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How to Become a Millionaire – Things I Wish I Knew in my 20s

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How to become a Millionaire - things I wish I knew in my 20s - MakeLivingGoodIf I scream out in a crowd and ask – who wants to become a millionaire? I will most probably get the same short answer from anyone – “I”. Everyone says I want to become a Millionaire but very few know How to become a Millionaire? Being a millionaire is one thing and staying that way is completely another. In this post I will tell how to become a millionaire and stay one for your life. There are many real world examples of people going riches to rags. It is important to learn from them so it won’t happen to us.

The reason to go from riches to rags is simple; it takes a disciplined approach to become rich and stay that way for life long or even for generations. There are many examples in history for overnight millionaires such as Jordon Belfort – who was inspiration behind Vin Diesel’s movie – Boiler Room, MC Hammer – music industry star in late 1990s who filed for bankruptcy due to enormous debt and many more like him who lost all of their net worth it in due course of time after being a millionaire once.

Some say it’s easier to become a millionaire but harder to keep it that way. I believe this is true to great extent. Becoming rich and staying rich for long time is more about disciplined process that must be followed carefully at every decision you make in your life. What you do today, may show its good or bad effects in a decade down the line.

That’s why I decided to start writing about various ways to become a millionaire and with my guide you will not only become a millionaire but be able to keep it that way throughout your life too. Honestly I started following these steps late in my life which pushed me down by couple of millions in my net worth. You can follow these simple steps and easily become millionaire by before your 40s if you really start early and become financially independent early in life

If you are not in your 20s now but in 30s then I highly recommend you to check out – How to become rich when you are in your 30s as well.

On a quick side note, I recommend you to check these related posts as well:

Now let’s dig into various ways on How to become a Millionaire when you are starting your career in early 20’s.Here you go;

How to become a Millionaire – Things I wish I knew when in my 20s.

How to become a millionaire - 9 things to do when in your 20s - MakeLivingGood

Tip#1 – Find a job closer to your home

This is easy said than done but it’s doable. My first job required me to travel 35 miles each way between home and office. This was insane. I took that job mostly because lot of my friends were going to the same office. At that time, I had another offer from a company which was just 5 miles away from my home but I didn’t take it.

I was wasting 2 hours every day to commute to work. That’s about 10% of 24 hours a day; 5 days a week and 520 hours a year and just a little over 21 days in a year. I spent about 21 days in a year on road. If you think about it, you will realize its a total waste of precious time. If you are going to work 5 days a week, then in a month you will work for about 22 days most. Now, if you think about time spent in commuting back and forth, you will realize that I spent 63 days (21*24/8) or 3 months of working hours on road, doing nothing but just driving to work. So, practically I worked for 15 months in a year while paid for only 12 !!!

This is insane. Most of us missed this perspective when we started (including me for long time).

You will wonder how this is going to make a million dollar as title – How to become a Millionaire recommends? Well, as I mentioned earlier; becoming a millionaire is disciplined approach which is thoughtfully executed at every decision of your life. Find a job closer to your home is one those decisions that most people miss.

If you have to travel less to office daily, you will save money on gas, save mileage on your car, have more energy when reached home & more importantly you will save tons of time as per above example. There are many things you can do with this extra time you just got while others were stuck in the traffic.You can learn new skills to grow your career, or start a part-time business, work on next big idea of yours, etc. Think about the possibilities. You have nothing to lose by doing this but only to gain.

This is what I strongly recommend you to do:

  • Find a job which is closer to your home
  • If you can’t find a job near your home, then rent a room near your office. Before renting, compare the cost of travel (including time value) and renting.
  • Maximum commute distance shouldn’t be more than 5 miles each way.

Tip#2 – Do not buy brand new car

I Love your Dollars- MakeLivingGoodJust after 3 months in my new job, I was driving a brand new car. It was my parents idea that I should have a car and new one so I don’t have to worry about repairs or anything for a long time. As any parents would be; my parents were concerned about my health and safety as well on road and that’s why they took me to the nearest car dealer on a sunday morning and got a car on same day.

Later in my life, I realized this wasn’t a wise decision on my part. Financially. My first job wasn’t very high paying job. I was just making $1000 a month at the time. It was a decent starting salary for an intern.

When you buy a car, there are other associated expenses that come with it. By the way, this car was bought with an auto loan. So, I had to spend $210 a month on auto loan payments. That was 21% of my take home.

As every car would need, my car also needed fuel, a lots of it actually. For work, I had to travel 35 miles in one direction that’s around 70 miles a day. I was spending about $130 on gas every month. Now out of $1000 take home salary, I had to spend minimum of $340 every month just to go to work. This wasn’t easy to digest after realization.

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What could I do better?

If you must have a car, then go for a used car. This would reduce overall debt amount and interest paid over the years. But you will think that used cars also demand more expensive repairs than new ones. You are right and I agree. Thats why my parents bought me a new car with an auto loan on it!!! But if you know about cars or take someone’s help who knows cars in & out, then you can buy a good used car and avoid most of the repairs. You should also sell your car before it gets too old or start asking big repairs.

If it’s not your status symbol to drive a car to work in your own car, then I recommend exploring car pooling or even using public transport if its available in your area. I had used lots of public transport in my school and college days and it wasn’t that bad. During those days, I did most of my studies on road while going to the college. If I had done same while commuting for work, I could have saved $240 per month that’s whopping $2880 a year and I had no debt to pay for another 5 years.

Well, this won’t save you million dollars but it will help you save some extra money over the time to invest more and speed up your journey to How to become a Millionaire?

So, this is what I recommend to you:

  • Try to avoid buying a car in initial years of your career. You need time to establish yourself before any major expenses.
  • If you must have a car, then go for used one.
  • Use car pool or public transport as much as possible.
  • Get a bike if your office is close; its cheap and free exercise too.
  • Last but not least, do not take any debt at this time.

Tip#3 – Save & Invest

When you are in twenties and recently started working, it is the best time to start saving for your future. I will explain this with an example.

Sam and Will, both are 20 years old when they started working at same office and same earnings. Sam started saving $1000 from the day he got his first paycheck. He automatically set a system to invest this amount in an investment yielding 8% compounded annual returns over a period of 20 years. At age 40, Sam stopped this investment and but let it grow in the fund.

Will also turned 40 in same year and decided that he would start same investment now. So, he also put $1000 in same investment yielding 8% compounded annual returns for next 25 years.

At age 65, Sam & Will checked their investment portfolio and who do you think had the maximum returns?

Sam had a balance of $4.4 million in his account while Will had $965k. Remember Will had invested more money by continuing his investments for 25 years while Sam stopped after 20 years only. But still, Sam had 4 times more money at 65 than Will. The reason is Sam started earlier and let his money grow for full 45 years while Will’s started at 40 and his money could grow only for 25 years. This is the power compounding.

Many people miss this simple idea in their early age and realize it very late what they have lost. The TIME.

As we saw, a disciplined approach towards investing just $1000 every month can yield over $4.4 million by age of 65. This idea is an answer to most of the people asking – How to become a Millionaire?

This is what I strongly recommend you:

  • Save at least 30% of your income (after tax).
  • Setup a system to auto invest this money from your account.
  • Invest in stock market via low-cost index funds. You will beat 96% of experts by following this.

Related post: How to make money in stock market without risk?

Tip#4 – Eat at Home

Well most youngsters at your age may not like this idea. It is not your fault as well. You are young, want to spend time with friends, impress girls, etc. This all is understandable. We all have been there.

I also agree that it’s not possible to completely avoid dining at restaurants or having beer with friends. Even folks in late 40-50s need to do it. Then why I am asking you to avoid it?

Well, I will explain this with simple maths.

Suppose every week you eat or drink outside at your favorite restaurant or bar with friends. Your share of bill is around $40 for each visit. By this calculation, you would spend $2080 in a year. Most of us spend even more on quick grab a meal type restaurants like McDonalds or Starbucks etc. So, actual expenses will be much higher for you. How much do you spend every day?

For most families this amount can bring groceries for 6+ months if not a year. Check with your mother or wife; how much money does she spend on grocery bills in a year. You will get to know that your single meal every week at a restaurant is costing same amount as entire grocery for your family.

Moreover, if you get to put that $2080 cash in some investment account which yields about 10% returns, you will have $225k in 25 years time.

This amount is good enough to buy a home outright without any debt. Remember we are talking about processes; not a single pill to make you rich in – How to become a Millionaire? This idea alone will give you 1/4 of a million dollars. You just need 3 more ideas like this to make a million, right?

Read about 21 ways to live a frugal lifestyle and save a lot

But I need to socialize

I also agree that you need to socialize and meet friends. So, try to spend less, or go out less, may be once in 2 weeks or a month. This will reduce your expenditure by 50 – 75%.

This is what I suggest you to do now:

  • Avoid eating or drinking out often. Once in a month is still OK.
  • Do not spend more than $40 in eating or drinking out each time.
  • Cook at home. If do not know how to cook your favorite dish at home, then LEARN it. It’s not a rocket science. Moreover its much more healthier.

Tip#5 – Read

You have recently graduated from college. I graduated as an electronics engineer and there were  tons of books and articles I had to read during my engineering. As I was already on a job so I thought it was my time to enjoy. Reading wasn’t in my agenda at all. Why do I need to read when I have done all my studies to achieve what I really wanted in my life. A Job. 

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If you are thinking like I used to my friend, then you couldn’t be anymore wrong about importance of continuous reading. For me getting a job wasn’t the ultimate goal but a means to help me support financially while I pursue my real goals in life.

This is the most important lesson that I learned in my life. I was one of the guys who scored honors degree in engineering from a reputed university. Got a good trainee job in the field that I wanted. Worked my day and night off. I was at the top of pinnacle I wanted to be at. Who needs those boring books anymore?

Well, I was wrong. Very wrong. I was ignorant for next 3 or 4 years that how important it is to keep reading and learning. Reading helps in shaping our mind for better by improving our thinking process. It creates new neuron connections in our brain to generate newer ideas and insights. Reading & learning brought you where you are today; why do you want to stop it now?

I realized how much time I had wasted in front of television and in other unproductive activities. What all could I learn in this time?

This is what I recommend you to do:

  • Read at least 2 hours a day
  • Read anything of your interest. A business book, higher studies, about finances or anything related to new skill building. I like reading about optimizing our finances and biographies. Just a tip.
  • Do not stop reading and learning.

If you just follow this single advice for a decade from this post, you will thank me later.

Read more about top habits of most successful people in the world which I am trying to immitate myself.

Tip#6 – Work at a Small Organization

When you start your career, there is a lot that you need to learn. A large multi national corporation with thousands of workers and tens of office locations in various countries, isn’t a good idea to start your career with.

Trust me. This will sound quite opposite of what most people recommend and advise you to do but its true. Even your parents or girl/boy friend will be hard to convince that you shouldn’t opt for $200k package.

Let me break it to you why you should work at a small company with few employees in starting days of your career.

When you work at a large corporate with thousands of employees; YOU basically have thousands of competitors. YOU are a tiny part of the big group. In large corporate you will most likely work on a small part of the overall work that company is doing and it will be very difficult for you to shine and stand out. It will be difficult for you to prove that you are better than rest.

If you are interested in speeding up your progress to be a millionaire, what do you need? more cash, right? because more cash means more savings and thus faster way to millionaire status. This is why I compiled lists of effective ways to make extra cash fast:

In a small company, there’s less competition. YOU have direct access to upper management and YOUR visibility can be easily setup if you are good at what you do. YOU will rise in a smaller organization and achieve a senior position much quicker than anyone can in a multi national company. Smaller companies also provide much better chance to learn faster and master the field. Moreover, working for a small company can make you richer much faster than you really think. Most small companies offer equities to its employees which enables you to grow with company and be really rich in just few years.

I have seen many people grow to senior director or vice president positions by following this approach. Once they have these senior positions, they usually switch to larger companies in equivalent positions.

This is my suggestion for you:

  • Look for a job in a small company which is working in your interest area.
  • Join the company where you have huge opportunity to learn. Growth will automatically will come with learning and so will money. Far more money than guys who didn’t take this approach.
  • Stay will company for some years. Do not switch to larger company just because your friends are doing.
  • Think of the bigger picture.

Tip#7 – Study about Income Tax

This is one of the most important suggestion in answering – How to become a Millionaire? 

If you understand the tax laws in your country, it will not only help you in early stage to save few $100s but will be your best friend when you have serious money. I guarantee it!!!

It is an amazing feeling when you start your career and receive your first paycheck. You make plans on how to spend that money. Possibly you need new clothes or that $100 jeans that you loved in the store other day.

Sooner than you will realize a year will pass in collecting paychecks and spending upon things you loved to possess.

Learn about income tax - MakeLivingGood

Then comes a tax day. The D-day in any employee’s life when Uncle Sam or whatever (country’s government) will come to take their share from your hard-earned money. I assure you, you won’t be able to say NO. They will take what is their share.

But there are ways to minimize their shares. I learned this after two years of me working and giving away my hard-earned money to Uncle Sam.

Tax planning is very important and it needs to be done on first day of the job so when you receive your first pay check, you do not have to give much of it to your government or Uncle Sam.

Whichever country you live in, there are ways to minimize your taxes. For instance; you can invest part of you income in tax-free bonds or tax-free mutual funds, retirement fund (401k in USA), etc.

This is what I recommend you to do if not done already:

  • Learn ways to save tax in your country.
  • Take action immediately.

Tip#8 – Buying a Wardrobe

When I started my second job; I was thrilled to see people coming in casual throughout the week unlike my previous company where there was a strict rule to wear formal from Monday to Thursday and Friday was the only casual day. So, I took my friends (new colleagues) with to shop for new denim and casual with my first paycheck in second job. I spent 80% of it on branded clothes and shoes.

After 2 weeks, company’s HR felt that too many employees were coming in casual which was tarnishing professional image of the worldwide known company. So, they also made same rule; monday to thursday – formal only and friday could be a casual wearing day.

I was extremely angry. There was no way I could return my new denim and comfortable Adidas shoes after wearing each one of them in last 2 weeks to show off my new wardrobe.

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I couldn’t go any below than my new standards and fashion. So, I wrote a letter to HR and got everyone’s in team to sign it with me protesting the new rule. But it didn’t change the decision.

So, what I did again? Yes, I went back next month and bought more formal clothes.

The lesson is  – do not go ALL-in especially for wardrobe shopping and more important branded clothes and shoes are not investments. They are expensive just because of some company’s tag on it. Most of the times this tag or label won’t even be visible. 🙂  Even if it is visible, does it really matter? Think about it.

This won’t make millionaire in our pursuit about How to become a Millionaire?  but it will save you some extra cash to speed up your overall pursuit towards being a millionaire. Anyway things get out of fashion very soon and it’s not limited to just clothes but also gadgets. A fancy phone last year isn’t cool anymore today. So, spend minimal amount on such things which do not last longer or offer value over time. A pair of comfortable shoes go long way than something which just looks cool but kills your feet.

Here are my suggestions to you:

  • Do not go for brands. Branded clothes are just expensive. For what?
  • Look for clearance sales in our favorite store. You can buy same denim or shirts for way too less.

Read more about how to be smart about shopping.

Tip#9 – Avoid Addiction

This idea alone will answer your question – How to become a Millionaire? By the end of this section, you will learn how to become a millionaire by following just one idea from this post.

When you are young and have just started earning, you get a sense of power. A power to make decisions for yourself. You are independent now. You can do whatever you can. It’s your money and you have all the right to spend it anywhere you want.

If you are thinking in same lines, then do not worry. You are not alone. We all had same ideas about power.

This is the time when you will form some new habits. I want to caution you against some before you go that route. Habit is very difficult to change once they are formed permanently. So, be careful about your new adventures.

I recommend you to read this excellent book on how habits work.

power-of-habits-best-morning-routine-by-makelivinggood.com

At young age, it will be a cool thing to start smoking or drinking one or two beers with friends daily. Just to present yourself as the next cool guy in the market. If you are one of those who love to party with friends, then this might interest you – My plan to retire richer than my friends.

Remember smoking and drinking are addictions and not cool things. In most countries driving under influence DUI is a serious offense. The company’s manufacturing them spend millions of dollars on their marketing to get audience at young age. Have you ever wondered why their ads often present the guys smoking or drinking their product as more brave, smart and powerful than rest of us? Is this really how it is in reality? If you do not know, look around you and you will find many addicted, out of mind people especially when they are under influence.

I do not want to go over all bad effects of smoking and drinking here because I know you are smart to know them already.

But still, I want to emphasize 2 important reasons for avoiding smoking and drinking for ever.

  1. First is your health. I am sure you have heard this many times before. But its worth repeating even if you hate me after this.  🙂  You have read this article for a reason. To become better than others. Isn’t it? I can assure you; You will not be any better if your health is not with you. Ok, I will stop here now. You got the message.
  2. Second reason is loss of your chance to create enormous amount of wealth. Just by not doing something. My friend was a chain smoker and daily wine drinker for most of his life. Once I sat with him and did some calculations; after which he stopped drinking and still smokes occasionally today. I am going to share same calculations with you.

Each pack of cigarette costs around $6.69 and he used to smoke 2 packs daily. Yes 2 packs daily. He told me that he had started with 1 cigarette a day. Probably you might be doing same today. So, read carefully.

$6.69 X 2 packs = $13.38 daily

13.38 x 365 = $4883 a year

If he had invested this same amount every year in some scheme yielding 10% returns for 40 years; how much would you think he had saved? Yes my father started smoking in early twenties and didn’t stop until he was retired at 65.

How to become a Millionaire - makinglivinggood.com

He could have saved over $2.6million.

I think you got the message and I don’t need to share the calculation that I did for his drinking habits.

This is my sincere advise to you:

  • Do not form habits which will eventually turn into addictions.
  • Ask your friends or relatives you smoke or/and drink & find out how much they spend daily.
  • Use calculations as shared above to find how much they would lose in few years.
  • If possible, start investing same amount that you have decided not to spend on those habits.

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Final Words

I hope this article – How to become a Millionaire – things I wish I knew in my 20s; will guide you through out your life and set you on the right track in early age. I wrote these notes to share with my two daughters when they turn 20 but I didn’t want to limit it to just within the family rather share it with others as well so everyone could benefit from it. It took me years to understand the importance of each and every item shared in this post. I hope you can save few years of your time by following these early in your life and become a Millionaire sooner than you really think.

I would love to hear what you think and if you have more ideas. Please share in comments below and also subscribe below to get notified about new articles.

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How to Become a Millionaire – Things I Wish I Knew in my 20s

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