
The reason is, that $2,000 you reached in the example above will go to $4000 in the next 5 years and then $8000 in the next 5 and then $16,000 in the next 5 and then $32,000 in the next 5 and you’ll only be 20 years older than you are right now.
Simply put, you can get extremely wealthy if you can just keep your money invested with a strong rate of return and allow it a long period of time for compounding.
5. Invest Your Money (For Returns of 10-15% or More)
Having cash on hand is great, but unfortunately, cash value goes down as inflation goes up. So, as quickly as possible, you need to get your money invested.
Most millionaires have a strong preference for investments that produce income at the same time as they appreciate in value, called income-producing assets.
Examples of income-producing assets include rental real estate, real estate investment funds (such as Fundrise.com or CardoneCapital.com), mortgage tax liens, and some municipal bonds and high dividend-paying stocks.
Most millionaires aim for a minimum internal rate of return (IRR) of around 15 percent per year.
Combined with what we now know about compounding, that kind of return can start piling up very quickly.
In contrast, most average investors settle for 7-8% per year, which isn’t very far above the rate of inflation. If you want to be a millionaire, then don’t be average and don’t settle for average investment returns. There are investments out there that pay well over this return and you’re smart enough to find them.
If you don’t know where else to look, then consider Fundrise, which pays out an average return of around 12.4%, or Cardone Capital, a real estate fund that has historically paid out 15% or more for its internal rate of return (IRR).
Plus, I wrote you a step-by-step financial plan here to help you get your money invested into income-producing investments.
6. Multiple Flows of Income
Finally, you need to work toward having multiple flows of income, even if some of them are small at first.
You want to aim to get income sources that don’t require active work on your part, helping you effectively buy more hours in the day to pursue your active income sources. But, it’s alright to add some active flows of income too.
At first, you may have income sources that are just a “drip” instead of a “flow.”
Every little bit counts, because most millionaires have 7 or more flows of income.
By creating multiple flows of income, you stop trading time as your only source of money. You start making more income overall as your passive income sources do their work. This means you are able to save a greater percentage of your total income, which provides you with more income to invest.
To get started with adding income flows, use these 11 tips to create new flows of income. Next, use some of the investments described above to create additional flows of income, such as rental properties, real estate funds, or high dividend paying stocks.
Knowing How to Make a Million Dollars
Knowing how to make a million dollars is not about coming up with a get rich quick scheme, but about making smart financial decisions several years in a row.
Increase your income, save and invest your money. Use compounding to your advantage and make sure you continually learn more about the tax code. By the time you’re ready to retire, you’ll be able to boast a seven-figure savings account.
If you’d like to learn more practical life tips that our parents and teachers forgot to teach us, explore the blog.