Become a Millionaire - A Seven Step Guide

While it's true a vast majority of us will never earn a million dollars in a year, the opportunity to become a millionaire is as easy as ever. By earning, saving, and investing over a number of years, reaching a million dollars is not as distant as it may seem.

Cease Wasteful Spending

Spending money on luxury items an obvious no-no. But it's the day-to-day spending habits that can do major damage to your financial dreams. Create a monthly budget and make savings at least 10% of your total expenses. Let's say your rent (or mortgage), groceries, utilities, travel, and other expenses are about $2,500 a month. You should be saving and investing at least $250 each month. If your current income doesn't allow you to save that much, then it's time to find ways to trim the expenses. Find areas in your budget that you can stand to lessen or cut completely, then strictly adhere to your spending limitations.

Match Your 401k

If your employer offers 401k match on 8% of your wages, then it is essential you find a way to participate at the full 8%. If your employer matches 50% of your contributions, you've just given yourself a 4% raise! Keep in mind that not all 401k plans are created equal, but typically even the worst of the worst will provide you with investment earnings over the long-term.

Limit Motor Vehicle Purchases

It has been said there is no worse investment than a car. No argument here. Cars can lose hundreds of dollars in value the minute your drive them off the dealership lot. Autos usually lose value at 10-20% per year. This means a new $20,000 car or truck could be worth as little as $12,800 after the second year of ownership. Try a different strategy. Provide regular maintenance to your current vehicle and purchase a new or used vehicle only when absolutely necessary. You will avoid costly sales tax, warranty fees, licensing and motor vehicle taxes, costly insurance, and painful monthly car loan payments with interest.

Save Money, Invest Wisely

Asset allocation is imperative for all investors. Over the long term, small and value company stocks provide good rewards, but they come with risks. Talk to a friend and find a good financial advisor. The advisor will listen to your goals, assess your risk tolerance, and provide you with a balanced investment portfolio. If you can invest $1,000 annually (just $83.33 a month) from the time you're 30 until the time you are 70 at a rate of 8% - through the compounding of investment gains you would have $303,244 in the bank! Strongly consider investing in a Roth IRA, as putting away the maximum of $5,000 annually over this same period of time would bring your portfolio to $1,516,218...and after age 59 ½ the withdrawals are tax free!! That's over $1.3 million in earnings on which you will never owe tax. Even if you have to start small, invest as much as you can along the way. You will be rewarded in the end.

Understand Your Taxes

Tax law is complicated, especially if you have itemized deductions, own your own business, or in some other way are self-employed. If you are currently preparing your own taxes, you may be missing out on major deductions or other tax planning benefits. Ask a friend or co-worker for a referral to a CPA they trust. It's true some CPAs are better than others, but most will be able to identify your tax needs and build a strategy to maximize your tax savings. Fees for tax preparation and planning can be expensive, but the tax savings and peace of mind are worth it.

Build Equity When the Time is Right

Never purchase a house before you can afford the monthly mortgage payments. But if the time is right and you have saved for a down payment (hopefully 5 to 10% of the purchase price, preferably 20%), it is a good idea to eventually purchase a home. The interest is tax deductible and building home equity is essentially another investment. Just make sure you and your budget are ready for the added expense and the sometimes costly surprises that come with homeownership.

Have a Vision

Understanding and implementing the steps above is a great start on your path to being a millionaire. Don't get discouraged when changes occur or your timeline gets thrown off. Develop a plan, discuss specifically how you will achieve that plan on a daily/monthly/annual basis, and execute. Don't downplay your chance at success and remember to dream big.

Sources: http://www.rothira.com/