Becoming a millionaire isn’t just about earning a high salary. In fact, according to The National Study of Millionaires by Ramsey Solutions, only 31% of millionaires earned an average of $100,000 a year during their careers. Even more surprising? 79% of millionaires didn’t receive any inheritance. So, what’s their secret? It all comes down to mastering your finances and asking yourself four critical questions. Let’s dive in!
1. Are You Controlling Your Income and Expenses?
When it comes to finances, there are only two levers you control: income and expenses. While it may seem simple, more than half of Americans earning over $100,000 a year still live paycheck to paycheck. Why? Their expenses are too high.
The key is to create positive cash flow, no matter your salary. For example:
- An 18 year-old saving $250/month could retire with $1.1 million.
- A 25 year-old saving $500/month could retire with $1.3 million.
- A 50 year-old saving $3,000/month would come close but fall short at $950,000.
The earlier you start, the better. Focus on cutting unnecessary expenses (like unused subscriptions) and eliminating high-interest debt, such as credit card debt.
2. Do You Split Your Income Strategically?
Building wealth isn’t just about earning money, it’s about how you allocate it. Here’s a simple income split strategy:
- 50% on needs: Housing, utilities, food, transportation, and healthcare.
- 30% on wants: Dining out, entertainment, and hobbies.
- 20% on investments: Assets that grow in value or generate passive income (stocks, real estate, skill development).
This strategy works even on a low salary. But to accelerate your wealth, consider building an additional income stream through a side hustle.
3. Do You Have a Side Hustle?
A side hustle isn’t just extra income, it’s a wealth-building tool. For example, if you earn an extra $1,000/month and invest it with a 7% annual return, you could accumulate over $1 million in 28 years.
Freelancing is a great option. For instance, if you work in marketing, offer your expertise to small businesses on weekends. Charge for results, not just your time, to maximize earnings.
4. Is Your Money Working for You?
Saving alone won’t make you rich. You need to invest. The S&P 500 has historically returned an average of 7-10% annually. Tools like Roth IRAs (USA) or Stocks and Shares ISAs (UK) allow you to invest tax-efficiently.
Platforms like DEGIRRO make investing accessible, even for beginners. You can buy fractional shares, automate monthly investments, and earn interest on idle funds.
Want to learn more about investing?
– Understanding ETFs – A Beginner’s Guide to Exchange Traded Funds
– What Are Stocks and How Do They Work? A Beginner’s Guide to Investing
Conclusion
Becoming a millionaire isn’t about luck or inheritance, it’s about strategy. By controlling your expenses, splitting your income wisely, starting a side hustle, and investing consistently, you can build wealth over time. So, ask yourself: How many of these questions can you answer “yes” to? Let me know in the comments.
