Becoming a millionaire seems like an unattainable dream for most. However, there’s a select group of Americans who’ve already achieved wealthy status.
About 22 million people (about 1 in 15 Americans) had a network of $1 million or more as of last year, according to the 2024 UBS Global Wealth Report.
According to financial expert Humphrey Yang, if you want to join this exclusive millionaire cohort by 2025, here are some key things you’ll want to start doing.
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You should be contributing to your investments as early as possible and as much as possible. The earlier you start investing, the more time your money has to grow thanks to compounding. For example, if you invest just $3,000 per year starting at age 18, considering an 8% annualized return, you can expect to have about $1.36 million by the time you’re 65.
However, if you start at age 25 investing the same amount, you’ll only have about $777,000 at age 65. By getting started with investing just seven years earlier, you may have about 75% more money later in life.
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It’s crucial to utilize tax-advantaged accounts such as an employer-sponsored 401(k) or an IRA. Many times, employers offer a percentage match on your regular 401(k) contributions. For example, if you contribute 6% of your pre-tax earnings and your employer offers a 4% dollar-for-dollar match, you’ll be contributing a total of 10% to your retirement.
Alternatively, you can open and contribute to an IRA if your employer doesn’t offer a retirement account. Contributions to both accounts are pre-tax, so you’ll reduce your taxable income now and defer tax liability on your contributions until you start taking distributions in retirement. Additionally, consider opening a Roth IRA.
The difference between a Roth IRA and other retirement accounts is that contributions are made with income that’s already been taxed. So, when you start taking distributions from your Roth IRA in retirement, all your gains will be 100% tax-free. If you anticipate being in a higher tax bracket in retirement, utilizing a Roth IRA now is a great way to avoid higher taxes later on.
Debt eats a hole in your wallet and maintaining a high level of debt is a surefire way to prevent you from becoming a millionaire. It’s important to avoid debt where possible so you can allocate more money to saving and investing. Be sure you tackle your highest interest rate debt first before moving on to your lower interest rate debt.
For example, you’ll save the most money on your debt repayment by quickly paying off your credit card balance with a 28% interest rate before paying off your other credit card balance with a 20% interest rate. Besides the financial cost of carrying high-interest debt, it can also cause undue stress, which might deter you from investing money.
Increasing your income by changing jobs or getting a promotion is a great way to accelerate your investment. For example, if you’re earning $80,000 per year and you’re putting 20% of your income towards investing, that’s $16,000 annually.
If you get a new job and suddenly you’re making $100,000, continuing to contribute 20% of your income towards investing means you’ll now be investing $20,000 annually. That extra $4,000 per year can certainly go a long way. More investing combined with more compounding can equate to much larger financial returns over time.
You’ll want to be sure that you’re tracking your financial progress so you can see where you are on your journey to becoming a millionaire by next year. Consider creating a net worth tracker using Excel or Google Sheets. Or you can download Yang’s net worth tracking template for free so you can get started today.
Getting an annual bonus at work, coming into a financial windfall like an inheritance or getting a sizable tax return are excellent opportunities to grow your net worth faster. Yang suggests designating 90% of any bonus money you receive toward investing. Then, you can use the remaining 10% for anything you might want to splurge on.
Becoming rich requires consistency when it comes to saving, investing and staying out of debt. Consider setting up automatic investments from your checking account to your investing account that align with your payday. This way, your money will grow on autopilot and you won’t even have to think about it.
Additionally, it’s advisable not to check your investment portfolio every day, since dramatic market swings are bound to happen over time. You won’t want to make any emotional or rash decisions like selling off your assets when the market temporarily drops.
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This article originally appeared on GOBankingRates.com: Do This If You Want To Become a Millionaire in 2025, According to Humphrey Yang
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