“A wealthy person is simply someone who has learned how to make money when they’re not working”
About 80% of the millionaires are self-made. Inherited money, when used wisely, would multiply with ease but it needs a sharp mind and a disciplined financial strategy to accumulate millions from scratch. Here are a few things that you can learn from self-made millionaires on how to get wealthy.
Work out a Budget and Stick to It
Accumulating wealth follows the snowball strategy - just like a snowball rolled from a slope gains mass as it moves forward, your wealth keeps multiplying as you follow better investment strategies. You need to start by making simple changes in the way you deal with money to make a long-lasting change in your balance sheet. But how can you do it?
Budgeting could be a great head start if you wish to lead a more financially disciplined life. Follow the 50-20-30 rule to allocate your salary into different expenditure-heads. 50% of the salary should be diverted towards your needs, 20% to the savings account and 30% of your salary can be used for loan/debt repayments. However, the rule isn’t immutable. If you are under a large amount of debt, then you can allow a larger portion of your income towards the repayment of debts.
Investment Is the Key to Multiplying Wealth
Do you know the one thing that is common in all the millionaires? They always invest. To be a millionaire, you need to follow effective investment strategies depending on the zeros in your bank balance. So, if you’re someone who just started earning at the lower end of the pay scale, you can start investing in low-risk short-term mutual funds or index funds. If you are earning a reasonable salary, then you can go for long-term mutual funds that give high returns but at the same time involve a high level of risk. The key to earning a huge return is to balance the risk and rewards on the investments made.
Diversification is one of the most effective ways to earn high returns on low-risk investments. Spread out your portfolio by making investments in non-related products. In that way, you can maximize your gains while facing a low level of risk.
Know What You’re Spending on
If you want to get rich, live below your means. One distinct habit of millionaires is that they’re not spendthrift. Their bank balance may allow them to buy a Bugatti Veyron but they’ll instead buy a Toyota Yaris. Why, you ask? It’s because the goal is simple for people who wish to multiply their assets - divert their money towards investments that’ll reward them with the highest returns. It's a common knowledge that expensive cars have a high rate of depreciation and the maintenance bills for a Bugatti might shoot up to 5-10 lakhs in a year!
So, make smart choices while investing in durable machinery. You may use the money that you save by buying a low-end cost-efficient car by investing in stocks that would earn you a considerable amount of returns.
Make a Roadmap of Your Financial Life
Design short-term and long-term financial goals if you have a desire to become a millionaire in the future. Let’s reflect on the short-term and long-term goals for your savings. If you wish to accumulate 20,000 in your savings account in the next two years, it could be considered as your aim for the short-run and if you’re inclined to save 5 lakhs in your savings account in the next ten years, it could be your goal for the long-run. Deduce your financial status from the statements - credit cards, assets and liabilities - and make a blueprint of the investments that you can make in the coming years.
Never Depend on a Single Source of Income
Grant Cardone, the author of The 10X Rule suggests, “The rich never depends on a single source of income, instead they create multiple revenue generating streams”
It's important to keep a bird’s-eye view on the possible sources of income apart from your salary. Most of the millionaires churn out a basic amount of salary. However, a casual look at their asset-composition would show you that a huge percentage of assets of a multi-millionaire is made of stocks, mutual funds, real estate and business interests.
“Early bird gets the worm” - the ancient proverb is relevant in financial planning as well. You’re never too young to follow the road to become a millionaire. If you’re in your early 20s, start investing in low-risk mutual funds that require a minimum amount of monthly investments. An early start would give you an advantage of correcting any financial mistakes that you make on the way. Kick-start your financial life by investing in mutual funds/index funds. With subsequent investments, diversify your portfolio. Jot down your financial plans for the next one year and work towards achieving it.
Be Prepared for Rainy Days
Uncertainty is a part and parcel of life. It's essential to be financially prepared for any form of emergency at any point of your life. People don’t get wealthy by mindlessly earning millions and spending them on luxuries of life; they’re patient enough to set aside a basic emergency fund to accommodate their emergency needs in adversities. If you don’t have any money when you lose your job or go through a terrible accident, it will take you longer to bounce back to your current financial state.
Choose the Right Banking Account
Right financial tools, combined with healthy financial decisions, could multiply your wealth with ease. Choosing the right savings account which provides you with convenient access to cash and premium benefits could be a great start for someone drawing a reasonable salary. Know the ways in which you can increase your savings.
Follow Your Vocation
Finally, a noteworthy trait of millionaires is that they always follow their vocation; they do not stick to stressful jobs that don’t align with what they believe they’re suited for. So, choose your job wisely. It might not be your only stream of income, but, since a person spends a considerable amount of time doing their job, it's essential to choose a job that you like.