Stupid question right? Who doesn’t want to be a millionaire? The question should maybe be “are you willing to pay the price to become a millionaire?” If you want to become a millionaire and are willing to do what it takes you can read up on the 5 keys to building wealth which will lead you to many other posts on this blog.
Before you do that, the second key in my 5 keys to building wealth is about setting a goal and creating a plan. If you want to set the goal of one million and plan accordingly you should probably figure out what it is you are planning for. What is a millionaire?
Quick guide to what it means to be a millionaire
When I created my plan on how to become a millionaire I did some research on the term “millionaire” and to my surprise I found it can reached in one of a few ways. The term millionaire in its broadest sense means: an individual whose net worth exceeds one million units of his/her currency.
I was a millionaire in the States long before I was a millionaire back in my old currency the Euro. It took a while longer to be able to brag to my family back home. The strong dollar and some extra growth of my portfolio have since remedied that. So currency is one factor in being or becoming a millionaire. For the sake of this article let’s just focus on the Dollar. Currency exchanges and buying power elsewhere would lead me to the Big Mac index and it gets more complicated from there.
So a net worth of one million dollars makes you a millionaire over here, which leads us to the next term: Net Worth.
Net Worth is your total assets minus your liabilities. Put simple, whatever you own minus whatever you owe.
There is nothing ambiguous about what you owe. I can tell you what I owe down to the last penny. The banks won’t stop reminding me. Every month you get your mortgage, credit card and loan statements. You add them all up and you know what you owe.
Where it does get ambiguous, confusing or maybe even flexible is when we talk about what we own. What you own (or your assets) really includes everything tangible you posses. Your house, your car(s), your TV(s), your Blu-ray player down to the actual Blu-ray discs you put in it. It is a lot harder to create an inventory of all that “stuff” (not a bad idea for insurance purposes) but even harder to put a value to it.
It’s is fairly easy to put a value on your car through something like Kelley blue book. You can probably put a value on what your house is worth although you can really only go by what your last appraisal was.
When it comes to things like TV(s), iPhones, computers, DVD’s etc, it really becomes a crap shoot. There are tools that can help you. Quicken™ has an inventory manager that allows you to capture every item you own and it even makes an effort on putting a resale value on it. BTW, you really should be using resale value as the term “asset” implies you can convert it to cash.
What Quicken cannot do is put a value on that collection of vintage cameras you own. Oh, and that Plymouth Road Runner you’re fixing won’t sell for what you are putting into it.
I’m not going to tell you what to include in your list of assets when it comes to calculating how close you are to your end goal. It is something you need to determine for yourself. In all fairness the first day I proclaimed to be a millionaire I included my inventory, as captured and priced by Quicken. I have since landed on “just” my investments, bank accounts, property investments and our house.
Once you’ve figured out what assets to use for yourself you will be a millionaire when your assets minus what you owe is greater than or equal to one million dollars.
What kind of millionaire do you want to be?
Because of the flexible nature of “assets” I’m going to pose the next question which is, what kind of millionaire do you want to be? We all look at the McMansion across the street and figure those people must be rich. They may be but then again they might not be at all. In my opinion there are two kinds of millionaires:
The “I got a lot of stuff millionaire”
This one we most likely recognize as what we think of when we think of millionaires. This millionaire has accumulated a lot and often expensive stuff over time and when you add it all up in the list of assets there is a chance their assets minus what they owe may exceed one million dollars. They tend to have more than one property of which some of these properties have a “lot” of equity. They tend to own luxury cars that come with high monthly payments.
The “I got a lot of money millionaire”
This millionaire is more elusive. You don’t recognize him or her. He or she may actually work a middle class job. This millionaire tends to not drive the luxury car and this millionaire tends to not live in a big house. This millionaire has slowly been saving and investing his/her money and has been able to do so by living a modest lifestyle. This millionaire is now famously known as “the millionaire next door”. If you haven’t heard of him I recommend you read up on him (preferably after reading my book).
I’ll leave it up to you what kind of millionaire you want to be. What I’ve heard is, lots of stuff really doesn’t bring joy over time. More importantly, the “I got a whole lot of stuff millionaire” tends to make a lot of money but also tends to be one paycheck away from financial ruin. It costs a lot to get expensive stuff and it costs a lot, and sometimes even more, to maintain expensive stuff.
How to become a millionaire
I can’t help you become the “I got a lot of stuff millionaire”. Most of my posts go against most of that lifestyle. If you want to become the “I got a lot of money millionaire” I recommend you read the 5 keys of building wealth, If you can stick to those 5 keys you stand a good chance of becoming a millionaire. Whether you will become a millionaire in time for retirement or in 10 years is up to you. You can read the article but in short:
• Start early
It takes time, the earlier you start the better your chances. Compounding is key to getting to real wealth. Compounding effects kick in over time so the earlier you start the more you will reap.
• Set a goal and create a plan
it’s not going to happen by itself, make a plan to get there. The retirement planner on this blog can help you plan what to deposit, where and simulating all sorts of savings/investment vehicles.
• Live below your means
The most crucial key, start spending less than you earn. If you want to be the “I got a lot money millionaire” it simply means having some money left at the end of the month and pay it to you first. If instead you want to spend it all go ahead and be the “I got a lot of stuff millionaire”. In that case be prepared to lose it all and keep your fingers crossed you won’t.
• Invest wisely
There are different options on how to make your money grow. Growth is expected. A savings account won’t do it.
• Be patient and stay the course
It will take time, so stay focused, be disciplined and good things will come your way.
Well with that you now know how to determine your status of millionaire, you can decide what kind you want to be and I’ve pointed you where to begin on how to become one.
Good luck reaching your financial goals.