Life as a graduate is like a breath of fresh air. No more grueling exams, assignment deadlines or inconsiderate roommates. It’s a new beginning when you can finally live on your own terms.
Though you’re just starting out and may have a tight budget, how you handle money during the next few years is incredibly important. If building wealth is one of your dreams, follow these five financial tips to become a millionaire.
Visualize your future. If you think being in your early 20s is too soon to start planning to become a millionaire, you’re dead wrong. Unless you win the lottery or stumble upon a massive inheritance, building wealth doesn’t happen overnight.
Many successful people use long-term visualization to design what they want to achieve. The idea is to create long-term goals and then work backward. That gives you a road map for what you need to accomplish each year, month, week or day to stay on track.
In other words, becoming wealthy begins in your head long before you see money accumulate in your bank or retirement account.
Think like an entrepreneur. It’s a great time to be a graduate. The unemployment rate is low and there are few barriers to earning full- or part-time income as your own boss. Being an entrepreneur comes down to recognizing how value is created in the world and capitalizing on it.
Even if you work for someone else, make a commitment to use your talents to generate more value at work. Becoming indispensable to an employer or to your own customers is key to earning more money, having a surplus of discretionary income and building wealth as quickly as possible.
Live on less than you can afford. The popular book “The Millionaire Next Door: The Surprising Secrets of America’s Wealthy” highlights millionaires who live inconspicuously without new luxury cars or huge homes. Whether you make $50,000 or $500,000 a year, living on less, so you free up more discretionary income to invest, is the golden ticket to building wealth.
If you invest $400 a month in a retirement account with a 7 percent average annual return starting in your mid-20s, you’ll have more than one million dollars to spend in your mid-60s.
Invest early to gain a powerful edge. Investing smaller amounts to grow for longer periods is exponentially more powerful than trying to catch up later. Compounding interest allows your investments to generate massive earnings over time.
If you wait until your mid-40s, you’d have to invest $2,000 a month (instead of $400 as a 20-something) with an average 7 percent return to be a millionaire in retirement. When it comes to your personal finances, time really is money.
As soon as you start earning, make a goal to invest a minimum of 15 percent to 20 percent of your gross income. You might choose to participate in a 401(k) or 403(b) retirement plan at work, an individual retirement account, commonly called an IRA, or a retirement plan for the self-employed.
Use debt cautiously. Every graduate who wants to be a millionaire should remember that debt is a powerful financial tool that can help you build wealth. But you have to use it responsibly. Going into debt to fund a lifestyle that you can’t afford can make it impossible to grow rich.
Build an emergency fund of at least a few thousand dollars as soon as possible, so you’re prepared for unexpected expenses, such as car repairs or medical bills that aren’t covered by insurance.
Don’t count on using a credit card to bail you out of a financial crisis. If you can’t pay it off, you’ll get stuck with huge interest charges that grow month after month, making the emergency cost even more.
If you have student loan debt, make sure you understand the terms and conditions. If you haven’t landed a job yet or find that your loan payment is too high relative to your income, contact your lender to discuss various repayment options.
You can easily become a millionaire if you start off on the right financial foot by visualizing the future, creating value, living on less, investing early and being cautious about taking on new debt after graduation.
