How to Make a Million Dollars

 

Millionaire Strategies

There are essentially two different ways that you can make a million dollars: the easy way and the hard way.

The Easy Way

The simplest way to become a millionaire is to choose the right parents and/or grandparents. Paris Hilton of the Hilton Hotel chain fortune "chose" this route, as did Jamie Johnson of Johnson & Johnson and many others. 

If you have extreme athletic talent, you stand a slim chance of making millions as a professional athlete. LeBron James, who went straight from high school to the NBA, got a $90 million contract from Nike before he had even played a single professional basketball game.

Bill Gates has the best of both worlds. Not only is Bill Gates an ambitious and extremely successful entrepreneur, he also had the cushion of a million-dollar trust fund to fall back on -- just in case. Most ordinary people don't have that kind of luck, but that didn't stop over 7 million people from becoming millionaires anyway.

The Harder Way

Even if you're not a trust-fund baby and aren't the luckiest person around, you can still make it big. As we mentioned earlier, most millionaires are self-made, ordinary people very much like you. But they set a goal to become a millionaire -- or at least a goal to achieve financial freedom. In order to achieve their goals, most of them started their own businesses simply because it's difficult to earn enough money to become a millionaire when you're working for someone else. Instead, you're making them a millionaire.

Nothing is a sure thing. But if you want to really have a chance at making a million dollars then working for yourself is one of the best ways. Of course, starting your own business means taking a risk, but it may not be the risk we've always thought it to be. According to an article at Business.com, the old saying that nine out of 10 new businesses fail just isn't true. The author, Dan Kehrer, says that "a review of businesses gone bust by StartupJournal.com, a Dow Jones & Co. division, shows that the number of outright business failures in the United States is highly exaggerated" [ref].

The article also explains that about one-third of business closures that government statistics assume to be failures are actually successful businesses. Their owners simply sold off pieces of the business or closed them to retire or pursue other activities.

Data from the U.S. Census Bureau's Business Tracking Series show about 65 percent of new businesses still operating after four years. Another recent study estimates that only 10 percent of the nation's 5.5 million small businesses (not counting solo operators) close each year.

With this outlook for success, maybe starting that new business isn't such a risk after all. If you do fail, just remember that with each failure comes experience and knowledge to help the next venture succeed. Many self-made millionaires failed at businesses before they got it right. And each time they failed, they learned a lesson for their next business idea.

Investments and Compound Interest

If you save and invest money every month, you will become a millionaire at some point. As Einstein put it, compound interest is the "eighth wonder of the world." It all depends on how much money you currently have, how much interest that money will earn (the tricky part), and how much you can save each month -- and, of course, how long you can wait. Another critical part of the equation is that you leave the interest earned alone so that it keeps earning interest.

There's one often-cited example of the power of compound interest. If Christopher Columbus had placed a single penny in a 6 percent interest-bearing account and instructed someone to remove the interest every year, the value of the interest earned by 2005 would be almost 31 cents. But if he had placed the same penny into the same interest-bearing account but left the earned interest to compound -- earning interest upon the interest -- the resulting balance for 513 years would be $95,919,936,112. That's $95 billion!

All over the Internet, you'll find calculators that tell you how much you need to save each month in order to have a million dollars by an age you specify. For instance, if you're 30 years old, have $5,000 already, save $100 per month, and can earn 8 percent interest, you'll be a millionaire in a mere 51 years -- at the ripe old age of 81. Most calculators will also tell you how much that million will actually be worth by that time because of inflation. In our example case of 51 years, a million dollars will only be worth $213,215 in today's dollars, which probably won't be enough for financial freedom.

This means that you have to work to make that million happen in fewer years. Not only will you get to retire sooner, but when you do, your money will have more buying power. Let's go back to our calculator and change the numbers a bit. Let's say that, instead of $100 a month, we save $200. That changes our million-dollar mark to age 73, or only 43 years. It also changes the adjusted worth to $265,069. Now, let's say we find a way to scrape together $500 a month to save. That drops our million-dollar mark to age 63, or only 33 years. Not bad. And, the value at that time will be $361,977. Now, what if instead of 8 percent interest, we invest our funds well and can average 10 percent earnings? Now we'll be millionaires at age 59. Granted, that million will still be worth less than $500,000 in today's dollars ($414,882).

You should also determine how much money you will need. A million dollars sounds like a lot of money and a good amount to shoot for but depending on your lifestyle, it probably won't be enough to retire on when the time comes if that's your goal. Usually, the same Web sites that have those handy millionaire calculators also have retirement calculators. By plugging in your current expenses and an estimate of your expenses once you retire, you can come up with a more realistic financial goal for retirement. You may find that you need to be a multimillionaire in order to retire with the lifestyle you want.

Of course, simply being a millionaire (or multimillionaire) at retirement isn't everyone's goal. Most of us would like to experience the millionaire lifestyle sooner rather than later. We want financial freedom so that our investment interest is enough to pay our living expenses. In that case, let's talk about how you can make that happen.