Dear In-Your-20s-&-Wondering-How-To-Become-a-Millionaire, I often get asked questions such as, “How do I go about becoming a millionaire by starting in my 20’s?” I love this question because I like that the young person is thinking about building wealth. Sadly, so many young people are distracted by the glitz and commercialism that is ubiquitous on social media and various other sources of media. So, I am happy that some people are also thinking about their future.
Let me emphasize this. If you are in your twenties, you are in your most powerful stage of your wealth building journey. This is the point where you can create the strongest foundation for building your wealth. The reason that your twenties are the most powerful is because you have the most time. Time. It’s is the fertilizer that allows your money to grow and compound. Time is what will help you become a millionaire.
I am not sure who said it but, there is a basic quote out there that says this…“It’s not timing the market, it is time in the market.” The market that we are talking about is the stock market. A long time in the stock market allows for a stock to pay you dividends, and then allow those dividends, if left invested, to also pay you dividends. Time in the market also allows stock to appreciate.
So, I have read the book,The Millionaire Next Door. Not only does the author’s points make sense to me, but I can tell you that I have actually seen the suggestions work, making millionaires out of people that many people might be surprised are millionaires.
So, What Would I Do If I Were Currently Interested in Becoming a Millionaire By Starting in My 20’s?
First, let me say that I am not recommending how you as an individual should go about accumulating wealth. I don’t know you personally, and I am not your financial advisor. Instead, I am sharing examples of what I would discuss with any of my young relatives. So, do your own research, talk to your financial advisor, before making any financial decisions.
Now, let me tell you what I would do, If I Were Focused on Becoming a Millionaire By Starting in My 20’s (and some things that I actually did.)
Create a Financial Foundation:
I would commit myself to a period of creating my financial foundation. In my own real life, I committed myself to a period of a year. Think of this period of time as being part of the foundation of a financial house that you plan to build. During my financial foundation period, the goal would be to make as much money as possible while being as frugal as possible, and then saving and investing the money earned.
During My Actual Financial Foundation Period
When I was in my financial foundation period, I worked three jobs. I had a full-time “nine-to-five”, an evening job doing phone surveys, and a weekend job working at a department store. In fact, when I was working on Saturdays at the department store, a coworker told me that she got paid time and a half working on Sundays. So, I asked my supervisor if I could switch to Sundays. He said that he needed me there on Saturdays, but that I could add Sundays, if I want to do so. So, I added Sundays. I was then working 3 jobs, and working 7 days a week. Why did I work three jobs? I did this because jobs, aka active income, is normally the first asset that one needs to get. It allows you to earn money that you can use to purchase other assets.
I kept my expenses down by living at home with my mom, and paying her a small amount for rent rather than moving out into an apartment. Another way that I inadvertently saved money is that I found that I was too busy working to have time to spend much money. So, with the money that I brought in, the first thing that I did was work on paying off my student loan, while investing a little into the stock market. After my student loan was paid off, I focused on saving money and investing money.
Life Happens Fund:
I’d start my life-happens fund. My life-happens fund is to cover things like deductibles, and things that come up like needing to purchase new car tires, etc. I’d start with the goal of being able to cover all of my deductibles, then contribute to it each month until I had a total of $2000 in it. $2000 can cover a variety of unexpected expenses.
Emergency Fund:
After I have funded my Life-Happens-Fund, I would start working on my emergency fund. How much money do you need in your emergency fund? If you have no one else depending on you, at a minimum, you should have three months of emergency funds. That means that you should have at least enough money to cover 3 months of all of your monthly expenses. As you move through your financial life, you will want to increase the number of months that your emergency fund can cover.
Employer Offered Retirement Plan:
If my employer offered a retirement plan, such as a 401K, I would contribute to my workplace retirement plan. I would contribute up to the maximum that my employer would match (but not a penny more), if it did not interfere with paying off my debts (more on that later.) The employer match is free money. It is a benefit that you should not miss. However, If my employer did not offer matching funds to their retirement account, I would not contribute to that fund. Instead, I would immediately focus on my Roth account (which I will talk about next.)
Roth IRA:
I would open a Roth IRA. What is a Roth IRA? A Roth IRA is a retirement account that allows your money to grow tax free for the rest of your life. (I consider this to be one of the best two retirement accounts that exist!)
Why not a traditional IRA? With a traditional IRA, you make pre-tax contributions. Then, when you start taking that money out, you pay taxes on it, just like regular income. The amount of taxes that you pay on it will depend on what tax bracket you are in at that time. With a Roth IRA, your contribution goes in after taxes. However, after your money grows tax free until retirement, you will never have to pay taxes on the money when you take it out. It won’t matter what your tax bracket is. My overall goal would be to fund this account up to the maximum amount allowed by law, each year. Also, I would do this as early in the year as possible. The Roth IRA contribution limit for 2023 is $6500.
But, I would also be careful to do one thing that some retirement account owners forget to do. I would make sure that the money in the account is invested in stock, rather than just sitting in the account.
Stay Off or Pay Off Consumer Debt:
Consumer debt is debt you get as a result of buying things that you consume, like clothes, cars, jewelry, gym memberships, salon visits, etc. You can think of any debt, other than for a business or purchasing real estate, as consumer debt. Even better, think of it as any debt that is not making you money. So, I would work hard on paying off any debt that is not mortgage debt. To do this, I would pay more than the minimum required, paying as much as possible. At the same time, I would also be sure to not replace this debt with any new debt. This means that I would only buy what I could afford to buy in cash, if possible.
To pay off the debt, I would start with the debt that has the highest interest rate, and work the hardest on paying that one off first. When the first one is paid off, I would move to adding the next highest interest debt, and so on.
The main debt that I worked on paying off was my student loan.
Still Have Money After Fully Funding A Roth IRA?
If I had money left over after contributing to my Roth, I would put money into a taxable investment account. I would shoot for $6000 per year, or the equivalent of $500 a month.
Multifamily Property:
I would buy a house, if possible, but not just any house. The first house that I would buy would be a multifamily property. A multifamily property would automatically provide me with a stream of income, whether I live in it, or not. Furthermore, I know that when qualifying for the mortgage, some mortgage companies will allow me to use a portion of the rental income that I am projected to earn from tenants, toward the qualification.
Multiple Streams of Income: Not Just For Becoming a Millionaire by Starting in My 20’s
If I were focused on becoming a millionaire by starting in my 20’s, I would focus on the goal of creating multiple streams of income. Having more streams of income allows you to achieve your financial goals faster. If I have a job, that is one stream of income. Adding that multifamily rental property is a second stream of income. Investing in the stock market can create a third stream of income.
There are many ways to add more streams of income. Some ways include adding a second job in addition to your primary job, starting a side business, dog-walking, investing in the stock market outside of retirement accounts, buying bonds, affiliate marketing, and self-publishing a book.
In addition to the above ideas, you can try to find a way to earn more money from your current employer. You can ask for a raise, look for higher paid jobs with your current employer, or earn additional skills and credentials that make you more valuable as an employee. If the last does not earn you more money with your current employer, it may make it easier to find a higher paying job with another employer.
If you try to create additional income one way, and it doesn’t work for you, don’t give up. Just keep trying, eventually you will succeed.
Live Below Your Means: Key in Becoming a Millionaire By Starting in My 20’s
No matter how much money you have coming in, always try to live below your means. This means that you spend well below what you earn. There is nothing wrong with living cheaply in your 20’s. Then, use that extra money to invest, and build your incomes.
The most important thing to remember, if you are truly interested in what I learned about becoming a millionaire by starting in my 20’s, is that you can only get rich by spending far less than you make, and using the difference to invest in assets, which will pay you more money.
Love, & Hoping That You Set Yourself Up for Future Financial Success,
Rich Mom
Looking for more financial resources? Check out the Rich Mom Poor Kid Resources Page.
Who is Rich Mom?
If you’re wondering who Rich Mom is, check out my “About Rich Mom” page.
Also, please note: I am not an investment advisor. Always do your own due diligence and research before investing. Check with your own investment advisor.
The information shared here is not intended as financial advice, just encouragement.
Would you like to read more about emergency funds? Check out:
Do You Have an Emergency Fund?
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Here is another article, written by someone else, that you might find interesting:
7 Reasons to Become a Millionaire