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How to become a millionaire at 40 PERSONAL FINANCE

From Barbara Friedberg in Wealth

A millionaire when you turn 40? It sounds amazing, doesn’t it? But if you are in your early 20s, have just graduated from college, are starting a new job, and have the will to become a millionaire ASAP, you can get there before you turn 40.

It will take some self-discipline.

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You can learn to be mentally and emotionally committed to the goal. This means that you may have to give up certain experiences and possessions that many young people enjoy so early in their lives.

You can practice staying the course until you reach the goal.

The steps are clear: minimize your cost of living, maximize your savings, get a sideline, and invest.

7 strategies you can use to make your first 40 million

1. Start a 401 (k) early and make maximum annual contributions

Start your 401 (k) as soon as you get your first job after college and do what you can. If your employer offers a suitable contribution, make sure you make the maximum possible contribution. For 2020 that’s $ 19,500 per year.

Let’s see how this strategy works to make you a millionaire by 40:

You sign up for the 401 (k) business plan immediately after landing your first job. They maximize your 401 (k) annual contribution at $ 19,500. With an employer contribution of up to 5%, you can easily reach $ 1 million by the age of 40.

Here is an example of how you can become a millionaire (almost) by age 40 if you start at age 24 and contribute the maximum amount each year.

These assumptions do not include an employer contribution that would accelerate becoming a millionaire by 40.

Assumptions:

  • Donate $ 19,500 annually from the age of 24
  • Earn an average of 7.5% annual return
Millionaire by 40 with 401k graphics

Image / data credit: calculator.net/future-value-calculator

By the age of 40, without increasing premiums or adding an employer contribution, your 401,000 account is worth approximately $ 750,000.

Click on the blooom picture to get one FREE 401 (k) or IRA analysis. You may be able to lower fees and increase your ROI so that you hit $ 1,000,000 sooner.

2. If you are self-employed – Open a Solo 401 (k) or SEP IRA

If you’re self-employed, you certainly don’t have an employer-sponsored retirement plan, but that shouldn’t stop you from becoming a millionaire by the age of 40.

There are two self-employed pension plans: Solo 401 (k) and SEP IRA.

Solo 401 (k) is a 401 (k), but it is designed for a single participant (spouse can be included). Since you are both an employer and an employee in this plan, you can make contributions as an employee and as an employer. Just like the employer-sponsored 401 (k) plan, you can make an employee contribution of up to $ 19,500 for 2020. An employer contribution can be up to 25% of your income. The full contribution limit is $ 57,000, which can surely help you become a millionaire by the age of 40.

The other option for a self-employed person is SEP IRA. You can bring up to 25% of your self-employment income into the plan

In most cases, the Solo 401 (k) is a better option to make a million quick. You can also add an IRA mix to increase your overall pension contribution.

3. Buy real estate

One of the best ways to become a millionaire is by buying real estate. You can even buy real estate in a self-managed retirement account.

One of the best ways to become a millionaire by age 40 is to make it 401 (k) real estate investment. It promises a high ROI with low risk.

You generally cannot invest in real estate directly through an employer’s 401 (k) plan unless the plan’s investment offering includes a real estate mutual fund. However, you can convert your 401 (k) account into Self-Directed 401 (k) / Solo 401 (k), Roth Solo 401 (k) or Self-Directed IRAs and make 401 (k) real estate investments.

You can even buy real estate like you would buy a stock with a REIT. A REIT is a type of investment that puts your money into a wide range of real estate investments. Example REITs:

  • VGSIX-Vanguard US REIT index mutual funds
  • VNQ-Vanguard US REIT Index ETF
  • RWR-SPDR Dow Jones Index REIT ETF
  • VNQI-Vanguard Global ex-US Global Real Estate ETF
  • FGL-iShares developed the ETF International Fund for real estate (excluding the USA).
  • RWX-SPDR Dow Jones International Real Estate Stock Exchange Fund

There are also numerous sector REITs investing in office buildings, storage units, university apartments, nursing homes and more.

One of the newest ways to invest in real estate is through real estate crowdfunding. As the name suggests, you can partner with other investors to invest in large real estate projects of various types.

Do you want to invest in commercial real estate? You can become part owner of apartment complexes for as little as $ 500. Invest today!

And of course there is the old fashioned way of investing in real estate by buying property. You can then rent or repair and resell the property.

4. Maximize your savings

Most financial experts recommend saving 10% to 15% of your income for your retirement. But this is not about retirement. We talk about becoming a millionaire before we turn 40 (25 years before you retire). We’re talking about saving 30%, 40% or 50% of your income. This can be painful.

That is how much you would have to save and invest between 24 and 40 years each year to get rich and reach a million.

Assuming a 7.5% return, you’d have to invest $ 32,000 a year to become a millionaire in 16 years.

That means that in addition to investing in your retirement account, you would have to invest in a traditional brokerage account or a no-fee robo-advisor.

It is easy to set up an investment account with any number of investment companies.

We like SoFi Invest because they are a robo-advisor who helps you invest for FREE and who also provides access to financial advisors and career coaches.

5. Diversify your investments

If you want to be a millionaire before 40, you need to keep adding to your savings and investing the money to make it grow. With financial markets fluctuating, it is wise not to keep all your eggs in the same basket so that if one investment stumbles, you will have others to add to your returns.

The best way to build wealth while protecting your wealth is to build a diversified investment portfolio. Don’t just put your money in stocks and real estate, consider different asset classes to offset the risk.

There are people who invest in websites, mobile home parks, collectibles, currencies, private equity and more. These are potentially riskier than typical stocks, bonds, and real estate investments.

6. Start a side hustle

One of the secrets of the rich is that they have multiple streams of income. That way, when a source of income runs dry, others can make up for the loss.

There are many creative ways to generate additional income. The new gig economy has made it very easy to collect extra money on the side. Driving for Uber, Lyft, Door Dash, and other websites is an easy way to make money on your own terms.

Task Rabbit, Etsy, and Fiverr allow you to sell your services on busy websites that bring sellers and buyers together.

Then there’s the old-fashioned way of selling, putting up a booth at a swap meeting to sell baseball cards, crafts, or water.

It’s also easy to advertise locally through Craigslist. There was a guy with a truck who picked up garbage and transported it to the dump for a lot of money.

The key to any outside job is making sure you are saving and investing that extra money.

7. Live humbly

You can’t live big and save a lot at the same time. It doesn’t work.

The Millionaire Next Door tells the stories of the average men and women who have amassed a million dollars while living simple lives.

If you want to amass a million dollars fast, you must live far below your means. That means making the conscious choice to live simply and forego many of the luxuries and “perceived necessities” of today.

You may even want to surround yourself with friends with a similar attitude. It makes it easier to become a millionaire by 40 when you are in the company of others with similar goals.

For more strategies to build wealth and become a millionaire, see How to Get Rich Without Winning the Lottery.

Statistically, about a third of 1% of the population by age 40 are millionaires. However, if you want to be part of this group, you must be willing to invest the time, effort, and money in reaching the million dollar mark. And it won’t be an easy journey.

Disclosure: Please be aware that this article may contain affiliate links. This means that I may earn a commission – at no cost to you – if you sign up or buy through the affiliate link. Still, I never recommend anything that I personally don’t think is valuable.

Author bio: Rick Pendykoski is the owner of Self-directed retirement plans LLC, a retirement planning firm based in Goodyear, AZ. He has over three decades of experience working with investing and retirement planning and has focused on self-directed accounts and alternative investments for the past 10 years. Rick regularly posts helpful tips and articles on his blog at SD Retirement, Business.com, SAP, MoneyForLunch, Biggerpocket, SocialMediaToday, and NuWireInvestor. For help and guidance with traditional or alternative investments, email them at [email protected]

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