This is a post from Chris Land of Plan Your Finances. Enjoy!
Chris has 9 years’ experience as a UK pension specialist and licensed financial advisor. He specialises in helping clients make balanced financial decisions to grow their personal wealth.
Chris is licensed with Globaleye, an award-winning international financial advisory firm established in 1999, with 10 offices and 15,000 clients worldwide.
So you’re in your 30s. You have a good job. You can’t complain. But maybe you dreamed you’d have ‘made it’ by now. But what you want to know is – How to become a millionaire? So how do you cross that 7-digit line and save to invest before you turn 40?
1. Reassess your earnings and make bold calls if you have to.
You’re not a wide-eyed 20-year-old anymore. You’ve been doing whatever you are doing for maybe a decade by now. So ask yourself, how is it working out for you? If you stay on this track, being very pragmatic, where will you be at 40? You may conclude that despite the day-to-day stresses, just staying on track for another decade or so gets you where you want to be. If so, your best call may be to keep your head down, take a deep breath and just keep going, no matter what happens. On the other hand, if you aren’t getting anywhere, you have to be honest with yourself and take action. As the saying goes, “Insanity is doing the same thing and expecting different results”. Aim your financial targets high!
2. Focus on your #1 client.
No, not your boss! You are your #1 client. So when you decide to put in that extra couple of hours at the office, ask yourself – will you really be rewarded for it? Or are you just being idealistic? Would you be better off spending those hours networking or setting up a side-business? When someone asks you for a hand, be pragmatic – what’s in it for you? By all means help people, but be honest with yourself – are you doing so at the expense of your own well-being? Would they do the same for you? Take some of the extra time you’ll save and invest in yourself!
3. Do the one thing you don’t depend on anyone else for.
Self-made billionaire investor JP Lemann, owner of the world’s largest brewer, was once asked why he focused his teams so much on cutting costs. His answer: “It’s the only thing that doesn’t depend on anyone else. It’s the one variable that is always 100% in your control”. Well, take a page out of the private-equity book and zero-base your expenses. If you were going to live on as little as possible, what would you need? How much would it cost? If you invested the difference for the next 10 years, how much would you have at the end? You don’t need to know a thing about finances or investments to know how how to save – it only depends on you.
4. Don’t save. Invest.
You remember Aesop’s fable about the ant that works hard and saves while the grasshopper sings all summer, only to come begging for food in the winter, right? Well, financial markets have become a little more sophisticated than that in the past 3 millennia, but some people continue with that same mind-set. It’s no longer enough to save: inflation and fees will eat your savings away over time if you don’t invest. If you want to get rich, you need to take those savings and put them to work. You must save to invest. Look at stocks, property and business ventures to boost your returns. If you don’t know how to invest money, do some homework and consult a financial advisor, but don’t use it as an excuse to procrastinate.
No! Not Opium. OPM – Other People’s Money. The other thing you need to remember is that you can leverage your investments. In other words, you can borrow and use that money to invest. This is most common in real-estate, where you can potentially take out a mortgage and invest it in real estate and have the rent payments cover the interest on the loan. Mind you, investing with borrowed money does bring risks, but if you are dead-set on getting rich, it might make sense to take the plunge.
6. Go solo.
Conventional wisdom for decades has been ‘Get a good education, a good job, work hard and save’. But look at the rich people around you and see how many are employed. For every hotshot banker or law-firm partner there is probably a long list of self-made business owners in the most varied lines of business. That’s simply because when you own the business, there is no upper bound to what you can make. Nobody says “For someone of this background, experience and skills, this is more than fair”. Of course, going into business for yourself also has risk – nobody guarantees that you will make any money at all.
7. Get hitched.
Ask yourself what your expenses would be like if you were married. Rent and mortgage payments essentially halve. Holidays and other expenses also are lower if you are a couple than if you are on your own. And, although most people cringe at mixing romance and finance, it does pay to be honest with yourself about whether your spouse has the same mind-set as you do when it comes to money: a second income makes a world of difference to your situation, and the frugal spending that you’ll need to get where you want is also going to be tough if they are less careful and more appearance-oriented.
8. Ask yourself – Why do you want to be rich in the first place?
Billionaire after billionaire giving advice to aspiring money-makers has reflected that in retrospect, wealth hasn’t really brought a proportionately big level of happiness, or even change, to their lives. They don’t even particularly advise people to pursue wealth for its own sake. Of course, becoming a millionaire is now a far cry from being filthy rich, and may be a necessity if you want a comfortable life, depending on your standards, the costs of where you live and the size of your family. But do you really need to make it by the time you are 40? If you reflect honestly, you might find that crossing that mark in your 50s and working into your early 70s is more than enough to provide for a comfortable retirement and also enjoy the ride until then. Also, some of our tips, like giving up a monthly wage and investing more aggressively, do boost the chances of your getting to a million, but they also have significant risk. So ask yourself – Is this really for me?
If it really is, this reflection will also help you to focus your mind. Good luck! You can read more about how to become a millionaire by your 40s here.