How to Make a Million Dollars

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Without knowing it, you may live next door to one. Or have one among your Facebook friends. And with the right strategy, you could become a millionaire, too.

What, exactly, does it take to become a millionaire? If you're like me, you may envision Scrooge McDuck swimming the backstroke across a sea of gold coins, the spoils of a charmed life. The reality, however, is that most millionaires have built their wealth through scrappy perseverance and a diverse portfolio.


Millionaires are defined in different ways. RBC Wealth Management and consulting firm Capgemini who produce the World Wealth Report say it is someone who has $1 million or more in investible assets -- not including items like your primary home or consumable goods you own. On the other hand, international mega-bank Credit Suisse defines it as someone with a net worth of at least $1 million. This net worth could include the value of your primary residence, money that's been invested in real estate or trust funds (known as non-liquid assets), and cash, stocks or bonds (liquid assets) [source: Frank, Stern].

Using the former definition, there were 11 million millionaires in the world in 2011. Using the latter, you get 28.6 million millionaires on the planet [source: World Wealth Report, Peterson].

If you'd like to see how close you are to becoming a millionaire, figure your own net worth by adding the value of your assets: your home, its furnishings, your cars, bank accounts and investments. After you have a sum total, subtract your liabilities, which include the balance of your mortgage and car loans, credit card balances and other outstanding debts. What's left is your net worth.

Not a millionaire yet? Don't get discouraged. This level of wealth is attainable within a lifetime. By making smart financial decisions and following a road map that includes a few key strategies, it's entirely possible to become a millionaire. It also means you'll need to live beneath your means, which is a far cry from the millionaire lifestyle many of us have become conditioned to expect.


The Millionaire Lifestyle

Contrary to popular belief, many millionaires do not live in mansions in prestigious neighborhoods.

We all imagine millionaires drinking expensive champagne at breakfast, driving expensive cars, shopping at the most prestigious establishments and vacationing in exotic locations.

Researchers have studied the lifestyles of millionaires and come to the conclusion that the majority of them don't live that way at all. Most of the truly wealthy are more substance than flash. That's why they're still millionaires.


Thomas Stanley and William Danko's book "The Millionaire Next Door" revealed that most millionaires really could be the folks next door. They don't have a new car every year or jet around the world. In fact, sometimes they're the least likely person you would suspect.

Stanley and Danko found that millionaires share a few common characteristics:

  • They live below their means. Half of the millionaires interviewed did not live in high-status neighborhoods. Instead, they lived in average neighborhoods in average houses. That's how they were able to save money. The other half that did live in high-status neighborhoods only moved there after they had become wealthy.
  • They lead frugal lifestyles. Most do not buy $5,000 suits, expensive boats or even new cars. You might say they're tightwads. They shop for bargains and always negotiate for a better deal.
  • They're self-employed or own their own businesses. They also love their work -- they connect with their jobs and feel very passionate about them.
  • They plan and study investments. The majority of millionaires invest heavily and spend a large amount of their time studying their investments or seeking advice from financial advisors.
  • They weren't always at the top of their class. Another surprising commonality among the millionaires interviewed was that they didn't all have advanced degrees or graduate at the top of their classes. Some didn't even go to college and a few didn't even finish high school.
  • They're self-made. Finally, the majority of millionaires received no family money and do not plan to give their own children a lot of money. They want their children to succeed the same way they did -- on their own.


Millionaire Strategies

You could always hit it big at a casino and make a lot of cash -- but the odds of becoming a millionaire aren't good.
Atlantic City Convention & Visitors Authority

Now we answer the question you've been dying to know: How can I become a millionaire?

Most millionaires are self-made people. They set a goal to become a millionaire -- or at least a goal to achieve financial freedom. Some invested in a higher education that set them on some of the world's most lucrative career paths -- physician, lawyer or CEO, to name a few -- and then implemented aggressive saving and investing strategies.


Others (in fact, most) took an entrepreneurial approach by turning a good idea into a successful business. Although people who are self-employed make up less than 20 percent of the workforce in the U.S., they comprise a whopping two-thirds of the nation's millionaires [source: Stanley].

Of course, starting your own business means taking risks, but with the right idea and a good marketing plan, success could be yours. Some of the hottest sectors include green construction, which is expected to reach a value of $140 billion by 2013, and mobile app development. In 2012, there were about 1 million apps available in Apple's App Store and Google's Android Market, with more being added each day. In the App Store, for example, monthly user downloads reached the 1 billion mark in 2012. Sell just a fraction of this figure -- say, 500,000 apps -- for $2 each, and you'll earn a million dollars [source: Thurner]. We'll explore more millionaire-maker ideas in an upcoming section, too.

Another strategy involves a degree of luck and skill. If you have extreme athletic talent, you stand a chance of making millions as a professional athlete. LeBron James, for example, went straight from high school to the NBA and got a $90 million contract from Nike before he had even played a single professional basketball game [source: ESPN]. However, the four professional sports leagues together in North America employ fewer than 5,000 athletes [source: Simpson].

Or, you could set your sights on Hollywood and becoming a highly paid actor. Unfortunately, the odds are one in 1.5 million that you'll become a movie star [source: Carter]. You'll encounter similar statistics if you're an aspiring singer or author, too.

Of course, not all millionaires are self-made. Another way to become a millionaire is to be born into a family with a high net worth, as long as the family is willing to divest some of its funds toward your future. Take Paris Hilton, for example. She is the great-granddaughter of Conrad Hilton, who founded the Hilton Hotels chain, and subsequently created some of the wealthiest heirs in the world [source: Biography]. Even if you're not born to wealth, you can always take a shot at marrying into it, provided you get to know people in these high income brackets.

Finally, a lucky few win the lottery, hit it big in Las Vegas or win a load of cash on a game show. The odds of this happening are in the same territory as becoming a movie star.

If you'd rather not leave your million-dollar goal to chance, it's a good idea to discover how saving and investing can boost your odds. We'll explore this is more detail in the next section.


Investments and Compound Interest

The more you save and the better the interest rate, the sooner you'll become a millionaire. However, a million dollars will be worth less in today's dollars.

If you save money every month, for a long enough period of time, you will become a millionaire. Sound too good to be true? Well, as Einstein reportedly put it, compound interest is the "eighth wonder of the world."

Becoming a millionaire depends on how much money you currently have saved, how much interest that money will earn, how much you can save each month -- and, of course, how long you can wait before making a withdrawal.


To zero-in on the specifics, use an online calculator (such as Bankrate) to determine how much you need to save each month in order to have a million dollars by a specific age. For instance, if you're 30 years old, have $5,000 already, save $100 per month, and earn 8 percent interest, you'll be a millionaire in a mere 50 years -- at the ripe old age of 80.

Now, what if instead of 8 percent interest, you invest your funds well and can average 10 percent earnings? It's not far-fetched. On average, the stock market averages an annual return of 10 percent [source: Krantz]. And when that happens (assuming you start at age 30 with a $5,000 nest egg, and invest an additional $500 each month), you'll be a millionaire in 29 years at age 59. But there is a catch: inflation.

Most online investment calculators will also tell you how much that million will actually be worth by the time you've finished amassing it. Because of inflation, in 50 years a million dollars will only be worth about $228,000, which probably won't be enough for financial freedom.

If you'd like to target a financial goal for retirement, use an online retirement calculator, such as the MSN Money retirement calculator. By plugging in your current expenses and an estimate of your expenses once you retire, you can come up with a more realistic financial goal for retirement. You may find that you need to be a multimillionaire in order to retire with the lifestyle you want.

Of course, simply being a millionaire (or multimillionaire) at retirement isn't everyone's goal. Most of us would like to experience the millionaire lifestyle sooner rather than later. We want financial freedom so that our investment interest is enough to pay our living expenses. In that case, let's talk about how you can make that happen.


Becoming a Millionaire

There's no one way to become a millionaire, but there are some basic, common-sense steps that you can take toward reaching your million-dollar goal.

Set your goals

How soon do you want to be millionaire? In five years? In 10 years? By retirement? Whatever your timeframe, you need to have a written plan. Mapping out your road to millionaire status should include a carefully formed budget, as well as specific dollar amounts you're willing to contribute toward saving and investing. The more you'd like to save and invest, the more you'll need to rely on a budget that will manage and trim current expenses.


Determine your strategy

Now is the time to determine your moneymaking path, too. If you're going the entrepreneur route, you'll need more than just a good idea. The most successful business owners have networking, financial and strategic skills earned through experience and education -- or a mixture of both. A business plan is a first step to determining to mapping out your company goals. The Small Business Administration has a template you can download. We'll talk more about starting a business on a later page.

You could also consider gaining an education that will result in a lucrative career; a master's degree in business administration could lead to a CEO position with a million-dollar compensation package. Or you could aim for a career in medicine or law. Keep in mind, however, that this doesn't automatically mean you'll earn a million dollars. Family physicians, for example, earn far less than their counterparts who specialize in a particular field. A cardiologist earns an average of $442,000 a year, while a physician in family practice nets about $178,000 a year [source: Forbes].

Set up an emergency fund

You won't get very far on your road to becoming a millionaire if unexpected expenses get in the way. One of the first rules about managing your finances is to always have accessible cash in the event you're are laid off, injured or experience some other catastrophe that takes away your ability to earn a living. Recommendations vary, but usually the amount of an emergency fund should equal three to six months of living expenses.


The Millionaire's Budget

Starting a high-yield savings account early is a great way to make money with no effort.

You might be surprised that a millionaire needs a budget at all. But she does. Setting a budget should be the foundation of your bid to become a millionaire. Tracking your spending and making decisions about where your money goes is paramount to saving it. And, while we're not going to pick on easy targets (like your daily latte), it's true that cutting back on non-essential expenses can boost your savings.

So, as you think about how much money you spend buying things on a whim, consider tracking your spending habits. There are a number of free Web sites that can categorize and chart your spending, such as Mint, or apps that allow you to record spending on the fly, such as Spending Tracker for iPhone and Expense Manager for Android. Then you can use this information to set up a realistic budget. If you know you can't live on rice and beans alone, set aside money to splurge on a steak once in awhile.


Establishing a budget will allow you to do an essential task for a millionaire-in-training: Pay yourself first. This will ensure saving or investing is a priority, not an afterthought.

If you have debt (and who doesn't?) you'll need to pay it off as you save and invest. Using a debt-payoff strategy known as the "snowball effect" can be effective because it has built-in rewards. Start by paying off your smallest debt first. Once this debt is paid off, add the money you had been paying on it toward your next smallest debt -- and so on. This debt-reducing concept has the added benefit of debt-relief milestones, ones that appear on the horizon quickly. This can be an ideal motivator [source: Smith].

Start saving and investing early

There is a universal truth: The earlier you start, the harder your money will work for you.

Let's say that at age 12 you won $500 in a raffle. Instead of using that $500 to buy a game console and games, you put that money in a savings account that earned 5 percent interest. In reality, that interest rate will fluctuate over time, but for our purposes, let's say it stays a constant 5 percent. At the end of five years, you will have $638.14. At age 25, you will have nearly double your initial investment: $942.82. By the time you are 40, that $500 would have turned into $1,960.06.

Now, assume that instead of a savings account, you had invested that $500 in stocks that earned 10 percent each year during those 28 years. At 40, your $500 investment would have turned into more than $7,000. This is exactly why one of your first duties as a new employee should be taking advantage of your company's 401(k) (especially if they will match your contribution). Invest as much as the law allows. If you are self-employed, set up an IRA and do the same.


Starting a Business

Are you an entrepreneur? Are you willing to put in the time and effort to build your own business? More importantly, do you have a great idea for a business? The majority of self-made millionaires gained their financial freedom, not just from one great business idea, but from several businesses that produced income streams.

Take Georgia kindergarten teacher Deanna Jump, for example. Jump relied on her income as a kindergarten teacher, along with her teacher-husband's income, yet struggled to support their family of five. So she turned to another income stream -- one that made her a millionaire.


Jump began selling lesson plans to other educators on in 2008. After a less-than-stellar first year in which she made about $300, Jump began to see her profits soar. By September 2012, she had sold more than 161,000 copies at $5 to $8 each, turning her part-time business into a lucrative one. Jump attributed some of her success to her blog which alerted readers any time she had a new lesson plan [source: Winter].

Often, the secret is to find an unfilled niche just as Jump did. If you're not sure what kind of business you might want to start, do some research, network, ask questions and take notes. Look for needs that aren't being fulfilled. You may even design a product to meet a need, patent it and then license it to someone else to manufacture and sell. The most important thing is the idea -- and the willingness to take action on it.

Keep in mind, though, your big pay-off doesn't always need to come from a new product or even a new business. You might find a new way to use an old product, like using materials that are typically discarded in a new way. Or, maybe you've noticed a location that could really use a certain type of store, and maybe there's an opportunity for a franchise.

In the next section, we'll learn about other successful millionaires.


Millionaire Success Stories

Here are two stories of ordinary people who became millionaires. If it could happen to them, it could happen to you:

Neil McCarthy

Research chemist Neil McCarthy started investing in the stock market when he was 34, in the 1970s. Today he has a net worth of about $2.1 million. When stocks went down, he bought more. He contributed the maximum to both his IRA and his 401(k) and his employer matched 100 percent. That's truly free money -- no risk. The big payoff came during the 1990s bull market when his stock doubled in three or four years, suddenly reaching $1 million.


He avoided technology companies because it didn't make sense to him. He saw price-earnings ratios of 200 to 300 and "thought it was absolute nonsense." This practical investing style saved his millionaire status when the market crashed. When he retired in 2000, McCarthy took his retirement payout as a lump sum. Just before interest rates started to fall, he invested part of the money in an immediate annuity and earned a bigger payout than if he had chosen the company's pension annuity.

His number one piece of advice that made all the difference is this: "If you wait to save out of what's left over from your salary, it's not going to happen. Pay yourself first" [source: Million Dollar Ideas].

Sheri Schmelzer

In 2005, Sheri Schmelzer was a 40-year-old stay-at-home mom when she decided to get creative with her family's multiple pairs of Crocs shoes. The plastic slip-on shoes have ventilation holes across the top and Schmelzer, armed with clay and rhinestones, created mix-and-match designs that would fit in the holes.

Schmelzer came up with the idea just for fun and credits her husband with seeing the sparkly designs' potential. Within weeks, the two had set up a Web site for their new company, Jibbitz, and had started selling the Croc add-ons to the masses, tapping into a home equity loan for capital. Before long, the accessories were sold in stores, too. By August 2006, Jibbitz sales had reached $2.2 million. And, just three months later, the Schmelzers sold their company to Crocs for $10 million, with another $10 million promised if the accessories hit a specified sales goal [source: Anderson]. "If you have good customer service then your customers are going to talk about you," said Schmelzer. "We didn't do any marketing or advertising at all; it was all organic growth" [source: Ladies Who Launch].


Lots More Information

Author's Note: How to Make a Million Dollars

There's a phrase used to describe those who live above their means -- and those who don't: "big hat, no cattle." Where I come from, there's a literal truth to this adage. Some of the richest people I know drive old pickups and wear worn-out Wranglers, yet have amassed a fortune that would surely be envied by all the people driving new cars, wearing designer brands and struggling to save. There's something to be said for living below your means, especially if your goal is to become a millionaire.

Researching this article was inspiring, too, thanks to all the real-life stories of self-made millionaires I've come across. I find the common threads interesting: work they are passionate about, problems they noticed and then vowed to solve, the desire to succeed that overshadowed the desire to spend.

Related Articles

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