Becoming a millionaire is a goal for many who aspire to be financially successful. It’s a number that resonates with just about everyone who desires financial freedom. Being a millionaire is sexy, exciting, and alluring. But what, exactly, does it mean to say “I’m a millionaire.”
What is a millionaire
A millionaire is someone who, if they sold all their assets, and paid off all their debts, would be left with $1,000,000 or more. In essence, a millionaire is someone who has a net worth of $1mm.
What are assets
Assets are stocks, bonds, mutual funds, retirement accounts, savings accounts, cash, jewelry, cryptocurrency, collectibles, cars, art, boats, airplanes, and anything else you could sell or liquidate for cash.
What is net worth
Net worth is what is left over when you subtract your liabilities from your assets, or in other words, what you own minus what you owe.
Assets – Liabilities = Net Worth
Or in other words, Own – Owe = Net Worth
How to become a millionaire
There are lots of ways to become a millionaire. To start, you could become a millionaire by having multiple assets in excess of your liabilities by $1mm.
This could look like a home worth $600,000, a car worth $40k, savings of $60k, an Individual Retirement Account (IRA) with $200,000, and a 401(k) with $500,000, for a total of $1,400,000 in assets.
On the liability side, a mortgage for $200k, a car loan for $30k, student loan for $50k, and credit cards of $10k is $290,000 in liabilities.
Assets of $1,400,000 – liabilities of $290,000 = $1,110,000. This net worth is more than $1mm so this person would be a millionaire.
Debt can crush your net worth
Be aware of debt’s impact on your ability to become a millionaire. If you own a house that’s worth $1mm, a car that’s worth $50k, savings of $60k, and no IRA or 401(k), for a total of $1,110,000 in assets, and you have a mortgage for $800k, a car loan for $50k, student loan for $200k, and credit cards of $40k, that’s $1,090,000 in liabilities for a net worth of $20k.
Paying off your property can make you a millionaire
Another way to become a millionaire is to pay off a property worth $1mm. For example, let’s say you own a property worth $1mm but you have a mortgage on it. If it’s your only asset, and you have no other debt, you’d need to pay off the mortgage in order to call yourself a millionaire. Of course, when you sell a property there are costs associated with selling, including broker fees, etc., but you get the point.
Another important thing to consider is that equity in a home is not liquid, meaning the only way to access the cash is to get a Home Equity Line of Credit (HELOC) or a Home Equity Loan, which are both debt, or to sell it. That being said, “on paper” you’d still be a millionaire.
Own paper assets to become a millionaire
Another way to become a millionaire is to own stocks and other paper assets such as a retirement account, mutual funds, and bonds worth $1mm or more. If you could liquidate them (convert to cash) and put $1mm in a savings account, the most liquid asset there is besides cash, you’d be a millionaire.
Other ways to become a millionaire
Remember that being a millionaire simply requires you to have a$1mm excess amount of assets to liabilities. So a big factor in net worth is managing your debt. Besides the fact the debt costs money because of interest, it also reduces your net worth.
If you own jewelry, art, equipment, cars, or other high ticket items that you could sell such as ATV’s, boats etc., you can add those assets to your balance sheet. Just remember that on the other side of the equation is debt, and the less debt you have, the higher your net worth.
Buy things that go up in value
A great rule of thumb if you want to become a millionaire is to only buy things that will go up in value, or hold their value, over time. That means doing your research before you buy cars or other expensive items to make sure you can sell them for more than, or close to, what you purchased them for.
Find out what your car is worth
In the event this isn’t possible, as often is in the case of buying cars, make sure you are getting good utility out of them and make sure your debt isn’t more than what you could sell it for at any given time. To find out what your car is worth go to NADA.com or Kelly Blue Book.
The first step to becoming a millionaire
If you want to become a millionaire, a great first step is to simply find out where you are today. You can do this by listing your assets and liabilities on my net worth tracker or by using mint.com, an online financial wellness tool that pools all your accounts in one place. I love using mint.com myself and look at it every month when I have a money date and track my net worth.
If your net worth is going up over time, this is a good thing. It means you are building personal wealth. Mint gives you a complete picture of your money, tracks spending, and also helps you set and reach financial goals.
It takes time
Becoming a millionaire takes time. For many, it takes a lifetime. With every paycheck, you can make your savings, retirement, and investment account balances grow. And if you own a home, with every passing year, (hopefully) your real estate appreciates.
For some, becoming a millionaire can happen in just a few years with consistent saving and investing. And yet, for others, it can happen overnight with an acquisition of stocks, the sale of a business, or receiving an inheritance, for example.
To become a millionaire, stay focused on maintaining minimal debt, growing assets, and acquiring assets, and you will get there.
