How to Become a Millionaire

This past week I came across a couple of studies conducted a few years ago on how millionaires made their money. I thought the findings were interesting so I wanted to pass them along as well as share some of my takeaways.

The studies define a millionaire as someone who has accumulated at least $1 million in net worth. As a reminder, your net worth is all of your assets minus all of your liabilities (i.e. debts).

Currently, only around 5% of people in the U.S. have a million-dollar net worth. There’s nothing intrinsically special about hitting the $1 million mark. Most people will never get there, nor will they need to, while for others it won’t be enough to keep up with their lifestyles.

A few decades from now $1 million won’t be what it is today, yet it seems like that number will always act as a benchmark for a lot of people. If you’ve managed to save up $1 million, you’re doing something right.

I had two main takeaways from the research. The first is that financial security is attainable for anyone.

Many fall prey to the idea that you must own a business, have a huge salary, come from a rich family, or have some other rare quality to become financially successful. As a matter of fact, this isn’t the case for most millionaires.

  • 79% of millionaires did not receive any inheritance from their parents or family members and only 2% of millionaires surveyed said they came from an upper-income family.
  • 88% of all millionaires graduated from college with 52% earning a master’s or a doctoral degree. However, only 8% went to a prestigious private school while the majority graduated from a public or state school.
  • Only 31% of millionaires averaged $100,000 in salary a year over the course of their career, and one-third never made six figures in any single working year of their career. Only 15% held senior leadership or C-suite roles.
  • 80% of millionaires invested in their company’s 401(k) plan. Additionally, 3 out of 4 also invested outside of their company’s retirement plan.

As you can deduce, the bulk of millionaires made their money through simple, basic financial behavior. They didn’t do anything extraordinary — they went to college, got a good job, and made the most of their salary by saving and investing. Actually, I take that back. They were extraordinary in the sense that they were extraordinarily good at doing the basics that people ordinarily struggle with.

My second takeaway is wealth is usually built slowly.

  • The average millionaire worked, saved, and invested for 28 years before hitting the million-dollar mark. Most didn’t reach the milestone until age 49.
  • 75% of millionaires said that regular, consistent investing over a long period of time is the reason for their success. No millionaire said that single-stock investing was a big factor in their financial success. It didn’t even make the top three list of factors for reaching their net worth.

Of course, there are people who have made a lot of money in a very short amount of time. But the young tech founder who sold a company for millions or the person who made a fortune on GameStop stock are definitely the exceptions, not the rule.

The odds are you won’t be the exception to this rule, so knowing that wealth is generally built slowly may help prevent some discouragement if things aren’t progressing as quickly as you’d like them to. You can’t base a financial plan or an investment strategy on exceptions.

I’ll acknowledge that my first takeaway may make it seem like accumulating $1 million is easy. It’s not. Consistently saving and investing money linearly over time is one of the hardest things to do because life is inconsistent. It always looks easier on paper than it does in real life. Building wealth is more an exercise in psychology and behavior than math.

Thanks for reading!