Reaching a million-dollar net worth is a big milestone, and most millionaires claim they didn’t reach there by winning the lottery or being born with rich parents.
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These 5 magic money moves will boost you up America’s net worth ladder in 2024 — and you can complete each step within minutes. Here’s how
“Nearly 80 percent (79%) of American millionaires say their net worth was ‘self-made,’ whereas 11% say they inherited their wealth and 6% say they came into it through a windfall event like winning the lottery,” according to a research study from Northwestern Mutual. “Moreover, 78% of millionaires describe themselves as ‘disciplined financial planners,’ while just 45% of the general population agrees.”
The truth is you have to follow a very boring path to building wealth and it’s one everyone can adopt.
Here’s how to do it.
Take advantage of tax breaks
Taking advantage of tax breaks is one of the best ways to build a big nest egg. Specifically, the government rewards you if you invest in 401(k) or IRA plans. You can take an upfront deduction for contributions with traditional accounts or defer your deductions until retirement using a Roth account depending on whether you think you’ll pay more taxes now or later.
A study from Ramsey Solutions found eight in 10 American millionaires invest in their company’s 401(k), and it’s very clear why. The deduction makes a huge difference and an employer-matching contribution makes these accounts even more advantageous.
Say you invested $10,000 in a 401(k) and earned a 50% employer match. You’d end up with $15,000 in your account for the year. This is assuming that $5,000 was below the total matching benefit limit.
If you were in the 22% tax bracket and your $10,000 contribution saved you $2,200 off your tax bill, you’d have only reduced your take-home income by around $7,800.
Automate your investments
Let’s face it — it’s hard to force yourself to spend responsibly and transfer money to savings each month. So, simplify that task by automating your investments.
When you have contributions automatically taken out of your paycheck or taken from your account on payday, there’s no doubt the money will go where it needs to make you a millionaire.
With 75% of millionaires in Ramsey’s study reporting regular, consistent investing over a long period of time is the reason for their success, it’s clear that this is the way to hit seven-figure status.
Read more: Rich, young Americans are ditching the stormy stock market — here are the alternative assets they’re banking on instead
Dollar cost average into an index fund
You don’t just need to invest to become a millionaire — you need to invest the right way. For many people, dollar-cost averaging with an index fund is a strategy that makes sense.
Dollar-cost averaging means investing a set amount of money on a fixed schedule, like buying $1,000 worth of shares on the 1st of every month, regardless of price. This reduces risk and takes the emotions out of investing since it means you aren’t trying to time the market, an exceptionally difficult task even for experts. It ensures you’re regularly and consistently investing.
Index funds track the performance of a financial index, as the name suggests. Since there’s no picking individual investments, the fees for these funds are low — as are the risks since you’re so broadly diversified.
Legendary investor Warren Buffett famously recommends low-cost S&P 500 index funds for average investors.
Historically, the S&P 500 has delivered around 10% in average annual returns. Morningstar research cited by The Wall Street Journal also shows it consistently outperforms the majority of actively managed funds, which tend to come with much higher fees.
If you can earn 10% on your money in an investment that charges low fees and requires no specialized knowledge, then becoming a millionaire requires investing just around $500 monthly for 30 years. Since that’s before any tax breaks or employer matching funds, it’s pretty doable.
Reinvest your dividends
Finally, the last key step is to reinvest your dividends. You can typically do this automatically by enrolling in a dividend reinvestment plan (DRIP). It makes a huge difference.
Following these steps is simple, easy, and a surefire way of building wealth. Get started today by signing up for automatic investments. Then, sit back and wait for your seven-figure nest egg to grow.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
