When you think of people who are millionaires, who comes to mind? LeBron James? Oprah? Kim Kardashian? Britney Spears? Yes! All these people are millionaires! But millionaires are probably closer than you think. Contrary to what many believe, the official title of a millionaire is not someone who makes a million dollars a year, but rather someone with a million dollar net worth.
If you’re a millennial, you net worth is likely a lot less than a million dollars, but it’s still valuable to know and understand so that you can be a millionaire someday!
Assets and Liabilities
A net worth is simply your assets minus your liabilities–what you own minus what you owe. To calculate your net worth, write out the amounts of everything you own. House, car, rings, savings account balance, retirement accounts, and other miscellaneous things are all included in your assets. Then list out the things you owe. A mortgage, car payment, student loans, credit card debt and other miscellaneous debts are all things that you owe to other people. From that, set up the basic math equation.
In this example, this couple owns a house with a mortgage the they’re still working on paying off. They have a modest car, a little bit saved for retirement, even still have a student loan balance– but yet they have a net worth of over $100,000! Imagine how much greater their net worth will be once student loans are paid off and they continue saving for the future.
You Too Can Be A Millionaire
If you aren’t in a high paying industry, you probably have never thought that you could be a millionaire. But you’d be surprised by the number of people you come in contact with on a daily basis who are millionaires. Average people with average jobs have earned themselves an above average net worth, and you can too. If you are a 20-something right now, you should easily be a millionaire by retirement by following these tips:
1. Pay Off Debts
Pay off your debts as soon as possible! Imagine all the things you can be doing with your money every month when you’re not writing a check to your student loan provider- not to mention all the money you’re wasting on that interest! Pay off debts and your net worth will automatically go up!
2. Save and Invest
Saving money is also going to automatically raise your net worth because you’ll have more in the bank! Create a savings goal to keep in the bank of about 3-6 months of expenses. This is your emergency fund. Keeping money in savings is safe, but it unfortunately doesn’t make you much money on savings account dividends. Therefore, you also need to invest! Dave Ramsey says to invest 15% of your income into retirement. I know that this is a lot and will stretch your budget, but this is what’s really going to give you that millionaire net worth.
Fidelity Investments analyzed 401K users who made less than $150,000 a year and were millionaires by retirement and found that they saved an average of 14% of their income into retirement each year. If your employer offers a 401K match, be sure to take advantage! Fidelity also noted that 28% of millionaires’ retirement nest egg came from the employer contribution. I recommend going to see a financial advisor to walk you through the best investment strategy for you particularly.
3. Stay On A Written Budget
It’s always necessary to be on a written budget and tell your money where it needs to go each month. If you want to be a millionaire, you still need to budget! Save for larger expenses like a car. Budget for eating out, groceries, personal funds, and vacations. Basically, you need to be intentional with your money. Tell your money where to go rather than wonder where it went.
Our Net Worth Goals
The topic of net worth has been on my mind recently because Jacob and I will have a $0 net worth next month. Going from a negative net worth to zero is exciting for us because it’s another milestone, and milestones need to be celebrated when you’re working on being debt free. We are obviously far from being millionaires right now, but we are working hard to be there someday many, many years down the road! Imagine all the trips we can go on, all the adventures we can take, and all the giving we can do. So keep on the path to boosting your net worth! Being a millionaire may be more realistic than you think.