Becoming a millionaire is largely about finding more money to save and invest. Before we started the process of educating ourselves in the ways of money management, we really thought that becoming a millionaire was impossible for working class people like us. We’d been raised believing that there are the “haves” and the “have nots” and that it wasn’t our choice which group we were in; it was simply luck of the draw.
Today, over three years since we’ve really been committed to continuing personal finance education, we now know differently. Honestly, although I love hearing the many stories of people in their thirties, forties and fifties who have become millionaires through diligent saving and serious expense-cutting, many of those people and families have six-figure incomes.
But what about the rest of us? Those making well below six figures and raising kids? Don’t give up; there’s a chance for you too. Consider the story of janitor Ronald Read. When Read died at age 92, he left behind a massive, $8 million dollar portfolio. Widowed and the stepfather of two, Read left most of his fortune to a local hospital and library in his home state of Vermont.
So, how did somebody like Ronald Read, a low-income earner working as a janitor and maintenance worker at a local store (after he spent some time pumping gas) amass such a fortune? Here’s how Read did it, and how you can work your way toward millionaire status, no matter what your income.
So You Want to Be a Millionaire
Every Penny Counts
Millionaire status doesn’t necessarily require that you live in a van down by the river, but it does require that you watch your pennies. How to find a balance between living well and living frugally? Consider these tips.
Be a Value-Based Spender
Value-based spenders refuse to spend money on things that don’t hold much value to them. They avoid the fancy coffee shop and bring coffee from home. They eat out only on special occasions. They precede spending decisions with the question “Does this purchase really bring value to my life?” If the answer is no, they don’t allow the “Oh well, it’s only ($5, $10, $20, $50) bucks, what the he**?” mindset to sway their decision.
Instead, they refuse the purchase and look for opportunities to use that money in a way that will bring value to their lives.
Recommended Reading: The Legend of the Monk and the Merchant: Twelve Keys to Successful Living
What a value-based purchase is varies from person to person. Only you can decide what a value-based purchase is or isn’t in your own life, and a good way to help start educating yourself on that process is to make a list of the top five things you want from your life money-wise. It’s important to think long-term and big-picture as you make your list. For instance, our list would include these two money goals
- We want to be debt free so that we’re not in bondage to loan, mortgage and credit card companies
- We want to have X amount in savings so that a financial problem such as a job layoff will be a hiccup instead of a throw-up 🙂
After you’ve made your list, you use those reasons and measure them up against purchases. You ask yourself questions such as:
- Will this purchase pull me toward or pull me away from my goal of being debt free?
- Is this purchase a necessity to my life?
- If this purchase pulls me away from my goal, is it worth the extra time it will take me to recover that money?
I’m willing to bet that nine times out of ten, when thinking about purchases from a value-based standpoint, most times you’ll end up foregoing that purchase in lieu of greater things.
Learn to Differentiate Between a Need and a Want
In today’s materialistic society, most people have lost track of the difference between a need and a want. Let me give you an example.
When I worked in the banking industry, I worked for awhile as a personal loan rep. We’d take incoming calls for applications for car loans, personal loans and home equity loans. One day a guy called asking for several thousand dollars (unsecured) for new furniture. After pulling his credit report, we learned that the guy was in hock up to his ears and had little savings to speak of.
The underwriter and I both agreed that this guy was not a good risk. When I got back on the line to tell him the loan was denied, he flipped out big time.
“What am I supposed to do now? I just bought this new house and I need new furniture!!!”
I gently tried to explain to him that maybe there was another way, like living with the furniture he had or getting a second job to save up the money, but he would have none of it.
I’m not judging the guy; we’ve been there too. But now that we’re off of that train, I can tell you that life is much better when you’re not working to live up to the Joneses and their long list of “needs”.
Recommended Reading: The Millionaire Next Door: The Surprising Secrets of America’s Wealthy
Work to learn to think really seriously about what you want – and about what you need in comparison – and I’d be willing to bet you’d find some serious extra cash in your life.
Learn to Get Creative When it Comes to Not Spending
Multi-millionaire Ronald Read was creative when it came to not spending. People who knew him shared about how he used safety pins to hold his coat together when a button broke or how he parked his modest car far away from his destination in order to avoid meter fees. Here are some ideas for getting creative when learning to spend less.
- Dump cable or satellite and get Netflix
- Learn to DIY when it comes to home repair or car repair
- Buy your clothes on sale or clearance, or simply be happy with what you have
- Learn to cook at home and find ways to save money on groceries
- Buy a quality used car instead of a new car
- Avoid expensive vacations and opt for staycations or weekends away
- Avoid upgrading your techy toys and be happy with what you’ve got
There are many other ways to get creative and spend less if you’ll simply look around for them.
Understand Opportunity Cost
Opportunity cost is the real cost of an item you purchase. Here’s an example of opportunity cost:
A person purchases a new car that has a $482 payment for six years, bringing their total cost for the car, plus interest and down payment of 15 percent to a grand total of just under $40,000.
Let’s suppose that, instead of purchasing a new car, the person drove a reliable, paid for older car and invested that down payment of $4,971 and that monthly payment of $482 a month for six years, earning an average interest rate of 8%.
How much money would the investment be worth at the end of six years? $50,319.37
The new car purchaser gave up the opportunity to gain $50,000 and instead chose to spend $40,000. So, in essence, that new car cost the borrower over $90,000.
Opportunity cost can also be identified by estimating how many hours you would need to work to pay for an item. Let’s say you made $25 an hour after taxes and deductions. Now let’s say that you’re considering a dinner out that costs $75.
Is your dinner out worth you having to work three extra hours? Thinking about your expenditures in this fashion helps put your money in perspective. Most people would agree that their time is much more valuable than their money.
Commit to Action
Self-made millionaires like Ronald Read achieve millionaire status because they persevere in their goal, committing to every day action to help them achieve that goal. Here are some action steps that, if you commit to taking for the long-term, will help propel you toward millionaire status.
- Commit to living within a monthly budget
- Commit to tracking spending each month so that you can see where financial leaks are
- Commit to living a life without debt
- Commit to saving something out of every paycheck, every month
- Commit to educating yourself on the different types of investments (stock market, real estate, bank CDs) so you can determine which methods of investing are right for you.
- Commit to getting back on track if you fall off the money management wagon
- Commit to working toward your goals no matter what the neighbors or anyone else thinks
Becoming a self made millionaire won’t happen overnight, but every step you take toward a more secure financial future will add up to great results, and would you really be unhappy if you were only able to achieve becoming debt free and having $250,000 in the bank?
Now you’ve got your action list. What’s stopping you from working toward becoming a millionaire? What other steps would you suggest taking to help increase wealth?