How To Become A Millionaire By 40 Through Personal Finance

I’m so convinced that millionaires come from money that I take any young millionaire success story with a grain of salt. A decade ago, I thought that having a million in the bank is unattainable for regular people, even with a second or third job!

And then I entered the world of personal finance. After dealing with debt payoff, budgeting, and investments, I was a step closer to financial independence. Then I learned about the FIRE community (Financial Independence Retire Early) and how disciplined they are with their money.

But not everyone wants to become a millionaire, only to retire. You might want to be rich to expand your options. Money can bring comfort in many situations, whether it is a job preference, living situation, or plain freedom of choice.

To put it in perspective, here are the basic steps to becoming a millionaire at 40. You must establish and fund a savings account, open a Roth IRA or 401k, and create a diverse investment portfolio. You have to sort your priorities straight and adjust your lifestyle to spend less than you make.

Choose A Strategy

Some rolled up cash and a calculator next to it. Representing that you should choose a strategy that works for you, to invest and work towards becoming a millionaire.

After you’ve decided to enter the young millionaires club, you have to choose your path. You have your monthly earnings, and you need to save and invest them. Let’s go through the prospects to pick the smartest choice according to your needs. Your strategy needs to be flexible and comfortable because you’re committing to a massive goal.

Eliminate Lifestyle Debt

Committing to becoming a millionaire by 40 means you have to quit some of the useless habits. Lifestyle debt or consumer debt is a neverending cycle. Curing bad days or depressing moods with shopping needs to become a thing of the past.

The thing that put you in lifestyle debt are usually of no lasting value. A lavish vacation or expensive clothes that you have to put on your credit card are not among your priorities at the moment.

Open a retirement savings account

Even your employer can help you become a millionaire! If your company offers a 401k match, set up an account with them as soon as possible. Not opening a retirement account as soon as I started my first job was my biggest mistake.

Employers can match each dollar you contribute up to 6% of your salary, and that’s of great help in the long run. If you contribute $200 a month to your 401k, you get a $200 match from your job. Each year your retirement account grows for $2400 that didn’t come out of your pocket.

If you’re not offered a match, look into Roth IRA, HSA, or other tax-advantaged retirement accounts. They’re all created to help you build wealth.

Buy Real Estate

Mortgages are not a fun thing, but they leave you with a significant asset. Real estate is still one of the most valuable and flexible assets; it’s easy to cash out or lease. Investing in real estate is one of the fastest ways to your two-comma goal. You can do it in a couple of different ways.

  • Buy a rental. Even if you get a loan, you can cover your bills, mortgage and get a small profit left by leasing the property. Even short-time leasing can cover your expenses. Scroll through Airbnb, Booking, or Craigslist to see how much the rent is in your area.
  • Make 401k real estate investments. They promise low risk and high return.
  • Purchase property the same way you get stocks, through Real Estate Investment Trusts (REIT). VGSIX-Vanguard U.S. REIT Index Mutual Fund is a good example.
  • Try real estate crowdfunding. Invest together with other like-minded people in large real estate projects.

Understand How To Become A Millionaire

A young couple are doing their finances together to better understand how to become millionaires in the future.

I can’t tell you a get-rich-quick scheme or trick that will make you the next Jeff Bezos. And no, you can’t rely on winning the lottery.

To understand how you can become a millionaire, you can’t stick to what every other outlet tells you. Saving 20% of your paycheck, not eating out, etc., won’t make you a rich person.

Millionaires acquire wealth through compound returns. Supposedly you’re in your mid-twenties or thirties. Say you saved $6,000 this year, and you decide to invest it. With a 5% interest, you get $6,300. Next year you will have $6,615 without adding any money to the starting amount. The best thing is your money grows with you having to do anything.

Starting with a small amount requires a long time. While even $500 can seem a lot to some, to reach a millionaire status only through compound returns, you have to increase the amount of savings you contribute.

The by-the-book portfolio consisting of 80% stocks and 20% bonds brings a 9% compound return. When you get the 2% yearly inflation out of the picture, you’re left with a compound return of 6.5-7%.

The best way is to increase your income, decrease the expenses and use leftover money to invest!

Don’t Rely On One Income

Let’s get real. Not many have become millionaires only through their paycheck. To increase your chances of accumulating a million dollars by 40 years old, you must rely on more than one stream of income. Try to establish a set of passive and active income.

Passive Income

Passive income is determined as money that you receive without putting in effort daily. It can be a rental property, an affiliate site/profile, Youtube videos, ads on your car, reselling furniture, renting out tools, selling information, etc. Passive income requires work/money only to set it up. After that, it might run on its own for an extended time, and you just pick the fruit of your labor.

Active Income

Active income is any profit that requires an action on your side. This is your regular job, and sometimes your side job too. Each day you have to show up at your office, finish up the daily tasks, and get paid for your time. A side gig is also counted as an active income. Driving for Uber, food delivery, blog writing, photography, video editing, freelancing all require actual work in exchange for payment.

Find Your Why You Want To Become A Millionaire

A young dad is playing with his toddler girl. His "why" to becoming a millionaire is to be financially independent for the safety and comfort of his family.

There’s no greater joy in the personal finance world than financial independence – except accumulating enough money never to have to work again. But retiring is not the main reason many want to become millionaires.

The privilege of knowing, whatever happens, you’re covered through many years, is one of the principal aims. As we saw in 2020 and 2021, many lost their job, and the world economy collapsed; having the safety net of a million dollars at that moment is nothing short of tranquilizing.

The freedom to choose your career path, accept only the best job offers, or quit a frustrating job in a toxic environment is the other side of the coin.

Whatever your reason is, you need to determine it in order to follow through with your plan. Finding your why is essential; that will be your driving force for many years ahead.

Final Thoughts

Personal finance is a mighty tool that can help you turn your life around. You come to realize you’re spending too much in the unnecessary areas of your life while neglecting your future.

Personal finance brings the idea of millionaires closer to the regular people. Determination, sacrifice, planning, and a lot of work all contribute to the idea of becoming a millionaire by 40.

Getting acquainted with personal finance as early as possible sets you up for success. Many of us, including myself, had to learn through our own financial mistakes, but you don’t have to!

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