- Housing: 33%
- Transportation 16%
- Food: 13%
One also has to remember that if you could lower your expenditures by 6,000 USD per year, that would be equivalent of you increasing your income with 9,000 USD (if you pay 33% tax on your income). I don’t know which one is easier for you to do but the savings can be done almost immediately whilst a salary increase might mean having to find a new job which can take some time. If you find both of them quite easy to accomplish, then why not doing both of them and you will have an additional 12,000 USD in your pocket!
Some of the easy changes
Make sure that you use a comparison website for all your monthly reoccurring costs (where possible). I have previously written a post about how to save +1000 USD in a few hours! so have a look there and make that your starting point. In particular, this goes for the things which won’t have any impact on your quality of life. We are talking about your electricity, gas, phone and insurance providers and what they offer versus what you pay. Most of the time there are temporary offers available for new customers so it often makes sense to change provider every now and then to get the costs down (whilst still having the product or service that you need).
Some of the potential changes
There are statistics showing that we are living in bigger and bigger houses but that we are using less and less of this space which basically means that we are paying for space we never use! If you think that becoming a millionaire is more important to you and your family than keeping up with the Joneses, you have to think and act differently! They are unlikely to ever become millionaires, as they will probably be stuck in the rat-race for their entire lives…
Since housing is by far our biggest expense, the question is obvious: how can we lower this. Are you using all your space or can you downsize your living? Can you lower your interest rate on your mortgage (if you have one)? Can you rent out a room and generate an income (increased income but of course not as consistent as lower costs)? These are some of the bigger changes to be made and the more flexible you are or are willing to become, the faster you can be on your way of becoming a millionaire!
Transportation is the second largest expense and again it will most likely be linked to where and how you live and where you work. Do you have a car, two cars or more and if so do you REALLY need them? Can you use them differently? Are they “cost-effective” (to whatever extent that is possible for a car..) or do you have a big car, big engine, expensive insurance and service costs etc? If you were to live closer to work, school, shops etc., could you use your car less? These are all things that create flexibility in our lives but the sooner we realize how much they limit us and our financial future, the sooner we can make changes. If you normally spend 500 USD on one car every month and instead decided to sell that car and invested that same amount, I have no doubt of you becoming a millionaire. Whether or not you do is just about your priorities.
What about becoming a millionaire!?
The easy way is to just save 10% (or more) of your moneyevery month and that is something everyone should always be doing. If you say you can’t do it, I will tend to disagree… I am pretty sure that you can find ways to lower your costs by 10% or more if you just wanted to and absolutely sure if you had to.
What would you do if the government declared a new income tax of an additional 10% tomorrow? You would complain, scream, argue etc. BUT you would still have to pay it and you would find a way to do so (either by lowering your costs or increasing your income). Think about it, if there were no way around that tax, you would have to pay it and it would happen. You are smart so you would find a way of making it work even though you might not like it but you would do it and you would live with it.
What I am talking about is finding that same way and doing it without the government slapping that 10% tax on your income, do it for yourself and for you family’s future!
If you are keen on becoming a millionaire, the easiest way for the average person is to save and invest. The higher the risks, the higher the returns (at least in theory). The easiest way for anyone to start investing in a passive way is to start saving and investing monthly (that is what I always have and always will be doing). You set it up once and then you can just let the automation work for you, given that you are happy with your initial investments.
Of course there are never any guarantees when it comes to investments but if we look at the S&P 500 (American stock market index) over the last 30 years, the annual return has been around 10% (it varies between who has done the calculations but 8-10% are the most frequently quoted numbers). Stocks are risky and the value can go up and down. Say you every month managed to set aside 10% you didn’t even think you had and decided to invest them in a stock market index via a cheap Exchange Traded Fund (ETF) like the Vanguard S&P 500 ETF (using your bank or online broker) and intend to do so forever, this is what could happen over time:
Yes, becoming a millionairewould take some time and over this 30 year period, history would have to repeat itself (generating an annual return of 10%) but it would be completely passive and you would not have to “miss out” on anything!
This is based on 500 USD invested every month (roughly 10% of the monthly income after tax for the average US family). If you can invest more and accomplish these returns, it will happen even faster!
Looking at history, one could conclude that this would have been one of the absolute easiest ways of becoming a millionaire. By passively but consistently investing and doing it for a long period of time, it will happen if the return one manages to get is in line with the historical average (again, there are no guarantees and there are risks with investing as one can lose the amount invested).
The three easy ways to start the journey towards becoming a millionaire
Based on what we have gone through in this post, there are three clear ways of accomplishing this and creating the routine so that it will happen automatically for you. In our example above, we were using the amount of 500 USD per month and for three reasons. You can choose to use one of them, two of them or all of them. Your numbers will of course be based on your situation but this is what it could look like if you are a representative of the “average US family” with expenditures of approximately 60,000 USD per year.
- Lower your top three expenses (housing, food, transportation) with 500 USD per month which would mean finding savings of 16% on average. Calculation: 500 USD*12 months = 6000 USD savings per year. 60,000 USD annual expenditures*0,62 total percentage of three largest expenditures = 37,200 USD total expenditure on top three. 6,000 USD / 37,200 = 16,1%. The “How to” section above includes some of the ideas of doing it and I would also recommend checking out my links below.
- Sell one of you cars. The average US household owns two cars. If you can plan and organize things differently enabling you to use only one car, you should be able to save approximately 500 USD per month. The other way of accomplishing a similar result is to make sure you own “the right car”, which means a cost-effective one and never buy brand new cars. The highest cost for cars is normally the depreciation and the biggest drop in value happens during the first three years. Have a look at the post below on buying cars for more information on this point.
- Implement your own wealth tax of 10%. Why not decide for yourself that you have to put aside 10% of your family’s income. You do not have to wait for the government to do it because when they do, you won’t be the one to keep the money!
Do you really want it or just kind of want it?
Imagine how much better you would feel just by knowing that you have money. The feeling of never having to worry about money is truly amazing and that is a feeling I want YOU to have every day of your life! By just implementing this strategy and automating it you will make it happen for you.
You have to remember that any kind of investment should be based on your personal investment and risk profile. These comments are generic and no recommendations of how to invest, my purpose is just to show what is possible and how one could get started. As with any financial investments, one should always discuss with a financial fiduciary (though not an expensive one!).
Life on your terms might start today, tomorrow or it might never start. It is completely up to you. I hope you found some useful insights and information in this post and make sure to make some quality changes in your life. So if becoming a millionaire is what you want, that is what we want for you. Life should be on your terms and free from financial stress and this might be one of the easiest ways.
Actions to take:
- Eat healthy stuff but be smart about it and pocket the difference!
- Buying a new car – Wake the fck up!
- The Bucket System – Automating your Finances
- How to always have enough money!
- Passive Income and why you must care!
- Low costs – the effortless way to creating wealth!
- Why You Always Should Be Automating!