As we get ready for the 4th of July holiday, it is a great time to reflect on how fortunate we are to live in the USA and how we have the chance to build some wealth for our families. I still think a million dollar net worth is a worthy goal, and if one makes certain adjustments and takes certain actions, it is probably achievable. There are now about 11 million American households with over $1 million in net worth. That is not that many given there are about 330,000,000 Americans today, but it is an all time high of million dollar households in the US. That means only about 3% of households have achieved this goal. If you include the value of a primary residence, the percentage probably goes up to 10-15% of households. So, at a minimum, start working on ways to join at least the 15%! All the ideas and inspiration we place here can help towards that effort.
The good news today is that with time and the right set up many more people can achieve this goal. Here are 5 ways that can help:
1. Automate your Investing.
Stretch as high as possible. I have recently dabbled with 12%. That ended up being too high of a savings rate, but it was a great exercise. And for a few months managed to stash away more than usual. We have to do this early and often. 160,000 people in the US have a million or more in their 401k. Strive to become one of them with automatic savings, matching and investing. Sprinkle in the magic of time and compounding and your efforts could hit that mark! If you are reading this in your 20’s, 30’s or 40’s you have a long time horizon to allow compounding to take place. Check out our article on compounding:
2. Buy only used cars or none at all.
Then invest the savings in low cost index funds. The ideal would be no car. The future is looking brighter. Some companies will start offering car use as a subscription type service. Some experts say the cost of car consumption could drop in half or even a third. Could you imagine having all that money back? The future can’t come soon enough. I’m cheering on the tech wizards and Detroit types making this vision a reality in the not too distant future. Why own a ton of rusting metal that depreciates in value every day? I have seen some massive potential wealth destroyed by vehicles of all kinds. According to the book The Millionaire Next Door, most millionaires drive, drumroll please: A used Toyota Camry, Honda Accord or F-150. And you thought I was going to say Rolls Royce.
3. Be content with the simple pleasures.
To become a millionaire it helps to have simple tastes in clothing, cars, food, vacations, recreation, entertainment, etc. If you need fancy everything, then you are in trouble. Remember life is not a contest to do everything, it’s about aligning your life with your unique vision. There will be nothing left to invest for growth if spent on stuff you never needed anyway. People that are addicted to luxury items also typically pay for these things with high interest credit cards, destroying wealth every step of the way. A person has to have some money leftover to start the process of having it go to work for you.
4. Think Assets over Liabilites.
The book Rich Dad Poor Dad emphasizes one important aspect of the rich. They spend most of their life pushing their money into assets over liabilities. Focus on assets: stocks, bonds, real estate, businesses, and other things that hold value and produce income. Try to limit expenditures of furniture, lavish vacations, cars, recreational toys, etc.
5. Think about the value of your time.
When you buy something, think about how many hours you had to work to buy that object. Think about maximizing your time to invest in healthy relationships, assets, skills, education, growth, etc. Wealthy people typically understand the value of their time and make strategic maneuvers with their time.
These are a few of the practices and mindsets that lead people to achieve a million dollar net worth. The point here is that despite what the media and financial “industry” will tell you, this is not rocket science. In fact it is totally basic math. So enjoy family and good food this week and try to implement a few of these ideas to set you on a path to financial success.