How to Be a Millionaire Investor

Estimated read time: 5 minutes

So, you want to be a millionaire? Who doesn't? Hitting that seven-figure mark is a goal for just about everyone except the people who have already hit it.

Not everyone will become a millionaire, and financial discipline separates the would-be millionaires from the soon-to-be millionaires. That, and action. Don't sit back waiting for the perfect business opportunity to land at your feet. Create a plan, and create it soon.

If you need help getting your financial life in order, here are a few of the basics that'll put you on the path to retiring as a millionaire.

Pick a plan, stick with it, and keep impulsive spending to an absolute minimum.

Hatch a Million Dollar Investment Plan

First thing's first, figure out where you stand now. Before you can plan for how to improve your financial situation, you'll need to take a comprehensive look at your current financial situation. Add up all your monthly expenditures (think car, house, student loans, and credit card payments), and compare that to how much money you bring home every month. That'll help you determine how much money you can afford to start saving on a regular basis. If you have a lot of debt, you might want to take care of that before getting serious about saving and investing. While returns on stock investments vary, you can be sure your debt will collect interest at a steady pace. The longer you let that debt sit there, the more you'll end up spending money that could've been invested in savings. If you can't knock out all your debt at once, focus first on the debt that has the highest interest rate.

Once you know where you're at right now, figure out where you want to be and how you'll get there. Write out a decades-long plan with details like how much you'll save, how often you'll save, and how long it'll take to become a millionaire. Keep in mind that, historically, stocks earn an average annual return of 10 percent. You may even want to be more conservative in your planning estimates, so your millionaire plan can weather any unusually harsh economic downturns.

It's important to take advantage of any retirement plans your employer offers. If your work is willing to match 401(k) contributions, force that employer to match the maximum amount of contributions possible. Otherwise, you'll leave money on the table – money that could've been growing in a 401(k) plan. That doesn't mean to stop contributions at what your employer will match. 401(k) plans offer tax incentives for those saving for retirement. If you know you won't touch the money until your 60s, a 401(k) is probably one of the best places you can be putting your savings, so contribute as much as you can.

Follow These Investment Tips

This was touched on in the last section, but it's important to invest your savings, rather than letting them sit in a savings account. It's true that there's always an element of risk when it comes with the stock market, but the longer the timeline, the lower the risk. If you don't plan on cashing out on any of your investments until retirement, a market crash in the next few years won't set you back all that far in the long run. While there's no risk with a savings account, there's also drastically less growth. A good savings account earns one percent annually. There are accounts that earn more than that, but most earn less. According to the FDIC, the average interest rate on a savings account is just a tenth of a percent. Compare that to the historical stock market average of 10 percent per year, and, well, it's not much of a comparison at all. For those who are trying to become a millionaire and maximize their savings, investments are absolutely essential.

Once you're investing, it's important to think about how you're investing. A popular strategy called dollar-cost averaging argues that, rather than trying to beat the market, a steady approach wins out in the long run. Let's say you can afford to invest $6,000 every year. Instead of putting in all that money when the market dips, put in $500 every month, regardless of how the markets are doing. This goes against the classic piece of advice, "buy low, sell high." That's still the best advice for active traders, but even the experts can't predict all the ups and downs of the market. If you're not an expert and don't have the time to meticulously research all the geo-political and macroeconomic factors moving markets, it's almost certainly a better bet to invest small amounts on a regular basis.

As far as what you invest in, that depends on a variety of factors. Do you want someone managing your investments, or do you want to do it all yourself? How risky do you want to be? Most portfolios are made up of a mix of stocks and bonds that reflect an investor's risk tolerance. The mix is usually riskier when the investor is younger, and it becomes gradually more conservative as the investor nears retirement age. You can save money on expense ratios by picking investments yourself, but that could cost you in the long run if you make poor decisions.

Non-Investment Strategies

One of the most crucial steps to becoming a millionaire doesn't have anything to do with money – just start planning as early as you can. The younger you can put together your millionaire plan, the sooner you'll add that millionth dollar to your net worth. Investment strategies all depend on annual returns and growth, so becoming a millionaire gets exponentially harder the longer you wait to start. Using the historical average of 10 percent annual returns, that $100 you didn't save last year could've earned you $10 this year, $11 next year, and so on. It may not sound like much, but it all adds up over decades.

Saving all the money in the world won't do you any good if you're racking up just as much in credit card debt. Balance out your investment plan with a lifestyle that keeps debt low or nonexistent. Live within your means, and if you can, live below your means. Seek out raises and better paying jobs, but keep the lifestyle you had with your old job, even though you're no longer living paycheck to paycheck.

With those key steps in mind, you'll quickly find yourself on the path to millionaire status. Just remember that fiscal discipline is the most important part. Pick a plan, stick with it, and keep impulsive spending to an absolute minimum.