How to Become a Millionaire Using 3 Simple Strategies

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Strategy No. 1: Creating a budget

The first step toward becoming a millionaire begins with the ability to save money. As the old saying goes, you need money to make money -- but it's incredibly difficult to save money if you don't understand your cash flow.

Arguably the biggest setback most consumers face when trying to establish a budget is a lack of discipline. Either their spending isn't properly tracked, or the defined goals are simply too loose. The secret to a great budget is in setting defined lines in the sand on spending categories, such as discretionary spending or groceries, which can help you track your progress on a month-to-month basis and allow you to make adjustments on an as-needed basis.

For those of you who are classic over-spenders, or who have difficulty sticking to a budget, one possible trick is to think of each budget category (such as entertainment) as having its own bank account, or even setting up separate jars with cash inside for each budgeted category. Even though you may have plenty of money in your checking account, if the money for your entertainment account runs out two days before the end of the month, then you're out of money. Period! This little trick can help you learn to live within your means so you can start saving for retirement early and often.

Just how important is a budget? Utilizing Bankrate's return on investment calculator, if an individual began saving just $142.25 each month to put toward their investment account at age 18 and did so through their full retirement age of 67 years (so for a total of 49 years), and the stock market returned an average of 8% annually (which is its historic average), our fictitous investor should have $1 million in their investment account upon retirement. Without a budget it can be tough for some of us to scrape that $142.25 together, and it could be causing us to miss out on lucrative potential profits.

 

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Strategy No. 2: Learn to reinvest your dividends

The second strategy involves utilizing the stock market to seek out solid businesses that pay healthy dividends. For those of you who are uncomfortable with the idea of picking out individual stocks, or who don't have the time to devote to researching individual companies, there are always electronic-traded funds, or ETFs, you can buy. As of December, there were more than 1,400 to choose from.

Over the long run, there is no investment vehicle that has more handily trounced inflation than the stock market. By a similar token, successful investors also understand that dividend-paying companies offer an added bonus to those gains in that they return a certain percentage of their profits to shareholders. But the smartest investors of all truly understand how to use those dividend payments to supercharge their returns.

Instead of simply pocketing a dividend payment from a company or an ETF, consider taking your dividend and buying additional shares of that company or ETF. If there is a solid business model and investment thesis behind a company, there's a good chance its dividend will remain steady or grow over time. What this means for you is the ability to buy more shares over time, which can lead to an even bigger dividend, which leads to even more shares of stock.

The result from this compounding growth can be returns that, over a 30- or 40-year period, could be double what you would have earned had you simply pocketed your dividends payments.

 

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Strategy No. 3: Minimize or eliminate what you pay in capital gains taxes

Once you've set parameters that allow you to save, and you've set your sights on dividend stocks for the long term, the final step in the process of how to become a millionaire involves using tax-advantaged tools to your benefit.

Arguably, the Roth IRA is the most powerful tool the younger generation can use when investing. This is a retirement account that does have some income limitations, but if you qualify, you can contribute up to $5,500 per year ($6,500 per year for those aged 50 and up).

What makes a Roth IRA so great is that any and all capital gains over the long term are free and clear of taxation as long as you don't make any unqualified withdrawals, and you don't take any money out that was added to the account for at least five years. For instance, take our fictitious investor above as a good example. Over 49 years he or she earned around $815,000 in capital gains over what they originally put in. If this were a Traditional IRA our investor might owe as much as 20% taxes on this total when disbursements finally start. However, our Roth IRA investor gets to keep these gains free and clear of taxation, meaning that $1 million in their account is really $1 million-no strings attached, minus the one's just discussed.

Another key point, which we alluded to above, is to avoid short-term investing. Short-term investing is tough not only because timing the market is hard to replicate with any success over the long run, but primarily because it exposes you to ordinary marginal tax rates based on your income. Instead of paying a long-term capital gains tax rate of 0%, 15%, or 20%, you could be exposed to a marginal tax rate of anywhere from 10% to 39.6%!

You may not be the next Warren Buffett or Donald Trump, but if you utilize these three smart strategies, there's no reason you can't one day become a millionaire and claim your own slice of the American dream.

How one Seattle couple secured a $60k Social Security bonus -- and you can, too

A Seattle couple recently discovered some little-known Social Security secrets that can boost many retirees' income by as much as $60,000. They were shocked by how easy it was to actually take advantage of these loopholes. And although it may seem too good to be true, it's 100% real. In fact, one MarketWatch reporter argues that if more Americans used them, the government would have to shell out an extra $10 billion... every year! So once you learn how to take advantage of these loopholes, you could retire confidently with the peace of mind we're all after, even if you're woefully unprepared. Simply click here to receive your free copy of our new report that details how you can take advantage of these strategies.

 

[Ghost313]

Good drop. Learning to reinvest. I'm too heavy in real estate.

 

[Lurkristocrat]

ill check this out, goat drop

 

[Busta Carmichael]

Pralims with another goat thread.

I appreciate your and @sion business advices to the IC. Really helpful

 

[texas409]

good drop my man

 

[VIBE]

@Kat

 

[MrMinimalist]

Should us Millennials take all of our money out of our 401ks, IRAs and TSPs NOW and invest in ourselves because we're going to be taxed higher to pay the baby boomers plus SoSo Security and those saving vehicle's money won't be there or as much when/if we hit 70?

 

[MrMinimalist]

So when I quit my job, I can just let me money sit in there until I'm 59 or whatever age to get full benefits while managing my own business?

 

[Rembrandt]

Great thread. Budgeting is the biggest of the three for millennials to grasp, I think. There are a lot of things we use our discretionary income for that are probably not worth the cost. Sometimes, sacrifices have to be made in the short-term for the benefit of the long-term.

 

[A Talented One]

I am not trying to become a millionaire.

I'm interested in race uplift, not getting rich.

 

[MrMinimalist]

Budgeting should be the easiest thing to do. You either have to make more money or budget better with money you have.

A lot of people are "thousandaires" and living sweet. If you're making whatever and living comfortably, keep it that way.

As for race uplifting...blah. I'm only helping and working with those who want to succeed, no matter what race.

 

[lostsamuraisotaku2]

Take it from a million are Dick ass pussy in yo damned mouf nigga!!

 

[5 Grand]

I am not trying to become a millionaire.

I'm interested in race uplift, not getting rich.

The only way to uplift the race is by getting rich and accumulating millions.

You can't uplift the race from the Welfare office or the unemployment line!!!

 

[AP21]

step no 1 is probably the most practical of the three

Im not shitting on steps 2 and 3 but i think they come much later once you've mastered step one. Your income is your best wealth building tool and this goes beyond a LOT of people's head. Before you can invest into someone elses company, you need to invest in yourself

deny your short term gratification for long term sustainability. Not to say you cant do some thing in the short term, but far too many people are living in the moment instead of thinking down the future

 

[A Talented One]

I am not trying to become a millionaire.

I'm interested in race uplift, not getting rich.

The only way to uplift the race is by getting rich and accumulating millions.

You can't uplift the race from the Welfare office or the unemployment line!!!

Was Du Bois rich? Was Malcolm? Was MLK?