These 3 Simple Strategies Will Better Your Odds of Becoming a Self-Made Millionaire
It's certainly possible that your company could become a resounding success and net you several million in a sale. But that's not likely to be the case, even if your business is a consistent earner. So if your dream is to become a self-made millionaire, how do you go about doing it?
We caught up with three wealth management experts -- Gemma Godfrey, founder and CEO of digital wealth manager Moo.la; Garrett Gunderson, founder and chief wealth architect at Wealth Factory; and Manisha Thakor, director of wealth strategies for women at Buckingham and The BAM Alliance -- to get their best advice for getting yourself on the right financial track and staying there for the long haul.
Set achievable goals
Another old chestnut that really works? Don't spend more than you make or, perhaps more realistically, don't live beyond your means. Thakor says that self-made millionaires start saving as much money as they can as early as they can. That manifests itself as buying a smaller house or waiting a bit longer to trade in your car for a new one. And it means that "you spend only when you think it makes good sense, not to keep up with everyone else," Thakor says.
Godfrey and Thakor both say that setting an investment timeline and plan, while figuring out how comfortable you are taking calculated risks, is key to later financial success. But when it comes to stocks or bonds, what if you have no idea where to start?
Thakor has a simple approach that you can use as a baseline. "Invest 80 percent in stocks and 20 percent bond in your 20s, 30s and early 40s and then shift to 60 percent stocks, 40 percent bonds from your mid 40s onwards," she says. "You keep investments highly diversified and your costs low."
Follow the money
This may seem like a basic suggestion, but when it comes to growing a nest egg, the fact of the matter is that many people don't put in the time and thought necessary to monitor where their money is going. From the start, Godfrey says it is important to understand the full nature of your financial position and obligations.
"[You need to ask] what assets do you own vs. what debt you have, such as a mortgage," she says. "What income do you generate vs. what are your outgoings?"
Gunderson agrees, noting that especially for entrepreneurs, even though they can be incredibly savvy, they do run the risk of falling into a mindset of always believing that they can make more money and not making the long-term plans needed to not only remain solvent but increase their wealth. "They get on the proverbial treadmill, always trying to sprint," he says. "[But] they could just keep more of what they make by stopping the leaks in the hull, and dealing with some of their personal finances."
Gunderson says that there are many small things that entrepreneurs may not know about when it comes to optimizing cash flow, such as money they could be losing to taxes. "There are thousands of dollars a month that business owners are losing out on, simply because they are overpaying interest, or they haven't structured the loans properly," he says. "They don't know how to improve their credit score to negotiate better interest rates. That's money that [they could put] towards building that wealth, without taking risks and without burning themselves out."
While this may seem like a lot, you don't have to go it alone. But when you do look for financial help -- and not only during tax season -- Thakor says that it's imperative that "you seek financial guidance only from advisors who practice under the fiduciary standard -- which legally requires that they put your interest first," she says, "vs. those who operate under the suitability standard -- which simply says investment recommendations must be in your interest but could benefit the advisor more than you."