5 Ways to Become a Millionaire

Tue, 16 Feb 2010 14:02:42 EST

A full one-third of Americans believe that they will become "rich," whatever that means, according to a recent survey. Some answered that "rich" consisted of no longer worrying about their finances, other said it was having enough wealth to retire in acceptable comfort, some pointed to leisure or luxury goals (e.g. "I want to buy a boat and sail around the world"), while others had a specific figure in mind.

Ask any ten-year old at what point someone is rich, however, and they'll invariably answer "millionaires are rich." Granted, there isn't even consensus on what constitutes a millionaire: some say a person with a net worth over $1 million, others a household.

Some say primary residences don't count towards this net worth criterion, as they do not constitute investable wealth; some say $1 million in cold, hard cash is the criterion, others say easily liquidated assets. The most reliable data uses the net-worth-excluding-primary-residences approach; there are over two million households in America that qualify as millionaires by this definition.

Millionaire Approach 1: Become an Entrepreneur
For many Americans, the classic formula of starting and growing a business has appeal as the surest and fastest path to financial success. In some ways, there is plenty of truth to this belief: after all, a glance at the wealthiest people in America will reveal almost exclusively those who have started their own businesses. Further, owning a business shares with real estate investment certain advantages, such as strong leveragability and powerful tax advantages. Sadly, however, while it's true that most millionaires are business-owners, most business-owners never become millionaires, as the overwhelming majority of startup businesses collapse within the first couple years in operation.

Millionaire Approach 2: Become a Real Estate Investor
When polled, a scant 9% of Americans believe that real estate investing is the surest path to becoming a millionaire, despite the fact that most of America's millionaires have at least part of their wealth invested in real estate. Of those company owners discussed above, many of those companies are real estate-related, and despite recent losses in value, real estate assets have a far greater likelihood to appreciate reliably than securities do. From flipping contracts, to renovations, to signing a rental lease and holding for long term passive income, real estate has proven a relatively straightforward path to financial success to many Americans. That said, real estate investing is not without its risks, and requires substantial up-front capital (usually a minimum of $10,000 cash for a single piece of real estate). Further, real estate investments are notorious for surprise costs, ranging from tenant vacancies on a rental lease to tenant lawsuits to over-budget renovation costs, creating a need for deep pockets among those entering real estate investing.

Millionaire Approach 3: Luck
A shocking number of Americans (15%!) believe they will become rich through good luck, usually by winning the lottery or inheriting a large sum. While these strokes of fortune occasionally happen, they are hardly commonplace, and prove an unreliable-at-best method to attain millions.

Millionaire Approach 4: Frugal Living
A solid 15% of Americans say that frugal living, coupled with saving and investing a high percentage of their income is the surest path to becoming a millionaire. They're not wrong, if someone worked a minimum wage job from age 18 to age 62, and invested half of their income in safe, low yield investments each month, they would reach millionaire status by 62. That said, to quote the punch line of a vulgar joke: "It takes a long time to get to England in a row boat." And, while it's possible, how many people do you know who have the discipline to live out the above example?

Millionaire Approach 5: Securities Investing
Securities investing has made a lot of people in this country very wealthy. The bad news: most of those people are in the securities industry. For the casual investor and bathrobe day trader, investing in stocks, bonds, options, futures, commodities and their ilk proves far too risky, unstable, and complex to reliably create wealth. Further, if you think real estate investing and signing a rental lease is risky, consider the massive swings in value that affects securities markets daily. There's no question: securities investing is the fastest way to create wealth; it's also the fastest way to lose it.

It is absolutely, positively, 100% possible for any American to become a millionaire, regardless of birthplace, class, education, race, gender, or any other advantage or disadvantage, and this is the beauty of the American Dream. Becoming a millionaire, for most people, requires a few things in return though, including a commitment to investing a large portion of one's income, a great deal of patience, a pinch of luck, and discipline, and with this combination anyone can retire a millionaire.

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5 Ways to Become a Millionaire