Millionaire is the term that everyone wants to become. There’s no magic formula for building wealth and getting rich. It’s simple, really: Spend less than you earn, and save as much money as you possibly can.
But in a world filled with student loan debt, cost-of-living increases, growing inflation and sudden financial emergencies, executing this straightforward plan might sound like a fairytale.
If your goal is to get rich, check out the following eight tips on how you can sidestep the obstacles and maintain your focus. They should help you understand what it takes to build wealth and find your way to financial security whether it is through investing or building your own business website.
Destroy your debt
Not all debt is bad, but high-interest debt is downright terrible if your goal is to get rich. Part of your budget must involve a plan to crush your bad debt and maintain responsible levels of good debt, like a mortgage.
The debt avalanche method is one of the most popular ways to rapidly reduce interest costs and pay down high-interest debt quickly. With this strategy, you’ll put the maximum toward your highest interest rate debt and make the minimum payments on other debts.
Once the debt with the highest rates is paid in full, you’ll roll what you were paying over to address the next highest interest rate debt and pay it off.
While you might be tempted to accelerate paying off lower interest rate debt like student loans or your mortgage, think again. You’ll save more in the long run by paying off your higher interest-rate debt first, and only then crushing that house payment and any lingering student loans.
Start saving early
The best way to build your savings is to start early. Doing so allows you take advantage of the 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, 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. There’s more to do.
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 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. You’ll reach your financial goals a lot faster.
Take advantage of compound interest
Compound interest is earned on both a principal amount and its accrued interest. Compound interest allows investments to grow at an exponential rate rather than a constant rate.
Look for bank accounts with the best interest rates to take advantage of compound interest. The more often interest compounds, the more quickly money can grow. You may also be able to use the power of compounding in investments by reinvesting your earned dividends into more investments.
Cut spending to get rich
While becoming rich may conjure images of fancy sports cars and luxury clothing, this may not always be true. By cutting spending, you can create more space for saving and investing, which can ultimately help you accumulate wealth.