How to Become a Millionaire

 How to become a millionaire

In the United States, there are over 20 million millionaires. Many of them are pop culture icons or catch the attention in the media, making it seem that becoming millionaire is not possible for everyone.

You don't necessarily need to create the next tech unicorn or become a celebrity to make it big. Most millionaires are ordinary people. Not all of them make six- or seven-figure salaries. A little bit of common sense, discipline, and hard work can make you a millionaire, even with an average income.

How You Can Be a Millionaire

To become a millionaire, you must first understand compound returns. The challenge of becoming a millionaire seems daunting when you consider the modest savings rate per month compared to a goal of $1,000,000.

However, compounding is the best way to create wealth. It's where your early returns lead to greater later returns. This is how it works: You earn 10% on $1,000 each year. That's $100 worth of gain. The same 10% return would be earned the following year for $1,210. This is a gain worth $110.

Compound returns are great because they provide investment returns without the need to add additional money to your investments (though it is important that you contribute more money in order to maximize your compounding).

Compounding Returns Example

Let's look at compounding and how it can help you become millionaire. First, let's calculate the possible return on our investment. The average annual return for a portfolio that includes 80% stocks or 20% bonds has been 9.4% every year since 1926. Over the same period, inflation averaged around 2.9%. This historical data will be used to determine an inflation-adjusted annual yield of 6.5%. Our calculations will result in a value of money today if we use an inflation-adjusted annual rate of return.

The length of time we save and invest will determine how much we have to save each monthly to become a millionaire. This is where it is crucial to remember that the more we save and grow our wealth, the more we need to save each monthly to reach our goal.

We would need to save $6,000 per week if we are to become millionaires in 10 years. It is obvious that this is unrealistic for most people. Fortunately, most people aren’t trying to become millionaires overnight.

For those who are saving for retirement, there is usually a minimum of a few decades before they reach millionaire status. By extending our investment period to reflect this, we can start to see the benefit of investing early and compounding the power.

Savings for 20 years can drop to $2,075. While this may seem impossible for many people, it is becoming more realistic. Here are the amounts we would need to save each monthly for different time periods. A First Step to Millions and Millions of Cash