Becoming a Millionaire

Becoming a Millionaire

Most people have a desire or wish to become rich or become financially independent or free. Becoming a millionaire is not an impossible task provided you start early and stay on the right track.The idea of becoming rich or becoming wealthy was sometimes seen as a bad attitude or seen as an undesirable characteristic particularly in Indian society.

But times are changing – nowadays more and more people are definitely materialistic and admit that they want to earn more and become more affluent.

In the olden days “simple living and higher thinking” as practiced by leaders such as Mahatma Gandhi were followed, but today the environment is completely different. I’m not saying that money or wealth (Lakshmi) is the key to success, but it is becoming an important ingredient, however, one also needs to use it wisely or intelligently using knowledge (Saraswathi).

As long as you are making legitimate efforts ethically to earn more, save more and invest more I think you are not hurting any individual or the environment, but rather adding value to the economy/ecosystem as a whole.

Most people have misconceptions or myths about millionaires. I don’t have good statistics for India but there are few for US which can throw some insights for us.

Myths about Millionaires

Most people think that millionaires lead a certain type of life – like fancy cars, beach side bungalows, Armani suits, etc. Most people use the myths or assumptions below to act like millionaires, but unfortunately that does not  work. These myths or misconceptions make people think that one has to confirm to a behavior or lifestyle to become a millionaire.

Millionaires Inherit Wealth or were Lucky

According to Thomas J. Stanley’s book, “The Millionaire Next Door: The Surprising Secrets of America’s Wealthy,” only 20% of millionaires inherited their riches. The other 80% are what you’d call nouveau riche: first generation millionaires who earned their cash on their own. The first generation millionaires are not those who made millions overnight, they rather worked slowly and steadily to build such a huge corpus over years or decades.

A very miniscle number of people could have become millionaires by winning lotteries or by some luck – so assuming this as the route to millions is wishful thinking. If you start trying your hand at lottery, gambling or speculation to make a million you might eventually end up losing even the little saving you had.

They have a Flamboyant Lifestyle

This is not true in all cases. This probably is more true of billionaires (in $ terms) but we don’t have statistics to prove it. However, some interesting facts from authors and success gurus are worth noting.

Andrew Hallam, the Author of “Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School” says that most millionaires choose Toyotas over Porches and Times watches over Rolexes.

You have read it right. Its true. But why does it sound so untrue?

That’s because we only know a bunch of millionaires (probably 0.5% or less) that we see on TV, public places, magazine and other mass media. There are thousands of millionaires and billionaires who are not in the limelight or known  in public.

For instance how many of us know about Cyrus Mistry (a billionaire) who is going to succeed the Tata Empire from the legendary Ratan Tata? We heard about him very recently.

This is just one example, but there are several millionaires who are not well known and some of them could be leading a simple lifestyle that is ‘very uncharacteristic’ or ‘unlike’ what is expected from a millionaire.

Millionaires can survive on Interest

The other assumption is that a millionaire can survive just by earning interest on his money. This could be somewhat true for a person earning Rs.1 crore or more (Rs.10 million or more) assuming he is living within that budget. But for a person with Rs.1 million this doesn’t work. See the illustration below:

If you have Rs.1 million or Rs.10 lakhs as cash and invest in a bank fixed deposit offering 9% p.a., which means your earnings (before tax) will be Rs.90000 p.a. or Rs.7500 per month. If we assume a moderate tax of 20% the post tax earning is 7.2% or Rs.72000 p.a or Rs.6000 per month.

A Million = Rich/Affluent

Millionaires are definitely better off than the middle class, but we also need to know if they have significant net worth or if they are just barely a million worth. You or I could reach the millionaire mark if we have a net worth (assets – liabilities) of Rs.1 million. But this is not such a huge amount today, but probably good enough during the 80’s or early 90’s.

Today, Rs.1 million (or Rs. 10 lakhs) will not be enough to buy you a 2BHK flat in a decent middle class residential area in the top 7 cities in India.

So by now you are convinced that the so called millionaires cannot afford a Mercedes, Ferrari, Porsche, etc.

Millionaires, Multi-Millionaires, Deca-Millionaires & Centi-Millionaires:

If you can differentiate these three you will know that the first two are significantly less affluent than the last two.

  1. Millionaire = 1 million but less than 2 million
  2. Multi Millionaire >= 2 million
  3. Deca Millionaire >= 10 million
  4. Centi Millionaire

Becoming a millionaire may seem fascinating but a day will come when the word ‘millionaire’ might lose its fancy just the way ‘lakpathi’ lost its relevance.

How to Become a Millionaire

There are hardly any shortcuts or formulas to become a millionaire, but if one puts in efforts one can definitely reach that goal.

Robert Kiyosaki of the ‘Rich Dad Poor Dad’ book series used to say that its very tough to make the first million, but once you make it the second and third become relatively easier. The learning and tremendous efforts you put to make that fist milestone (of Rs.1 million) is going to be valuable.

You need to follow a few simple things to ensure that you stay focused on your path to achieve this goal of becoming a millionaire.

Adequate Savings

A penny saved is a penny earned. So you need to make sure you have a budget that can give you an indication of your saving ability. If you earn Rs.20,000 and spend Rs.14,000 on your day to day expenses your saving potential is just Rs.6,000 per month. If you don’t save there is no question of becoming a millionaire.

Don’t Follow what Millionaires Do

Trying to do what millionaires do will definitely lead to failure. Remember that your aim is to make your own million purely on your efforts, so trying to ape or copy will only backfire on you.

Trying to drive a Porche, have a blackberry, joining a golf club, etc will actually reduce your net worth by several thousands or lakhs. What you can afford is different from what a multimillionaire can afford.

Andrew Hallam, Author of ‘Millionaire Teacher’ interestingly notes that most million dollar properties are owned by wannabes who take mortgages to own such prestigious possessions. These high income folks try to follow what the millionaires do by observing a few, thinking that this will place them in the top league.In reality, this is absolute stupidity.

You must only try to learn a few good traits rather than copy someone. Trying to act like a millionaire before becoming one is like celebrating a graduation party before graduation.

Disciplined Investing & Financial Planning

Saving money alone will not take you far. You have to invest in the right mix of asset classes such as stocks, property, gold, fixed income, etc. Discipline and planning are more important.

Further, you should know the product or instrument you are investing and its risks and rewards. Having an emergency savior like insurance is vital to cover you from uncertainties.

Focus on Appreciating Assets

If you really want to save more and invest in assets that will create more income and wealth in future, don’t invest in decorative items, showpieces, gadgets and fancy stuff.

For instance buying a beautiful porcelain vase with decorative flowers costing Rs.1000 or buying the latest SUV is a foolish approach. Instead if you invest in a property or good stocks these might provide you some capital appreciation as well as income (rents/rental savings/dividends).

Conclusion – Becoming a Millionaire

Becoming a millionaire is no million dollar question . “You can have money or you can have stuff, but seldom do you have both early in life,” says Jason Flurry, a certified financial planner. (Tweet this)

Lastly, remember that in order to become a millionaire you have to be more responsible, intelligent and judicious in the use of your resources.

Like Robert Kiyosaki rightly pointed out the first million is going to be a phase where you will have a long journey with new experiences, learning, varying situations, etc. Once you complete this milestone overtime you will know the art of building wealth. However, you should also make sure that the path to millions has to be ethical, fair and beneficial to society.

Finally, its not just about money but also about how you want to fulfill your goals, ambitious and have a sense of accomplishment and happiness.

If you have the right attitude, if you feel it, if you believe you’re a millionaire, you’re already there, already rich. You have the mind of the millionaire. Money will follow. It really does work.



About the Author

Sridhar is a financial analyst and his work experience spans areas of financial analysis, modeling, valuation and research on companies, specific sectors, etc. Sridhar is an MBA graduate with Finance major from Maharishi Institute of Management.

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