One of the biggest financial dreams harbored by many “regular folk” is to reach the point where they have a net worth of $1 million. Becoming a millionaire is a sign of financial success in our country, and, for some reason, we think that if we become a millionaire all of our money problems will disappear. However, it’s not the end result — becoming a millionaire — that fixes money problems. It’s the journey. How you become a millionaire has a lot to do with the way you manage your money.
Instant Millionaire: The Path to Bankruptcy?
The idea of becoming an instant millionaire, through lottery winnings, an inheritance or some other windfall is something that grabs the imagination. Unfortunately, the instant millionaire may not always remain a millionaire (although this is true of anyone).
A recent study looked at lottery winners and analyzed their behaviors and whether or not they went bankrupt. 5.5% of the winners in the study went bankrupt. Admittedly, no one in the study became a millionaire, but it still illustrated a point: Sometimes a windfall does nothing to improve someone’s finances long-term. Besides, there are plenty of stories of lottery millionaires who lost it all, as well as stories of athletes, celebrities, game show winners and “regular” people with inheritances who go broke.
While not everyone who becomes an instant millionaire is destined to bankruptcy, the keys to keeping all that money are the same as becoming a millionaire through a longer process.
Keys to Becoming a Millionaire
You can become a millionaire if you are willing to make tough decisions, put your money to work for you, and make wise decisions with your earnings. Here are some of the keys to becoming a millionaire:
- Get out of the instant gratification mindset: One of the first things you have to do is move away from a mindset that involves having what you want now. Instead, you need to prioritize your spending. Take care of your needs first, and forgo some of your wants when necessary. Live within your means, and save up for large purchases.
- Earn interest, don’t pay it: Instead of paying interest, you should be earning it. Pay off your debt as quickly as possible so that the money you have been spending to enrich others through interest is instead being used on your behalf. Look for smart investments that can put the power of compound interest to work for you, and be diligent in regular investing.
- Look for ways to cultivate additional income: It is vital that you look for ways to diversify your income. Take charge of your income, looking for ways to encourage more cash inflows. This can include starting a home business, investing in dividend stocks, creating something that will result in royalties, or even getting a part-time job. Understand that if you want to speed your way to becoming a millionaire, relying on a traditional job is not your best option.
- Prepare for the unexpected: Be ready for unexpected setbacks. An emergency fund is a good start. But it also helps to understand how money works. A professor in one of the business classes I took in college once said that there are two types of millionaires. One type knows how money works, and if she were to go broke today, and have nothing left but a dollar, she would know how to use that dollar to become a millionaire again. The other type doesn’t know about money, and could start with a whole pile of money and always be in financial trouble. If you are prepared for the unexpected, you will be more likely to recover and get back on track.
What do you think? What would it take for you to become a millionaire?
Miranda is a professional personal finance journalist. She is a contributor for several personal finance web sites. Her work has been mentioned in and linked to from, USA Today, The Huffington Post, The San Francisco Chronicle, The New York Times, The Wall Street Journal, and other publications. She also has her own personal finance blog: Planting Money Seeds.