You are Wealthier than you Think
The median American household will earn roughly $2.5 million during their working life. Married households will earn roughly $3.8 million. Most people make more or less. Others work longer or retire sooner. The point is, Americans earn millions during their lifetimes and never become millionaires.
Don’t let that happen to you.
Source: US Census Bureau
Income is your Biggest Asset
Most Americans believe their house is their biggest asset, but it’s not. Their biggest asset is their income. A person’s income is usually at least 10 times larger than the value of their house, if they even own a house. The problem is that income comes in small periodic paychecks, instead of in one large sum. So, workers see it in terms of hundreds or thousands of dollars, instead of millions.
Most people believe it’s virtually impossible to become a millionaire, but it’s really not that difficult. Anyone who saves and invests at least 10% of their net income stands a really good chance. Currently, 5.23 million Americans (1.67%) are millionaires and most earned and saved it themselves. If 5 million Americans can become millionaires, you can too.
Step 1. Work to increase your income.
Converting Income to Wealth
In its most basic form, accumulating wealth is as simple as saving money from your paycheck. In fact, it’s so embarrassingly easy; I have no idea why more people won’t do it. In the wealthiest nation that has ever existed on the face of planet Earth, the overwhelming majority of people won’t save even a small part of their very large paychecks. They buy cigarettes, booze, shoes, clothes, jewelry, cars, houses, vacations and $5 coffee. But, they never save a dime for themselves. It’s incredibly sad for people to work so hard their entire lives and wind up broke.
Saving money is very easy, especially if you do it automatically. Enroll in the 401K plan at work. If you don’t have one, start an IRA. Open a mutual fund account and setup the automatic monthly investment. You can sign up online in minutes. You don’t have to have a lot of money to start investing and you don’t have to be an expert. Anyone can pick a good no-load index fund. Investing doesn’t take much time and it’s fun to watch grow. There really aren’t many valid excuses. If you aren’t saving and investing, you are squandering your future.
Step 2. Save money from every paycheck.
Putting your Wealth to Work
It’s virtually impossible for a working class person to save up a million dollars, without investing. If you saved 10% of your net income for your entire career, you would only save a couple hundred thousand dollars. Without investing, the average guy (or girl) almost has no chance of becoming a millionaire. You need compounding to make your savings double, quadruple and octuple.
Don’t give your bank, insurance company or the Treasury Department your hard-earned savings for a pitiful 1-2% return. You need to shoot for at least a 7-10% return to account for growth, taxes and inflation. The stock and real estate markets are scary places for novice investors and they aren’t to be taken lightly. But, you need to earn that kind of a return to become a millionaire. Invest some time learning about investing and it will pay huge dividends for you.
Step 3. Invest your savings for a high return.
The Bottom Line
The bottom line is that wealth is within your reach. Comfort, prosperity and peace of mind are all possible, with a minimal effort. It’s actually much harder to struggle with your finances than it is to dominate them.
“Wealth is the slave of a wise man. The master of a fool.”
– Seneca
Recommended Reading
Invest it Wisely – How does the Property Market Affect the Stock Market?
Len Penzo – Why you don’t need an MBA to Manage your Finances
Financial Samurai – Why do the Rich Hoard so much Cash?
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I think a lot of people become complacent with their income, too. They reach a satisfying level of income, and then stop striving to improve their income. There’s no reason most people can’t run a successful side business in their spare time, and every extra dollar you earn is an extra dollar you can invest.
I couldn’t agree with you more Adam and I’m just as guilty as anyone. I make a great income from my day job and have failed to launch the new business I have had as a goal for quite a while. Even though my regular income is more than sufficient, I work for a startup and could be laid off in the future. A second income would be a great way to stabilize our finances.
You’ve got some great insight here! I think most Americans just don’t realize what steps they should be taking to reach these goals. Its not really something people are ever really taught to think about. Thanks for sharing!
Thanks for stopping by Leonard.
One of my daughter’s friends asked me about wealth and investing on Saturday. Most people have no idea where to start or how easy it is to get started. I was very fortunate that my parents were savvy, but many aren’t so lucky.
Very good advice here. The one point to make is that somewhere along the line investors should have a cash cushion, money in reserve, for unforeseen events. The last thing you want to do is sell your investments in a panic or when the market is down.
Great advice Steven. I definitely don’t keep enough cash around, because I am always trying to stay fully invested. Cash is always good to keep on hand.
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