Who Wants
To Be A Millionaire
Steve Martin once delivered an opening monologue for Saturday
Night Live in which he answered the age-old question “How
can I be a millionaire?” His answer was fairly simple
and straightforward, “First… get a million dollars.”
If at this point you can’t help but feel that Mr. Martin
performed an extraordinary feet of oversimplification that
night, then I urge you to read on, and hopefully, by the time
you finish this essay, you’ll be convinced that becoming
a millionaire isn’t nearly as difficult as everyone
makes it out to be. Through a simple three-step process which
I will lay out clearly, the keys to the millionaire’s
club will be shown to be available to anyone willing to merely
reach out and grab them.
Before you begin any financial
strategy, you must realize that there is a vast difference
between what you earn, what you own, and what you’re
worth. The amount of money that you earn from going to work
everyday is known as your income, and has relatively little
to do with your financial status. The sum of the value of
all of your possessions is known as your wealth, and is a
closer guideline. Net worth is the real gauge of how close
you are to becoming a millionaire, as it is the value of all
of your assets, subtracted by your total debt. Now that you
see that having a large income is not the end all guarantee
of financial security, let’s move quickly to what you
can due to get that million dollars that Mr. Martin so accurately
described as the first step to being a millionaire.
The first phase in your journey
involves understanding that time is of the essence. For those
who start investing at an early age, the power of compound
interest turns time into their greatest ally in wealth-building.
Once you have been investing for long enough, your investments
will begin to consistently, and eventually rather impressively,
outperform your paycheck. This is true no matter what level
of income you have already achieved. If you have an annual
salary of $50,000, and invest only 10 percent of that each
year, earning a 10% annual rate of return on your investment,
in 25 years you will have amassed over half a million dollars.
At this point you will be earning over $50,000 each year in
interest. Continue saving at that rate for another 10 years
and you will find yourself earning $150,000 annually in interest.
10 percent of your income may seem like a lot, but if you
can find an investment which directly debits the money from
your paycheck each week, you will be surprised to find yourself
able to live without it.
Another way to ease the pain
of that 10% decrease in take home pay is to use part or all
of it as an excuse to lower your tax burden, which I will
discuss later. Now that you’re salting away 10 percent
of your income each week, and can’t possibly imagine
affording anymore, let’s talk about how you can make
one of your largest living expenses work for you rather than
against you. I am of course talking about the money that you
spend providing shelter for yourself and your family.
Owning a home is the single
largest investment that most people will make in their lifetime,
and that is why moving from renter to home owner is your next
step on the road to becoming a millionaire. The growth in
the value of real estate in this country makes owning a home
not only a wise investment, but also a hedge against inflation
While many Americans pour their money into renting a house,
effectively flushing it down a toilet they don’t even
own, you should be using yours to cover the mortgage payment
of the most profitable purchase you’ll ever make according
to some financial experts. While it’s true that owning
a home does come with certain expenses which a landlord normally
covers for those who rent, the tax advantages which you receive
for paying the interest on your loan help to offset your out
of pocket expenses. The less money you give to Uncle Sam,
the more you have available to turn into improvements which
increase the value of your home, as well as to put into your
other investments, such as a 401k plan at work, or an IRA.
The final step in your quest
to become a millionaire is to make sure that as much of the
money you earn as possible is there for you to invest. That
means giving as little as possible to your greedy Uncle Sam.
There are two simple ways to beat the tax man, thereby increasing
the amount of money available to help build your net worth.
Pretax investment vehicles, such as a 401k, traditional IRA
and 529 college savings plans, allow you to lower the amount
that your employer deducts from your weekly paycheck to cover
your state and federal tax liability. The only drawback to
these types of investments is that once you pull the money
from the account, taxes are due in full. You do however get
the benefit of watching your money grow tax free for years,
which allows the concept of compound interest which I discussed
earlier to work harder for you than it would if your money
was in a traditional savings account.
A traditional savings account
is one of the worst investment vehicles available. Along with
the comparatively low rates of interest which savings accounts
earn, any money that you do earn is subject to annual taxation.
To avoid paying taxes on the money you withdraw once you become
an independently wealthy millionaire, you should set up a
Roth IRA. A Roth IRA is funded with after tax dollars, which
may leave you wondering how that helps you avoid paying taxes.
The fact is though, that in a Roth IRA, all the money you
earn is yours to keep. Uncle Sam can’t take a penny
of the money that you accrue in interest, meaning in the long
run, the tax advantages are far better than any other form
of investment.
I’ve just shown you
in three easy steps how you can take advantage of the unseen
forces of the financial world to grow your net worth at an
alarming rate, now all that is left is for you to follow my
advice and wait patiently for compound interest to work its
magic. By avoiding taxes to the greatest extent possible,
turning you home into an investment, and most importantly
of all, not waiting to start saving, you too can be a millionaire.
What you do once you get that million dollars is up to you.
| Authors Details: Who Wants To Be A
Millionaire - Michael Moore is a successful author who
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