Becoming a millionaire probably won’t mean a life of flying on private jets, yachting around the Mediterranean, and living on a sprawling Beverly Hills estate. The reality today is that those earning an average income (or above) will likely need to become millionaires to fund a happy and secure retirement. Keep reading for the 12 reasons why you will never become a millionaire.
If you combine the effect of compound interest and time, anyone can become a millionaire or even a multi-millionaire. Try to avoid these 12 common money moves that will make it even harder to become a millionaire.
Here are 12 ways to make sure you’ll never become a millionaire
Millions of Americans dream of financial freedom. Others hope to achieve Financial Independence Retire Early (FIRE). How many of them are taking smart financial steps to help make those dreams a reality? How many others sabotage themselves?
Here we will cover some of the most common issues that will prevent you from becoming a Millionaire Club member.
REASON #1 You are not investing
Without investment, you will have virtually no chance of accumulating a million dollar net worth. Even if you were to win the lottery or receive a large inheritance, it would be difficult to make that money last without investing it.
Example: how to accumulate 1 million dollars
CASE STUDY 1*: Let’s say you wanted to accumulate $1 million by age 70.
· Option 1: Starting at age 22 and earning 1% (after taxes and fees), you’ll need to save $1,354 a month to become a millionaire. This will be difficult or impossible for most people.
· Option 2: However, with the help of compound interest, if you could earn a 10% return each year (after taxes and fees), you would only need to save $71 per month. It’s less than $2.50 a day. I’m sure we could all find a way to find $2.50 a day to become a millionaire. To the right?
This is a simple example of how compound interest can help you build wealth faster and easier. Each option has the same outcome, a net worth of $1 million, but you could save 95% less with the benefits of compound interest.
To make this point another way, if you saved $1,354 per month from age 22 to 70 and earned a 10% return each year, you would have accumulated over $19 million.
REASON #2 You choose not to pay yourself first
Even with the perfect investment portfolio, if you don’t fund it adequately for your financial goals, you will never become a millionaire. Pay yourself first. After all, it’s not what you do but what you keep. I know a lot of high-income people who have negative net worth. Conversely, I know many people who have built up fantastic net worth with just good income.
Start now. There will never be a better day to start saving than today. Even if you can only save a small amount, you’ll be better off than if you never started. I bet you will be surprised that you don’t even miss the money you pocket. This small savings rate can become substantial over time.
CASE STUDY 2*: Let’s say you just turned 40 and want to be a millionaire within 70 years.
· If you earned 1% net of fees and taxes, you would need to save $2,383 per month. That’s $28,596 a year to become a millionaire.
· Assuming a 10% net return on investment, you would only need to save $442 per month to become a millionaire.
· Remember that these numbers continue to increase as you wait. Starting at 40 versus 22 translates to needing to save almost six times more per month. GET A STAR
REASON #3 You are living beyond your means
Inflation has blown some budgets lately; even without it, many people spend more than they earn. Living beyond your means is not a good way to build wealth over time.
REASON #4 Drowning in debt payments
Being in debt is expensive. Compound interest can help you build wealth and keep you awash in debt. As your debt increases, the cost of servicing that debt (just paying interest) also increases. Bad debts are a significant obstacle when it comes to becoming a millionaire.
REASON #5 You ignore the costs of the little things
You can still spend a ton of money on cheap items. All of these small expenses can add up.
I was speaking with someone who has a multi-million dollar income and canceled streaming services he wasn’t using. Individually, each service is pretty cheap per month, but if you’re not using the service, go ahead and cancel it. You can always re-register if needed.
REASON #6 You make unhealthy choices
According to a recent study by the US Trust, ninety-eight percent of millionaires consider good health to be their most important personal asset. Without your health, no amount of money can redeem your quality of life.
Spend money to make sure you get all the necessary screening tests and physical exams recommended by your healthcare professionals. If you don’t have a doctor, get one. Exercise (more) and increase the health value of your food. I’m aware that real (i.e. healthy) food will cost more than processed junk food (with little real nutritional value), but that’s the one area I almost always advocate for people to spend more.
Although I’m a financial planner and not a medical professional, I know that being healthy allows many people to work longer (if they want to). Likewise, healthy living also makes retirement more enjoyable.
REASON #7 You don’t get fiduciary financial planning advice
If your financial advisor is not a fiduciary, they are not legally bound to put your interests first. When they follow the “best interests standard” or confusing fitness standard, they just have to show that something is right for you rather than your best option. There are a lot of people with big companies behind them, trying to sell you shitty investment products to earn a big commission.
REASON #8 You don’t have a spending plan
I don’t think anyone likes to budget. I know not. However, I like having a spending plan. When people manage their finances well, they don’t just treat their financial choices as random events. Money issues won’t just take care of themselves. Yet many people are surprised when that recurring monthly bill shows up (again, every month) on their credit card or bank statements. Simply put, a spending plan is about managing your financial expectations to avoid unpleasant surprises and leave you with enough money for the best things in life. Think vacations, clothes, massages or even money for a babysitter.
First, consider your major expenses that easily fit into your income. Think housing, car payments, insurance, cell phone, etc. Second, your spending plan will pave the way for bigger purchases, like a luxury vacation or the down payment on a house or new car.
Without a spending plan, it’s easy to see a lot of money in your checking account and spend it on something you don’t need or want. When that opportunity for a dream vacation comes along, you might not be able to afford it. Worse still, it could end up on a credit card, which will end up drowning you in debt.
REASON #9 Inadequate tax planning
Proactive tax planning is a major part of becoming a millionaire. Keeping more of your hard-earned money frees up more money to invest. The more money you invest, the faster you can build wealth.
Talk to a fiduciary financial planner to see what other tax-saving opportunities you could incorporate. For those with large amounts of taxable investments, tax-efficient investments can help increase your investment returns without taking on more risk. There are a multitude of strategies for the self-employed to reduce their taxes.
REASON #10 You chose the wrong career path
If you hate your job or your career, it will show. This can lead to slower career progression over time. Maybe you just burned out and quit. While it might be easier said than done, choose the right career path that offers the potential to earn enough to support your desired lifestyle and delivers more joy from your career along the way.
Reason #11 You married the wrong person
First, I’ll start by stating the obvious. Divorce is expensive. Splitting your assets in half will make it harder to become a millionaire.
Some studies show that there are many financial advantages to being married. Choosing the wrong spouse will make becoming a millionaire much more difficult. If one spouse is a spender and the other a saver, the spender tends to win out. When considering a life partner, remember to consider how you both think about money.
#12 You don’t really have to be a millionaire
Some of you have found a way to live well with less. You may not even need to become a millionaire to achieve financial freedom. If this is you, congratulations. Keep doing what you are doing.
Paying off your house, maximizing Social Security, and working in a career that provides a pension are other great ways to potentially achieve financial freedom and have the money to fund a happy, secure retirement without necessarily becoming a millionaire.
You don’t have to do this alone. Work with a fiduciary financial planner to get your financial house in order and maybe, maybe you too will achieve millionaire status.