8 Money Principles That Can Help You Make Your First Million

By Chika

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Last Updated: June 6, 2022

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A lot of us dream about making our first million dollars, and breaking away from the rat race.

But how many are willing to put in the work required? To many, getting to the one million dollar net worth looks far-fetched. That is unless you win a lottery, inherit a financial windfall, or participate in get-rich-quick schemes. 

But on the contrary, it is a realistic target if you allocate your funds diligently. Careful planning, patience, disciplined spending, and consistent investing strategies can grow your wealth to one million dollars over time.

There is no guaranteed formula for becoming a millionaire. But there are certain principles that can help you on your journey towards achieving such a financial milestone. 

 

 

8 Financial Principles That Can Put You on a Million Dollar Path

1. Start early.

Nothing beats time when you are trying to accumulate wealth, especially if you are aiming for a million dollars.

The more time you have, the more you can achieve in terms of investing and compounding. As such, it is better to start early and work towards achieving your first one million dollars. 

 

2. Pay yourself first.

Paying yourself means setting aside money to save or invest in your future or goals.

This is the golden rule of accumulating wealth. At first, this may seem like the most logical step, but when you realize that a lot of people are living paycheck to paycheck, even those in the high-income bracket, then you realize it is not as simple as it seems.

For most people when money hits the account, the default thinking is geared towards what to buy or spend on, rather than what to invest in or save. 

 

3. Automate savings. 

Many people have a hard time building a habit of savings due to bills and other necessities.

This is why it is good to automate your savings. This does not only save you the hassle of having to remind yourself monthly or weekly to set aside some money, but it also ensures that you stick to your savings goals regardless of whatever financial needs you may be faced with. 

 

4. Convert savings to assets.

Very few people get rich by saving alone.

Cash has historically offered the poorest returns to investors. Over the long term, returns from cash barely keep up with inflation in most economies. So rather than sitting on a pile of cash, while not converting it to assets that would yield returns.

This can be done through investments such as stocks, acquiring real estate, or starting a business. The key factor is using your cash to generate more cash flow

Albeit, the amount of money you need to invest to become a millionaire is determined by your age. Because you have more time to create wealth and can handle greater risk while you're younger, you can invest less money.

If you wait until you're older to start producing cash flow from your savings, you'll have to save more money each month.

 

5. Don't interrupt the compounding cycle.

Albert Einstein once called compound interest the 8th wonder of the world.

Through compound interest, you can grow your savings and investments exponentially. However, most people tend to break the cycle of compound interest when they save a substantial amount. 

Doing this sets you back and delays the achievement of your goal because you have rolled back the time used to compound your gains.  

To circumvent this, it is important to set aside money you do not need to compound over time. Also, keep some emergency savings so that you do not need to dip into your compounded savings if any emergency or need arises. 

 

6. Aim for the first 100k

Famed investor Charlie Munger opined that making the first $100,000 is difficult.

After that, every other thing looks pretty much easy. The first $100k is such a pain because most of it is purely based on how much you save. When you have less than $100k, you have very little investment returns helping propel your net worth higher. It’s all about how much money you can throw in your bank account each month.

However, though this may be the most difficult part of your journey, it comes with huge benefits, which would help you to hit your first million.

Achieving the first $100k is where you make mistakes and learn from them, imbibe the principles of wealth creation and build the character and values needed to make you a millionaire and keep being one. 

 

7. Avoid (or minimize) debt

Because the cost of debt is typically far higher than the returns on investments, you should try to pay off debt first before saving or investing more.

Take out credit or debt only when necessary, and be extremely cautious of the interest rate charged.

 

8. Diversify your income streams

Diversify your businesses and holdings into a variety of non-correlated residual income streams so that you are never dependent on a single source.

If you establish a portfolio of non-correlated streams of income and lower your risk, your wealth will be more stable and safe.

 

Are You Ready to Make Your First Million? 

Making the first million dollars is akin to making your first $100k or $10k.

The principles of wealth creation are the same, whether it is making your first $10,000 or $1,000,000.

However, when you are young, you can leverage your time to achieve this financial milestone at a much faster pace. Nonetheless, it never hurts to begin now.

Avoid buying things you don't need, getting into debt, or putting your money in high-risk investments. With small consistent baby steps, you will get to your goal of being a millionaire. 

Photo by Pixabay

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