5 Ways to Build a Million Dollar Net Worth

Every so often I reflect on how fortunate we are to live in the USA and how we have the chance to build some wealth for our families. Don’t take my word for it, Warren Buffett said the number one factor contributing to his success was being born in the US and winning the birth lottery. The system allows many of us a chance to work and build some wealth. This is not as common around the world as one would hope or think. In spite of any challenges, we all still have a pretty good opportunity to live a good life, raise our families and build some wealth. But these are all optional things that depend a lot on our choices and habits.

A Cool $1 Million

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 quite achievable if one has steady employment. 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. But I challenge Americans to do better. I think more of us should strive for the million dollar net worth figure, and I believe it is possible given a few key actions and habits. In order to do this though, a person will need a rather stable employment situation and will have to make more than minimum wage.   The good news today is that with time and the right set up many more people can achieve this goal. Here are 5 tactics that can help put a person on a path to a million dollar net worth:  

1. Automate your Investing

Automated savings and investments are absolutely essential in my opinion. Very few of us have the weekly and monthly discipline to continue saving and investing consistent amounts for decades. If the money is easily accessible, we typically access it for immediate wants. See, we are present bias little creatures that can hardly see past the next meal. In order to build a million dollar net worth we need to have super futuristic vision that can project us 10 or 20 years into the future. Stretch the savings rates as high as possible. I have recently dabbled with 12-18%. That ended up being too high of a savings rate for me at the moment, but it was a great exercise and working my way back towards this goal. And for a few months I 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, compounding and company matches and your efforts could hit that mark faster than you thought possible! 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: http://oracle.davidkanter.com/wp-admin/post.php?post=1301&action=edit Another key math strategy I like to keep in mind is the rule of 72. This little math trick is neat because it tells you how long it will take for your investment accounts to double given a particular interest rate. Let’s say you have been a great saver and investor and have managed to save up $200,000. This is already 20% of your journey to a million. Using the rule of 72, let’s say you estimate an average annual investment return of 7% (typically S&P 500 index fund combined with some bond funds). 72 divided by 7 is just over 10. It would take 10 years to double the $200,000 to $400,000 at a 7% rate of return. Now consider the idea that you could also be contributing that whole time and the amount after 10 years could be well over $500,000! Halfway to your goal! It seems most wise to follow a couple of simple rules for the majority of investments. We like to use balanced portfolios similar to the Ray Dalio all weather portfolio. He invests about 30% of assets in a low cost index fund that mimics the S&P 500. This gives exposure to some of America’s largest and strongest companies and their profits. The other money is invested in long term bonds, short term bonds, some cash and other. Related: http://oracle.davidkanter.com/2018/03/19/use-the-force-compounding/

2. Buy only used cars or none at all

The more I learn about and study cars I realize what a huge waste of money they are. They are wealth destroying weapons. 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. Related: http://oracle.davidkanter.com/2018/04/05/5-reasons-luxury-cars-are-a-waste/

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 and this is what are called UAW’s (Under Accumulators of Wealth). Believe it or not some of the biggest UAW’s in the world are Doctors and Laywers that need to live a certain lifestyle to match their fancy job titles. 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. See Related: http://oracle.davidkanter.com/2018/12/03/how-to-be-the-next-millionaire-next-door/  

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. I try to think about this with most purchases and uses of my capital. Am I placing this money into asset or a liability. The more I can increase the asset column the faster I will hit the magic million mark! I have seen time and again people sink precious recourses into furniture, cars, clothes, restaurants, elaborate vacations, etc.; all things that lose the financial value immediately. To build wealth you will want to funnel as much as possible into assets such as:
  • stocks of good quality

  • bonds

  • certificates of deposit, savings

  • investment properties, real estate

  • maybe some gold

  • low cost index funds, S&P 500

  • quality small business

  • 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. This does not mean working all the time, but maximizing the use of your time into activities that pay dividends in the future. 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 your family, good food, the simple pleasures and try to implement a few of these ideas to set you on a path to financial success.

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