How to Become a Millionaire in Your 40s
This post was last updated on January 20, 2021, to reflect all updated information and best serve your needs.
Full Disclosure: This article is not a get-rich-quick scheme of how to become a millionaire in your 40's. Rather, it's a list of sound principles and practices that you can put into place to become a millionaire at some point in your life even if not in your 40's. Becoming a millionaire and/or achieving financial independence takes discipline, hard work, and savings. I can assure you it WILL NOT happen overnight.
While becoming a millionaire in your 40s may seem difficult (and it is), it is something that many people can achieve. All it takes is the right mindset, discipline, savings, and a laser-sharp focus toward building wealth.
There is something about accumulating $1 million that shows you are on the right track financially. But how do you get there? If you want to increase your chances of accumulating $1 million in your 40s, there are certain financial habits that will help you achieve that milestone faster.
Read on for the principles and practices that will help you build wealth and reach the $1 million milestone.
Becoming a Millionaire in Your 40s
For the average person, becoming a millionaire conjures up thoughts of winning the lottery or receiving a large inheritance. However, with the right mindset, discipline, and focus, many people can achieve this milestone in their 40s without buying a single lottery ticket. In fact, that's by far how the majority of people become millionaires.
While accumulating $1 million may not make you rich, it will give you a sense of financial security and serve as a stepping stone to achieving greater levels of wealth and financial freedom. The journey to your first $1 million will show you what hard work and dedication can do if you invest the time and follow the habits of self-made millionaires.
If your goal is to become a millionaire in your 40s, an important first step is to get financially savvy so you can make the most of every dollar you earn and save (the key is SAVING).
Habits Of Millionaires
Certain habits can help you move closer to becoming a millionaire, while others will pull you in the opposite direction. If your goal is to accumulate $1 million in your 40s, here are some guidelines to help you get there faster.
Save More Than The Average Person
As I said, these aren't a bunch of get-rich-quick schemes but rather proven principles and practices. In other words, they're not sexy but they've been proven to work.
It’s commonly recommended that the average person save 12 to 15 percent of their income for retirement. However, if you want to become a millionaire in your 40s, this savings rate won’t cut it.
Let’s look at an example. James graduates college and gets a job at age 22 making $50,000 per year. He goes with the common recommendation of saving 12 percent of his income and enjoys a 5 percent raise every year. If he invests his money in the stock market with an average return of 7 percent, he would have $519,490 by age 45.
His friend Richard has always been an over-achiever. He also graduates college and starts a job at age 22 making $50,000 per year. However, he decides to save three times as much as the common recommendation, putting away 36 percent of his income. Keeping all other variables the same, he ends up with a cool $1,048,357 to his name by age 45.
As you can see from the example above, if you want to become a millionaire in your 40s, you need to go beyond conventional wisdom. The more money you can save and put to work earning interest, the faster you will reach the $1 million mark.
You can boost your savings rate further by stashing away your bonuses and other financial windfalls. Every time you get a big bump in salary or an extra check, make sure you put at least half of it toward your financial goals. As I said, it's going to take discipline and hard work.
If you want to become a millionaire in your 40s, you can’t settle for the status quo. Focus on keeping as much of the cash that comes your way as possible. Keep adding to your stash and invest it so it continues to grow and earn money, taking advantage of compound growth opportunities
Live Within Your Means
While it seems like a simple idea, living within your means is harder than you may think. Every day we are bombarded with temptations for things we think we deserve to have because we work so hard. From ads to TV shows and movies, even our neighbors and friends, everywhere we look there is something we want and must have now.
Many people give into the temptation to buy what they want when they want, using credit as a way to afford more than their paycheck allows. From fancy furniture to a shiny new car, it’s easy to get sucked into the vortex of living beyond your means. For some reason, we've all been brainwashed to try and "keep up with the Joneses." While that may sound fun, I can assure you it won't get you to a million dollars.
If you want to become a millionaire in your 40s, you need to learn to live within your means. Only buy what you can afford on your salary while still saving and letting your money grow. Most importantly, your savings should be the first thing you budget for and everything else comes after that.
Limit how much debt you take on and only use it for bigger purchases such as a house. If there is something you want but can’t afford, save money from each paycheck until you have the cash to buy it outright.
Pay Yourself First
Many people spend their paychecks before the money even hits their bank account. Between bills, a mortgage, and car payments, the money disappears quickly.
Saving money is usually an afterthought, using whatever is left over after everything else is paid. Well, that's the opposite of what you should do if you want to become a millionaire in your 40's.
You're going to need to change your thought process about your money. You need to make paying yourself first and shift your financial habits to accommodate this approach.
Instead of waiting to see what is leftover from your paycheck before you put any money into savings, make it a habit to pay yourself first. The first transfer from your bank account after your paycheck hits your account should be to your savings and retirement accounts.
Decide how much you want to set aside from your pay period and pull that money out first. Create a budget based on the difference to ensure you can meet all of your financial obligations.
Better yet, ask your employer’s human resources department if they can withdraw the money from your paycheck directly. That way you will never see it hit your bank account, so you won’t miss it. This works especially well with retirement contributions to employer-sponsored plans, and it can also work with a savings account as well. Many employers nowadays can set up a portion of your paycheck to go directly to a savings account.
Eliminate Debt
One of the quickest ways to drain your paycheck is by taking on debt. When you owe someone money, part of every dollar you make is already spent before it ever hits your bank account. The fastest route to living beyond your means is to take on more debt to afford things you can’t pay for with money you don't make.
The less debt you have, the more money will be available to set aside toward your first $1 million. Every dollar you can save and invest will grow exponentially, getting you that much closer to your goal.
Focus on eliminating your debt, starting with the highest interest rate first. Put every extra dollar you have toward paying down the balance and getting rid of the added financial weight. Avoid taking on new debt that will further enslave you to your creditors.
Learn How To Invest
If you want to become a millionaire in your 40s, you need to start putting money in the stock market early to take advantage of compound interest. Every dollar that you invest will compound over time and add to your balance.
You should spend some time understanding the basics of the stock market so you have an idea of how you can make your money grow. However, don’t spend any time trying to time the market as even experts can’t do it.
Instead of trying to beat the market, focus on building a diversified portfolio of stocks and bonds. Keep adding to the balance to take advantage of dollar-cost averaging and rebalance your portfolio on a regular basis. For more information, check out our Financial Freedom Blueprint Course.
Increase Retirement Contributions
If you have an employer-sponsored retirement plan through work, check to see if your employer offers a match. Many employers will match dollar for dollar your retirement contributions up to a certain amount.
Make sure you’re contributing enough to get the full match. It’s like free money that continues to grow right along with the contributions coming out of your paycheck. For example, if your employer offers to match dollar for dollar up to the first six percent of your salary, it’s like saving 12 percent...and 6% of it was free!
Tax-advantaged retirement accounts such as 401(k)s and traditional IRAs are a great way to increase your wealth and get to the $1 million mark. Since the money is exempt from taxes until retirement, growth on full contribution amounts grow tax-deferred, which can help it grow faster.
Increase your retirement contributions with each pay raise or more often. Since the money comes out of your paycheck before it hits your account, you never even see it. If you time it with your pay raise, you won’t really feel the pinch of a smaller paycheck.
Buy Appreciating Assets
One of the best ways to increase your net worth and your wealth is by focusing on spending your money on appreciating assets. One example of an appreciating asset is real estate where the value increases year-over-year in most cases.
On the other hand, a purchase such as a car is a depreciating asset. The moment you drive a new car off the lot, it quickly starts to lose its value. In the first year of ownership, a new car loses 20 percent of its value. This means that if you spend $40,000 on a new vehicle, within one year, you would have lost $8,000.
Avoid taking out loans to buy depreciating assets such as a new car since it just compounds the loss. When your car loses value, you could end up upside down on the loan, paying interest on an asset that’s not even worth the full value of the balance.
Put your money toward buying things that increase in value over time such as stocks and real estate. When you buy a depreciating asset, buy it used to avoid the steep initial loss in value.
Diversify Your Investments
If you want to become a millionaire in your 40s, you need to keep adding to your savings and investing the money, so it has time to grow. However, having all of your eggs in the same basket can make it more likely that you will lose the value of your investments if something happens.
For example, people who were heavily invested in real estate in 2008-09 saw the value of their portfolio sharply decline when the real estate bubble burst. This is why it’s important to have a variety of investments that can help you spread your risk.
The best way to build wealth and protect your assets is by diversifying your investments. Don’t just put all of your money in stocks or in real estate. Instead, pick a few different asset classes for your cash and spread your risk.
It’s best to look for assets that have an inverse relationship. For example, a well-diversified investment portfolio contains a mix of stocks and bonds. That’s because they behave in different ways with the ups and downs of the market to balance out your earnings.
The Bottom Line On Becoming A Millionaire In Your 40s
If you want to become a millionaire in your 40s, you need to change your mindset. The more you save, the faster you will get to cross the seven-digit threshold. Common advice tells you to save 12 to 15 percent of your income but that most likely won't get you to $1 millions by your 40s.
Talk to a qualified financial advisor who can help you define your financial goals and help you figure out the best way to achieve them. Use this as a financial blueprint to build wealth and join the double comma club by your 40s.
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