6 Steps to Becoming a Millionaire

It's a question some people have asked through the centuries: how to get rich? For a few, it seems easy and effortless. For others, an impossible dream.

In actuality, becoming a millionaire can be a straightforward proposition. You don't need a six-figure salary or a family trust fund (although that could help). Instead, you need to start saving early, stay out of debt, and be mindful of every dollar you spend.

Read on to learn about six steps to becoming a millionaire. Then, make them a permanent part of your everyday life.

1. Start Saving Early

The best way to build your savings is to start saving early in life. Doing so allows you to take advantage of the incredible power of compounding over the years.

Say you're 20 years old. If you contribute $6,000 to an individual retirement account (IRA) every year ($500 a month) for 40 years, your total investment would be $240,000.

But because of the power of compounding interest, your nest egg would be worth much more. Assuming a 7% return, it would total more than $1.37 million.

You'd be a millionaire by age 57, just by saving $500 a month. Granted, you'd rather be a millionaire by age 30. If that's your goal, try to put more money away each month. And consider the other steps below.

2. Avoid Unnecessary Spending and Debt

Stop buying things you don't need, especially if you're putting the purchases on a high-interest credit card. Before you buy anything, ask yourself the following:

• Is this something I really need?
• Am I spending money simply as entertainment or to impress others?
• Do I have something similar already?
• Do I want this more than I want to become a millionaire?

Every dollar you spend on something you don't need is one less dollar that can make money for you.

Here's a reality check: If instead of spending an extra $25 a week you save and invest it for 40 years, you will end up with $277,693. Can you cut $25 of unnecessary spending out of your weekly budget?

If you can, that effort alone will go a long way toward helping you reach your goal of becoming a millionaire.

3. Save 15% of Your Income—or More

The personal savings rate is the percentage of income left over after people spend money and pay taxes. That rate for Americans on average was 3.4% in September 2023, according to the Bureau of Economic Analysis (BEA).

According to experts, that's not enough for a comfortable retirement, let alone for anyone aiming to become a millionaire.

Exactly how much should you save? Although there's no correct answer here, most financial planners say that, depending on your age, you should save at least 15% of your annual gross income just for your retirement.

That figure is ambitious but not necessarily unattainable. For example, if your employer matches contributions of up to 6% of your salary in your 401(k) plan, you need to save only 9%.

4. Make More Money

Granted, this may be easier said than done. But if you don't make enough to stash 15% of your income, it will be difficult to become a millionaire.

You do have a few options available to you, including:

• Ask for a pay increase (if you think you're due for one)
• Work extra hours
• Get a second job
• Get training to increase your earnings potential
• Switch career paths

Additional training pays off the most in the long run. Let's say that you're a licensed practical nurse (LPN). The median income for LPNs was $54,620 per year in 2022. Registered nurses (RNs), on the other hand, earn about $81,220 a year.

It takes one to three years of additional education to qualify to be an RN. But the extra money that you'd take home every year can really help you reach your financial goals—especially that of becoming a millionaire.

5. Don't Give in to Lifestyle Inflation

Lifestyle inflation is a common consequence of career advancement. You spend more money just because you have more money to spend.

You may decide that your apartment is too small, and you need a house in the suburbs. You realize that you can come up with a down payment for a much fancier car. Your vacation plans get more ambitious and expensive.

If you want to become a millionaire, resist the urge to give in to lifestyle inflation. Instead of spending more—just because you can—save and invest more. Imagine the pleasure in watching your financial account balances grow. And you'll reach your financial milestones faster.

6. Get Help If You Need It

Planning for retirement can be stressful. That's due to the fact that you know you'll need a substantial amount of money when you no longer work, all of the investment options available, and the knowledge and experience it takes to invest successfully. In one survey, only 18% of Americans said that they're very confident that they will be able to retire in comfort.

Unless you're a financial rock star or someone who's willing and able to make the effort to research investment opportunities, it's worth the money to work with a qualified financial advisor to come up with a personalized and workable retirement plan.

An advisor can help you choose investments, set up a budget, and make plans to reach your goals. And once you're ready to start spending some of that money, they can help you make it last.

Maximize Your Retirement Savings

Here's a quick look at how retirement savings accounts can help you reach your goals:

401(k), 403(b), and Other Employer-Sponsored Retirement Plans

If you have a job that offers benefits, you probably can open an employer-sponsored retirement plan such as a 401(k) or a 403(b). About 69% of private company employees, and 92% of government workers, now have access to one of these plans.

The combination of tax advantages and easy payroll deductibility make these the best retirement savings vehicles available to workers. Better yet, many employers match a portion of the employee's contribution, which is invaluable to jumpstarting your account's earnings potential.

You can deduct your contributions, up to an annual limit. The earnings in the account grow tax deferred if it is a traditional 401(k) account (rather than a 401(k) Roth account).

For the 2024 tax year, the maximum contribution is $23,000, increasing to $30,500 if you're age 50 or older. This is a $500 increase from tax year 2023.

People with a retirement plan at work may also open individual retirement accounts (IRAs) and save even more.

Traditional and Roth IRAs

People who are self-employed or are freelancers can open retirement accounts on their own. They are available at almost any bank or brokerage.

You can choose between a traditional or Roth IRA. The major difference between the two IRAs is when the taxes are due on the income deposited.

• If it's a traditional IRA, you deduct your contributions the year you make them, up to a maximum amount per year. You pay taxes when you withdraw the money in retirement.
• If it's a Roth IRA, your contributions are made with after-tax money and aren't deductible. As a result, qualified withdrawals in retirement are tax free.

No matter which type of IRA you have, the contribution limit is the same. For 2024, you can contribute up to $7,000 ($8,000 if you're 50 or older). This is a $500 increase from tax year 2023.

Beyond that, the choice is yours. Any bank or brokerage firm will give you access to a wide range of investments that can help you build your nest egg.

Simplified Employee Pension (SEP) and SIMPLE IRAs

The SIMPLE IRA is a tax-favored retirement plan that certain small employers, including the self-employed, can set up for the benefit of themselves and their employees.

SEP IRAs can be established by the self-employed and by those who have a few employees in a small business. The SEP lets you make contributions to an IRA on behalf of yourself and your employees.

Both SEP and SIMPLE IRAs are popular with small business people because they're easy to set up, require little paperwork, and allow investment earnings to grow tax deferred.

For 2024, you can put away up to $69,000 in a SEP IRA and $16,000 in a SIMPLE IRA.

Taxable brokerage accounts provide a way to invest additional funds after you max out the amounts that you can invest in your retirement accounts. Be aware that you need to pay taxes on the income generated in these accounts in the year you receive it.

Example of Retirement Account Growth

If you start early and save regularly, you can make a million dollars or more by contributing to your retirement savings accounts. To take full advantage of your savings opportunity, try to contribute the maximum limit.

For example, let's consider Joe, who wants to reach the $1 million mark by the time he retires at age 67. Let's assume Joe:

• Is single and age 33
• Makes $50,000 per year
• Has a 401(k) plan with a 5% employer match
• Also saves $4,000 a year in a Roth IRA

We'll assume his investments earn a 7% return.

Joe takes full advantage of the employer match and defers 5%, or $2,500, of his salary each year. His employer contributes $2,500 each year as the match. Of course, in real life, he'd probably get raises over the years, but for the purposes of this example we'll assume his salary remains the same over the decades.

Here's the breakdown of his savings over 34 years.

That's a grand total of $1,235,132. Welcome to the Millionaire Club, Joe!

If Joe had started saving at a younger or older age, here's what his results would look like:

The Bottom Line

How to get rich? The key to becoming a millionaire is to start saving regularly when you're young, stay disciplined, and make and keep a long-term financial plan. You'll be pleased with the results. Making your first million won't be easy, but it's not impossible.

How much wealth you accumulate depends on how much you save and how well your investments do. At younger ages, you have the time to take more risk with your investments and seek out choices that have the potential to provide a higher return.

That means investing less of your money in low-earning certificates of deposit (CDs) and money-market securities and more in higher yielding choices like equities to achieve returns that exceed the rate of inflation and grow your savings.