Building wealth isn’t easy, but you need to become a millionaire if you ever want to achieve financial freedom or retire comfortably. Living like a millionaire isn’t the life you imagine from watching music videos and movies. Over 8 million people are millionaires in the United States alone, and they got there by avoiding financial mistakes.
Investing in your 30s is a crucial time to set yourself up for retirement-level wealth that will last through your golden years. Follow these eight steps to help secure your financial future while you’re still young enough to afford it.
1. Foster Healthy Routines
Anyone can tell you the steps involved for becoming a millionaire, but the only way you can follow them is through healthy routines. You need to set goals, create budgets, and quantify your performance if you ever expect to get better.
Every dollar you earn should already be earmarked within your budget to ensure you stay on the roadmap to your financial goals. People can easily pull you off track if you’re not disciplined with managing your expenses.
Routines structure your day and give you a sense of control over your life and schedule. This is the key to achieving all your career and personal goals, which are fundamental to the foundation of your financial success.
And we would be remiss to not reiterate the biggest mistake of people in their 20s: not having a 401(k).
2. Start/Strengthen Your 401k
A 401(k) plan is a retirement account set up to give tax-advantaged investments to employees. The name comes from the U.S. Internal Revenue Code and lets workers automatically contribute through payroll deductions.
Employers often match a portion of contributions up to a certain threshold, and money isn’t taxed until deducted.
These retirement plans replaced traditional pension plans at the turn of the century. If your employer offers one, it’s recommended to contribute the maximum they will match to maximize your returns. Like an individual retirement account (IRA), you must choose the allocation of your investments.
From there, payroll deductions automatically purchase the available amounts each pay period. If you’re a freelancer, gig worker, independent contractor, or otherwise self-employed, consider a self-employed 401(k) plan (SEP 401k).
Also like an IRA, you can choose either a traditional or Roth 401(k), so let’s talk about the difference in both.
3. What Is a Roth IRA?
If you want to go beyond your 401(k) – and you should – you also need to set up an IRA. In particular, you should aim to set up a Roth IRA. The difference between Roth and traditional is the tax situation.
With a traditional IRA, your deductions are tax-free and lower your taxable income for that year. This is usually best done when you’re making more money, as you’re likely in a lower tax bracket in your 20s and 30s than you will be as you age.
The downside to an IRA is you’re taxed on the withdrawals, which are when you really need the money in retirement. Roth IRAs and 401(k)s flip the script and pay taxes while you’re young and in a lower tax bracket.
Doing so ensures you’ll have the maximum money coming in every month during your golden years. Of course, you’ll need to choose your investments wisely.
4. Invest Heavily in the Market
When you’re young, you can afford to take bigger risks. This means putting more money in high risk/reward investments, like individual stocks. It doesn’t mean to blindly throw your money at every Tom, Dick, and Harry stock with a business plan.
Older investors or often much more conservative and stick with dependable index funds. Dividend payments can be a goal with a larger amount, and that can provide a cushion of income to live off in old age.
But you’re living in the front half of your life until your 40s, and you can withstand short-term losses on the road toward long-term gains. This is especially true if you have automatic 401(k) and IRA contributions that simply buy more of a stock when it’s down.
5. Strategically Pay Down Debt
As tempting as it is to invest, you also need to manage your personal debt. Interest rates can easily overwhelm any potential market gains if left unchecked. If you have $100 laying around, you’re better off using it to pay down high-interest debt than invest in anything.
There are two schools of though on how to pay down debt – some say to pay the highest interest debt first, while others recommend paying off the small balances to get a psychological sense of achievement. Either way, do not ignore debt and allow it to build.
In fact, controlling debt and spending habits are the most important fundamentals you need to build into your routines. Let’s talk about how to manage bills next.
6. Keep Your Bills Lean
We live in a world where you can easily load up on too many subscriptions. Every business, website, and app wants you to subscribe to their premium service. And the creator economy means you can end up subscribing to both a streaming service like Spotify (SPOT) and one of its individual podcasters just to show support.
It’s time to assess what money truly needs to be spent on which bills. Cancel anything that’s not a necessity and price-shop whatever is necessary. Check out Truebill to help with this.
This helps you free up more money from your earnings to allocate towards debt payments and investing. And it stops you from piling on more debt with unnecessary spending on nonessentials, which ultimately helps you save more money.
7. Manage Savings for Unexpected Expenses
The two easiest ways to get rich are to either earn or save more money.
Savings help you take advantage of compound interest, and that’s a big boon for your goal of becoming a millionaire. Once you have all your bills and spending under control, you can start saving until you have one and a half times your income.
This helps you take advantage of compound interest, but it also helps you to manage unexpected emergencies. Your car could break down, your child could be injured – there are a multitude of things that can go wrong at any given moment and could be costly.
Whatever your annual salary is, make sure you have at least that much saved up for a rainy day. You may regret it otherwise.
8. Diversify Your Investments
The final tip to growing your wealth is to diversify your investments. Even a blue-chip stock like Amazon (AMZN) could have a bad year and some have even gone completely bankrupt. You never know what tomorrow will bring, and even what seems like a sure thing can fail.
Investments have an element of gambling, and you should never invest more than you can afford to lose. Your company could go bankrupt, and you could lose everything tomorrow. We saw that happen to many people during the coronavirus pandemic. Focusing on financial health now keeps you safe from bumps in the road later.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.