Being a millionaire isn't quite what it used to be, but it's a high-level financial goal that most people will never achieve. Having a net wort
Being a millionaire isn’t quite what it used to be, but it’s a high-level financial goal that most people will never achieve. Having a net worth of a million dollars early in life, many years before you’re ready to retire, would put you on a track toward a stable, abundant retirement. And no matter where you are, it would afford you a significant financial cushion that could protect you from most external risks (if properly invested).
For reference, the median net worth for someone between the ages of 65 and 74 (one of the highest net worth age brackets) is $224,000, with an average of $1,066,000. In other words, acquiring a million dollars isn’t the norm.
There are tons of articles about the general mindset or habits you can adopt to increase your chances of becoming a millionaire, some of which are about giving yourself a foundation of financial management skills, and some of which are associated with other successful millionaires. But these articles don’t always describe the modes of acquiring this wealth in the first place.
Ultimately, there are three types of approaches that can help you acquire this wealth, and some are much more approachable than others.
Inheritances or Windfalls
We won’t spend much time on this first category, because it’s largely beyond your control. It’s possible that you’ll inherit wealth from a parent or a relative, or will experience another windfall that causes you to end up with a million dollars (or more) with little to no effort of your own.
Direct Forms of Earning
If you don’t have a wealthy relative, you’ll have to find a way to generate all that money on your own. The first and most straightforward way to do this is to develop your career in a way that puts you in a high earning bracket.
For example, you could choose a career path known for its high salary; for example, the median anesthesiologist makes $208,000 a year. Even in a high cost-of-living area, that’s a lot of money, and over the course of a decade or two, you could easily accumulate enough savings and/or equity to put you squarely in millionaire territory. You could also consider climbing the corporate ladder at a major corporation; corporate officers of major firms easily make 6 figures, if not 7, though these jobs are much more competitive, and may be hard to achieve.
One alternative mode of success here is entrepreneurship. Becoming an entrepreneur means building a business from scratch, and potentially retaining full ownership of it as it grows. Being an entrepreneur is extremely challenging, and you’ll probably be forced to take a lower-than-usual salary during your first few years of operation.
However, if you grow the organization, you could eventually afford to pay yourself a substantial salary, or you could withdraw enormous profits, or you could even sell the business outright for $1 million or more.
For most people, pursuing a high-earning career is an inaccessible path, either because it requires an expensive degree, because it’s too competitive, or because other responsibilities are preventing them from taking the necessary risks. However, there’s one more way to become a millionaire, and it’s extremely accessible and reliable: investing.
Investing relies on the power of compound interest to help you accumulate wealth from small contributions over time. For example, if you make 10 percent on a contribution of $10,000 (the average annual return of the S&P 500 is 10.4 percent), you’ll make $1,000 in interest, leaving you with $11,000. The next year, you’ll make $1,100, and so on, doubling your initial investment in just 7 years. Given enough time and contributions, anyone can turn relatively modest contributions into an impressive sum.
There are only two caveats. First, you need regular contributions, even if they only amount to a few thousand dollars a year; ideally, you’ll have some kind of employer-sponsored retirement plan, but as long as you’re budgeting wisely and seeking extra income when necessary, you should be able to carve these funds out for yourself. Second, you’ll need to choose the right investments. There are many options here, including index funds, stocks, bonds, real estate, and REITs, each with advantages and disadvantages. The best portfolio will be diversified with many types of assets, to balance out the prospective risks of each asset type.
If you’re currently stuck with a low salary job or high expenses, becoming a millionaire may seem like an impossibility, but one or more of these methods is almost surely available to you.
Start learning, budgeting, and investing now to increase your chances of generating this level of wealth over the coming decades.
The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.
This article is from Inc.com