3 Secrets to Becoming a Millionaire

by Emma Newbery | Published on Sept. 3, 2022Many or all of the products here are from our partners that pay us a commission. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation. Terms may apply to offers listed on this page.

An older couple uses a laptop, calculator, and papers to budget while sitting on the living room sofa

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With time, many of us could become millionaires.

Key points

You don’t need a lucky break, gigantic salary, or inherited wealth to become a millionaire.
Many millionaires live frugally and don’t take on debt.
By investing every month, you can let compound interest do the heavy lifting over time.

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The idea of amassing a million dollars may seem like an impossible dream. It can sometimes feel as if most of your energy is tied up in simply putting your best foot forward each day. But it is possible. In fact, the biggest secret about becoming a millionaire is that millions of ordinary people have done it, and millions more are on their way there. And they didn’t need wealthy relatives or gigantic salaries to get there.

Here are three millionaire-making secrets:

1. Live below your means

The single best way to build wealth is to spend less than you earn and bank or invest the rest. If you’re living paycheck to paycheck, or don’t know where the money disappears each month, don’t panic. But don’t run away from it either. Try to make a plan to either reduce your costs or increase your income.

Start by making a budget. Look at how much you spend each month and what you’re spending it on. Try to see your budget as a tool that could help you become a millionaire rather than a chore or something to be scared of. If you’re not sure about where to start, try a budgeting app.

Notice what you’re spending. There’ll be a certain amount that goes on food, utilities, and rent or mortgage payments. But what about the rest? Are there subscription services you can cut or other little luxuries eating into your millionaire potential? Every dollar you can save now will go a long way toward improving your financial future.

Look for extra sources of income. If you can’t cut your expenses and are still spending more than you earn, the next step is to consider ways to bring in extra money. When was the last time you asked for a raise at work? Or if that’s not an option, can you carve out some time for a side hustle?

2. Don’t take on high-interest debt

High-interest debt is one of the biggest enemies of wealth building out there. If this were a movie, credit card debt would be the evil villain cackling and rubbing his or her hands together in a darkened corner.

Becoming a millionaire means investing every spare dollar for the future, not paying it to a credit card company. If you carry a balance on your credit card, you spend money every month on servicing that debt. Let’s say you owe $1,000 on a credit card with an APY of 16% (the average credit card APR right now). If you only made a minimum payment each month, it would take you nine years to pay off that debt, and you’d pay almost $800 in interest.

There are several ways to pay off your credit card debt. You might prioritize paying off higher-interest debts first or get the psychological win from paying off the smaller balances. What’s crucial is that you prioritize those debt payments and avoid taking on more.

3. Invest a proportion of your income every month

How much of your monthly income goes to savings and investments? Ideally you want this figure to be around 20%. But if you’re not there yet, think about how much you can realistically put aside. Once you’re in the habit of saving a small amount, you can gradually increase that figure. What’s important is to make this a sustainable life-long habit.

If your company has a 401(k) plan, max out your contributions — not only does it give you tax breaks, but many employers also match what you put in. For many people, it’s free money. A Ramsey Solutions survey of millionaire habits showed that 8 out of 10 millionaires contributed to their company’s 401(k). Which brings me to another point: three-quarters of millionaires said that they’d built their wealth through consistent investing.

Stock market investments carry more risk than leaving your money in a savings account. As we’ve seen in recent months, the stock market can fall as well as rise. However, if you invest with a long-term horizon, historically, stock investments have generated a return. On average, the S&P 500 has returned 8% to 12% a year.

It takes time to build wealth — we’re talking over ten, twenty, or even thirty years. This is where compound interest comes into play. Compound interest means you earn interest on your interest. It is like a huge lever that does a lot of the heavy lifting for you.

For example, let’s say you put $500 a month into a mutual fund that generates an average return of 7%. Over 40 years, you’d put in $240,000 of your money. But if you keep reinvesting the proceeds, your portfolio could eventually be worth over $1 million dollars. Here’s how that 7% return could add up:TIMESCALETOTAL CONTRIBUTIONAPPROX. VALUE OF INVESTMENTAfter 10 years$60,000$80,000After 20 years$120,000$250,000After 30 years$180,000$570,000After 40 years$240,000$1,200,000

Data source: Author calculations

Bottom line

You may think becoming a millionaire is something that happens to someone else. Or that people become millionaires by inheriting money or getting a lucky break. That’s not the case. The secret sauce to becoming a millionaire is to invest part of your income every month, and let compound interest do its work. Every dollar you save by living frugally and avoiding debt is money that can help you build long-term wealth.

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ABOUT THE AUTHOR

Emma Newbery

Emma owns the English-language newspaper The Bogota Post. She began her editorial career at a financial website in the U.K. over 20 years ago and has been contributing to The Ascent since 2019.SHARE THIS PAGE

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