There are no guarantees that you’ll become a millionaire in 5 years, but if you start young, invest your money, and live below your means, it is possible.
The basic wealth equation is simple: Spend less, earn more, invest the difference. If you follow these steps, you can build a seven-figure net worth within five years.
1. Invest your money
If you want to become a millionaire in 5 years, it’s important to save and invest your money. This process, called compounding, will eventually pay off for you.
You can get started investing by opening an account with a mutual fund company that has no-load funds and low expense ratios. Or, you can go with an online broker that charges zero commissions for stock trades.
When you invest your money, be sure to diversify your portfolio. This will reduce your risk and smooth out the ups and downs of the market.
You can also take advantage of your employer’s retirement contributions, which will boost your savings. However, you should always seek professional advice before making any investment decisions.
2. Live below your means
Whether you’re trying to become a millionaire in 5 years or simply want to build your savings, living below your means is one of the best financial habits to adopt. Not only does it save you money, but it gives you the freedom to dream bigger and invest in your future.
A good way to begin your journey to living below your means is by establishing a budget. It will help you understand your spending habits and allocate money between your recurring monthly bills, savings, and financial goals.
Ideally, your budget will help you live within your means and pay off debt while achieving your financial goals. You’ll also be able to enjoy some extra cash for a night out or a special treat.
3. Build multiple income streams
Creating multiple income streams is one of the most effective ways to build wealth. Most self-made millionaires have several sources of income — including salaries, investment dividends, rental property income and business investments.
To build these income streams, you need to assess your skills and interests and consider how to turn them into money-making opportunities. For example, you could start a side hustle, buy a rental property or sell products online.
You should also develop a mindset and knowledge about money that will help you make better financial decisions. This includes avoiding spending excess amounts of money and living well beneath your means.
4. Pay off debt
The first and most important step toward becoming a millionaire is to get rid of debt. Then, you’ll be able to focus on investing your money.
One of the most popular ways to quickly pay off high-interest debt is by using the debt snowball method, which was popularized by businessman Dave Ramsey. The idea is to pay more than the minimum on the debt with the highest interest rate, and roll the rest of your payments over to the next debt.
While it may seem difficult to eliminate debt, the good news is that paying off your highest-interest credit cards and student loans will help you build up your savings faster. As you pay off your debt, you’ll be able to invest the savings in a low-risk investment account that can grow your net worth faster.
5. Take advantage of your employer’s retirement contributions
401(k) plans are a great way to save for retirement, and many employers offer matching contributions. These benefits can add up to hundreds of dollars a month, and they’re worth taking advantage of.
In order to maximize the benefit, you’ll need to contribute as much as possible each year. This will help you reach your savings goals faster, and it will also allow you to take advantage of compounding interest.
Most employers match a percentage of your contributions up to 6% of your salary. This can add up to $200 a month and can make it much easier for you to become a millionaire in five years.