The majority of the ultra-rich are self-made. So what’s stopping you? Disbelief? There’s no magic wand, but there are some critical strategies and processes you must follow. If you want to know how to become a millionaire, start right here…
Oh, to be a millionaire! I bet you’ve dreamt of how life could be if you had a million pounds in the bank. Pie-in-the-sky thinking? A crazy notion? Not at all.
You can become a millionaire.
It doesn’t matter about your background. You don’t need to have a university education (look at industry moguls like Lord Alan Sugar and Sir Richard Branson).
What matters is your attitude and your money management habits.
It’s time to stop swimming against the tide and get your act together. You can live the lifestyle you want. You can have a relaxed, stress-free retirement. You can be a millionaire.
In this article, I’m going to show you what it takes to build seven-figure wealth.
To become a millionaire, you must have a vision and a plan.
You’ll need to keep your spending under control and not succumb to lifestyle inflation as your income increases. Invest in yourself, too, increasing your skillsets to give yourself better earning potential.
You’ll also need to maintain a budget that focuses on paying you first – saving and investing before spending any money.
As your financial position grows stronger, turn from saving to investing, and ensure that you maximise investments into tax-efficient investment products, including ISAs and retirement planning.
It’s Never Too Late to Start Your Millionaire Journey
Whatever your age, you can improve your wealth and financial fitness:
- When you’re younger, your outgoings may be higher, but so, too, is your ability to earn and save with a longer-term view.
- In retirement, most of those pesky monthly expenses (like the mortgage) have disappeared. You might not have the income you once had, but that pension is steady money – and you have time to create more income.
Okay, so Rome wasn’t built in a day. It took discipline, patience, and deliberate action. Which is all you need to become a millionaire.
7 Keys to Becoming a Millionaire
Whatever your age, there are seven keys to becoming a millionaire.
1. Create a Wealth Vision and a Millionaire Mindset
The first of these is the first thing you must do, and that’s to think like a millionaire. You must create a vision of wealth that motivates you, and you’ve got to remain true to this vision and visit it often.
What is it that you see for your future?
If you see nothing more than a mundane life, stuck in a humdrum job with little prospect of promotion or building a successful career, then guess what? That’s exactly what you’ll achieve in life. Your present will be your past, and your future will be your present.
Creating, conserving, and growing wealth is a mental game. You need to think bigger, and plan your finances.
You’ll need to stay determined with your eyes on the prize. Of course, things won’t always go your way. Stock markets go up and down. Economies ebb and flow. So, you’ll need to develop patience and have faith in yourself and what you are doing to become wealthy.
Indeed, confidence in your own ability and your own financial strategies is crucial. If you have the mindset that you can, you probably will.
On the other hand, you mustn’t allow your confidence to cloud your judgement. Don’t become arrogant or close-minded. Learn from others, their mistakes and successes. Learn from your own mistakes, too.
2. Budget to Be a Millionaire
Managing your finances effectively is critical to achieve your financial goals. This is why I’m a huge fan of budgeting. When you create a budget and track your spending, it becomes much easier to spot what is damaging to your pocket.
There are some great budgeting tools to help you get in the groove, but here’s the thing: no matter what budgeting tools you use, if you don’t budget properly, then you’ll never build your wealth as much or as fast as you could. As I summarise in my article ‘Savvy Budget Planning’:
“The art and science of effective budgeting is to understand what you are spending and how. By measuring your income and spending accurately, you can take action to increase your income, reduce your spending, and accelerate your progress towards your financial goals.”
When creating your financial goals, make sure that they are meaningful. Whether short- or long-term goals, or somewhere between, make sure that they give you a real focus on reason, amount, and timeframe. Then, when you are budgeting, make certain to follow the next key factor to becoming a millionaire.
3. Pay Yourself First
The traditional method of budgeting starts by subtracting your expenses from your income. This leaves an amount that you can spend. At the end of the month, we see what’s left and then might decide to save, or invest, this.
If you want to be wealthy, you’ve got to turn this thinking upside down:
- Start with your income
- Subtract what you want to save, and save this immediately
- Then deduct your essential expenses
- Now you are left with what you have available to spend on what you want
How much should you save?
This depends upon your financial goals, but a great budgeting system is the 20/50/30 budget:
- Save 20% of your earnings – this includes rainy day money and investing toward your retirement
- Budget for 50% of your earnings to be swallowed by essential expenses
- Have 30% left for other spending
If your essential expenses are more than 50%, reduce your day-to-day spending. Your savings are the very last thing you should suck cash from to pay your way.
If you’re not good at saving, then apps like Moneybox and Moneyfarm could be the ideal way to make saving spare cash effortless.
What difference can that 20% saving make to your financial future?
Let’s say you are 20 now. If you invest £500 per month for 40 years, and achieve a growth rate of 7% per year, when you are 60 you will have approximately £1.2 million. If you increased your contributions by 5% each year, that £1.2 million would be approximately £2.5 million! This is without even considering investing tax-efficiently!
4. Watch Your Expenditure and Avoid Bad Debt
If you can avoid debt, then it’s best to do so. But not all debt is bad debt.
For example, buy-now-pay-later deals can help you manage your cash flow and budget more effectively. If you use credit cards wisely and pay off the balance each month, this is also effective use of credit.
Mortgage debt could be considered good debt, too. At the end of the mortgage term (providing you are on a repayment mortgage and not interest-only), you’ll own your home outright. Plus, there’s the strong possibility that its value will have increased.
The secret with debt is to avoid it as far as you can, only borrow what you can afford to repay, and repay as soon as possible. Oh, and never take a payday loan.
(Here’s an interesting number: according to the National Study of Millionaires by American company Ramsey, 73% of millionaires say they have never carried a credit card.)
To avoid the need for debt, it’s critical to keep a watchful eye on all your expenses. Don’t buy a house that is too big, or a car that is too powerful for your needs. Your day-to-day expenses and costs should also be monitored. It’s amazing how much you can save by being disciplined and conscious about your spending habits – and then using every trick available to save money when you spend (such as shopping in the cheapest supermarkets in the UK).
5. Invest in Yourself and Increase Your Earnings
The most important investment you can make is an investment in yourself.
Expanding your knowledge and capabilities makes you more valuable to your boss and/or customers.
Learning the trading methods of successful investors will give you an edge when you invest your own money.
A new skill could be the key that unlocks the door to creating a business from a passion.
There is no excuse for not investing a little money and time into improving yourself. Listen to podcasts. Read books. Take online courses. Get a mentor. Do anything and everything possible to improve your value. Then:
- Ask for a pay increase
- Get a second job
- Work extra hours
- Get a better-paying job
- Start a side hustle
When I first started in the City, all stock trading was done over the phone and booked manually on paper. Each evening around 10 or 12 of us would spend a couple of hours calculating our profit and loss for the day.
I took it upon myself to get good at these calculations, understand the maths behind them, and figure out shortcuts. I got so good that I would take the whole P&L home with me on a Friday evening, and knock it off in a few hours over the weekend and book the overtime.
At the end of the year, I received a 50% bonus. My boss told me a big reason for this was the overtime payments I’d saved the firm by doing the P&L myself. I’d invested time in myself, and it paid off handsomely.
6. Don’t Leapfrog Your Lifestyle
Have you ever wondered why so many people earn so much more than you but don’t seem to be any better off? The answer is because we tend to live to our means: we spend what we have, instead of spending what we must.
Let’s say that you’ve made that investment in yourself, increased your skillset, and had a pay rise at work. Instead of a salary of £3,000 per month, you now earn £3,500 per month.
What do you do with the extra money? Buy a car? Move to a bigger house? Suddenly, that pay increase has been consumed by your desire to leapfrog your lifestyle. Even though your previous car got you from A to B and your home was ideal for you, you felt the need to scale-up your lifestyle.
Instead of spending the extra money, save and invest it. Okay, allow yourself a little extra, but don’t neglect your financial goals in the process. Don’t succumb to lifestyle inflation.
7. Make Your Money Work For You
As your cash pot grows, put it to work more effectively. Don’t sit on it and hope all will turn out good in the end. The wealthiest people make their money work for them. You can, too.
Whether investing to grow your capital or produce passive income, it has never been easier. Even beginners can follow what the wealthiest do by using the best stock trading apps to maximise your returns and protect your investments.
When you save or invest, make sure that you save in the best savings accounts and invest in products that will help you achieve your financial goals tax efficiently. These include:
- Individual Savings Accounts (ISAs), in which all capital gains and income are tax free. You’re allowed to invest up to £20,000 per year in an ISA.
- Self-Invested Personal Pensions (SIPPs). Longer-term investing, designed specifically for retirement planning. You’ll benefit from tax relief on your contributions and tax-free growth and income within the fund, though any withdrawals or income from it are tax liable (though you can withdraw 25% tax-free cash at age 55 or older).
Talking about retirement saving, check on your employer’s pension scheme. Your employer will add money to it with you – and its always better to use other people’s money to build your wealth!
Here’s a strategy for you on which I missed out. Not doing this remains my biggest financial regret today. Take advantage of share scheme offers at work. These might be share purchase programs, share option plans, or save-as-you-earn schemes. They can be highly lucrative and very tax efficient.
When I was in my mid-20s, my wife and I had just bought our first house. Three years running, my boss advised me to put as much as I was allowed into our company share scheme. I didn’t have the money to do so (I could have invested £3,000 a year).
In 1995, the company was taken over. Had I invested £9,000 in company shares over those three years, I would have paid off my then £45,000 mortgage with a tax-free gain. It still hurts.
Do Everything Continuously and Constantly
There is something else that is key to your becoming a millionaire. The above aren’t seven steps to wealth, they are actions that you must embed in your psyche and in your everyday routines and habits. Each action will have positive effects on your financial future, but only by being constant with all seven will you give yourself the best chance of becoming a millionaire.
Remember, too, that money begets money. As you build your wealth, your financial stress will ease. The more money you have, the more you can invest. The more you invest, the greater the potential for your investments to grow. Like a virtuous circle.
You now know how to become a millionaire. There’s no magic wand to wave, but with a focused, disciplined approach, a bit of hard work, patience, and an intentional approach, your first million is within your reach.