As the old saying goes, it takes money to make money. There’s no denying that a little extra cash gives you opportunities to earn money that less fortunate people just don’t have. It is possible, however, to start from nothing – or even start with debt – and become a millionaire. It just takes more time and effort.
With that as a backdrop, here’s a look at the five most important and concrete steps anyone can take right away to begin their 20-year journey from bankruptcy to $ 1 million in savings. Note that saving money is just as important as earning it – provided that the money saved is used constructively.
Pay off your debt (the most expensive)
It’s painfully obvious, but it has to be said all the same: The financial damage debt can inflict is far greater than any investment gains you could reliably achieve with a comparable amount of capital. You can count on paying interest on the money you borrow, but you can’t rely on the money you put at risk in pursuit of growth that generates constant returns – or even returns from the bank. all in the short term. .
It is not an absolute. Some debts make sense. Mortgages on personal residences, for example, tend to be offered at lower rates and are used to purchase an asset that increases in value over time.
However, other debts can be devastatingly destructive. And credit cards can be the worst. As a prospect, making the minimum payment on a $ 5,000 credit card balance raised at a typical interest rate of 16% will take 22 years and a total of $ 11,126 to pay off in full.
Before you do anything else, do whatever it takes to get rid of the high interest âdebt monkeyâ.
Take advantage of employer contributions to workers’ retirement accounts
Not all investors will benefit from this option, but employees of companies offering 401 (k) plans and SIMPLE IRA plans will be happy to hear that their employer is giving away money for free in the form of contributions to the pension plan. For SINGLE IRAs, companies can match an employee’s contribution up to between 1% and 3% of their total income. For 401 (k) plans, a company can match up to 100% of an employee’s contribution up to a limit calculated as a percentage of their salary. These contribution plans can vary widely.
Unfortunately, many employer sponsored pension plans do nothing. You will need to check with your company for the details.
Put $ 1,500 on the stock market … every month
Assuming an average 9% return on stocks, an investment of $ 1,500 per month for the next 20 years should reach just over $ 1 million. That’s the power of compounding returns on investment.
This is probably a daunting number for the typical investor. The Bureau of Labor Statistics states that the average worker in the United States earns about $ 50,000 per year, while the average household earns less than $ 70,000 annually. After taxes and bills incurred just by living, there is rarely $ 1,500 a month left.
Don’t worry too much. You might not have that kind of disposable income right now, but you will likely earn it later. In addition, the next two steps will steer you towards higher disposable income as soon as possible.
Buy a house and live in it for the long haul
Granted, this isn’t a plan that works for everyone. Some young workers may need to take another job offer elsewhere. In some markets, houses are much more expensive than renting an apartment.
For anyone who is willing and able to stay put for a period of time, homeownership can be a smart financial decision.
Of course, there is the whole question of “building equity”. It is zont. Real estate also tends to increase in value over time. Even though its price growth is not constant, home prices are increasing in value at a rate of about 4% per year.
This is not the only or the biggest benefit of home ownership, however. A largely overlooked nuance of a mortgage payment is that while a home’s value, prices, and income increase over the life of that mortgage, the payment on a fixed mortgage remains the same throughout the life of the mortgage. ready. Resisting the urge to modernize your home – and increasing your monthly payment accordingly – can turn out to be its own kind of windfall. That alone could possibly produce the additional $ 1,500 mentioned above per month to invest in the stock market.
Start a side activity that you enjoy
Finally, there is a lot to be said for starting a side scramble. Generating an additional $ 1,500 each month is certainly possible.
Secondary pushes can only be second jobs. But I think starting a real business has bigger benefits.
However, in order to be successful, I believe that a secondary activity must meet three conditions. First of all, it’s got to be something you love to do. Second, it must also be a legitimate business; Just finding people to do your hobby with you is not the recipe for success. And third, it needs to be a simple, inexpensive business to run, and scalable at no extra cost or time.
If one element of this triad is missing, a part-time entrepreneurship will never quite thrive. The good news is that most people have some sort of passion that they can monetize from their kitchen table several times a week.
And a smart side bustle can certainly be worth the time and effort. While most scammers only make a few hundred dollars a month, some make well over $ 1000. The biggest earners, of course, take their small businesses very seriously.