The pathway to becoming a self-made millionaire is paved by small, daily financial habits.
Retiring a millionaire doesn’t happen overnight– unless you’re one of the scarce few who invested in the notoriously famous cryptocurrency “Dogecoin” (which grew at a record breaking climb of 26,000% in the first 6 months of 2021…). All jokes aside, to some, the idea of reaching the coveted “millionaire status” can seem far out of reach, or even virtually impossible… when that couldn’t be further from the truth.
In life, each one of us starts out with a unique set of advantages and disadvantages that play a pivotal role in the opportunities we’re given. Although inherited wealth can greatly factor into the financial success you may have, what about if you have to start from Ground Zero?
Here’s a secret: The pathway to becoming a self-made millionaire is paved by small, daily financial habits that add up over time, regardless of where you start.
What is a Self-Made Millionaire?
Self-made millionaires are people who reach high levels of wealth without the help of a large inheritance or trust fund. They simply build their wealth over time, from scratch, by integrating basic money skills into their daily routines such as budgeting, saving, and investing.
Fueled by their innate desire to achieve financial freedom, self-made millionaires typically start with little to no advantages compared to the average investor. Faron Daugs, certified planner and CEO at Harrison Wallace Financial Group, disclosed in a recent interview with CNBC that some of his wealthiest clients started with $50 or less in their checking accounts when they graduated college. Now, these clients have an average net worth around $6 to $8 million.
That’s why developing a financial plan is so important. It doesn’t matter where you’re at when you start, but rather the steps you take to get to your end destination. The last thing you want is to get to retirement and realize you don’t have what you need.
So, how can you make it into the millionaire club by the time you retire? We have some ideas.
1. Establish your Goals –
It can be difficult to define a goal, especially if you aren’t even sure where to begin. One of our favorite frameworks for setting goals is using the S.M.A.R.T. Method (check out our blog on S.M.A.R.T. goals here). S.M.A.R.T. is an acronym for S(pecific), M(easurable), A(ction), R(ealistic), and T(ime-Frame). It focuses on creating specific, small goals, as a way to work towards a larger goal. When you create a more specific goal – save $1000 a year for 10 years, for example, you are working toward the larger goal of saving $10,000.
Funding your retirement to reach that “million-dollar mark” is similar. A very broad goal might be to do just that: fund your retirement, but that’s not specific enough that you can cross it off a list and move on. Instead, you might start by making an appointment with a financial advisor or eliminating any debt you might have. Eventually, you might move to contributing a higher percentage of your income to an IRA or your 401(k).
Once you’ve established your goals, you’re ready to do the hard part— work towards them.
2. Live Below your Means
Did you know the world’s third richest man still lives in the same house he bought for $31,500 in 1958? Probably not, but we bet you know his name– Warren Buffet. With a net worth of over $108 billion, Buffett is the epitome of sacrificing temporary desires for long-term success. In fact, most millionaires (or billionaires in this case) don’t care about “Keeping up with the Joneses,” but would rather focus on delayed gratification like saving up for a large down payment on a home, investing for retirement, or funding an education.
Good money habits start early, and can even be as simple as forming a budget. If you’re one of the 60% of households who does not have a budget they regularly follow, what’s holding you back?
Forming a budget helps you identify what portion of your paycheck you’re really spending on your “needs” such as living expenses and groceries, and how much you allocate for “wants” like eating out. By narrowing down your expenses, you’re able to get a better idea of your cash flow from month to month. Even by just saving and re-investing 20% of your monthly income, you can set yourself up for financial success.
3. Invest Early
Investing at a young age can feel daunting, especially if you don’t feel comfortable with your cash flow. One prominent trend in the past year has been the growth of debt among younger generations, with Millennials’ level of debt increasing on average at 11.5% a year.
With student loans, credit card debt, mortgages, and more stacking up, it’s no wonder the younger generation feels intimidated by finances. A recent study by Ally Invest found that 70% of millennials find the stock market “scary or intimidating,” with the majority of respondents citing they’re either afraid of losing money, or don’t know how to get started. Although the idea of opening and significantly contributing to your retirement portfolio by your early 20’s sounds nearly impossible, it’s actually as easy as buying a cup of coffee.
New York Times Best-Selling Author, David Bach’s book The Latte Factor, shows this point by using a parable of a girl named Zoey, a millennial who wants to start investing, but regardless of her number of promotions and raises, feels like she is always living paycheck to paycheck. She then begins to monitor her daily, small expenses (like a cup of coffee), and realizes that as her career has progressed, so has her spending habits.
Although spending $3.50 a day for a cup of coffee may not seem like a bad idea, if you take that amount compounded at 6% over 30 years, it adds up to $106,000! Small changes can make big differences.
Want a complimentary copy of The Latte Factor? Schedule an appointment with us!
Speak with a Professional Today
At Fullerton Financial Planning, our goal is to help you reach your retirement dreams. Our certified fiduciaries and experienced investment advisors have decades of combined experience helping people find answers to difficult financial questions. Sit down with a Fullerton Financial Advisor today to discover if you are on the right track for your retirement goals.
We understand how important your financial future is to you and your family; we also understand how difficult making these plans can be. Investment vehicles are essential to any financial plan. When you schedule a call with Fullerton Financial Planning, we’ll help you decide which investment vehicles fit your specific plan and lifestyle.
Don’t leave your financial future to chance. Let us help you create a personalized plan so you can enjoy the retirement you’ve worked so long and hard for.
