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How millennials can become millionaires

How millennials can become millionaires

The media is full of stories about how millennials are doomed to live poverty-stricken lives.

But it doesn’t have to be that way.

If you’re a millennial, you can become a millionaire by following this three-step formula:

  • Minimise your expenditure
  • Maximise your earnings
  • Invest the difference

Sorry if you were expecting a get-rich-quick scheme. This is actually a get-rich-slowly scheme. And time isn’t the only requirement – hard work and discipline are also needed. But if you’re prepared to work hard and stay disciplined for years rather than months, you really can become a millionaire.

Minimise your expenditure

Here are 10 simple things you can do to reduce your spending:

  1. Cook your own meals rather than eating out
  2. Exercise outdoors rather than at the gym
  3. More public transport, less Uber
  4. More library, less Amazon
  5. Make your own coffee
  6. Buy less ‘stuff’
  7. When you do buy stuff, wait for sales
  8. Quit smoking
  9. Party less
  10. Stop paying credit card interest – either pay off your card in full each month or cut up your card

Imagine you saved $5,000 per year by using some or all of these ideas. That would add up to $150,000 over 30 years.

If you were to invest that $5,000 each year and generate an annual return of 3 per cent, you’d finish with $250,013 over 30 years. A 5 per cent return would give you $353,804. A 7 per cent return would give you $510,365. No wonder Einstein called compound interest the eighth wonder of the world.

Maximise your earnings

Here are five simple things you can do to increase your income:

  1. Ask for a raise
  2. Do more overtime or work more shifts
  3. Get a higher-paying job
  4. Get a second job or do some freelancing
  5. Make money through the sharing economy – Uber, Airbnb, Spacer, Car Next Door, Parkhound, DogVacay

Let’s say you managed to increase your income by $5,000 over the next 12 months and that your income then held steady for the 29 years after that. Well, based on the figures above, you’d accumulate an extra $150,000 to $510,365 over the next three decades.

Invest the difference

The final part of the three-step millionaire formula is to invest your extra money – provided this fits in with your specific financial position and goals. Of course, you should always seek professional advice, because investing carries risk.

There’s an old debate about whether it’s better to invest in property or shares. But people often overlook a third asset class, one that can produce impressive long-term returns.

It’s superannuation.

We’re not talking about the superannuation your employer pays you – we’re talking about additional pre-tax contributions, known as salary-sacrificing.

“This is typically a tax-effective strategy if you earn more than $37,000 a year,” as ASIC explains. That’s because salary-sacrificed contributions are taxed at just 15 per cent.

If your annual salary is $65,000 and you salary-sacrifice $10,000, your income tax will fall from $12,672 to $10,922, for a saving of $1,750. Free money! Plus, your super fund will have an extra $10,000 to invest on your behalf.

If you’re looking for low-risk investments outside super, you might want to consider savings accounts, term deposits or bonds. Another possible investment strategy would be to adopt a mix of lower-risk and higher-risk options.

Again, whatever your preference, seek professional advice before you invest.

Believe in yourself

So if you’re a millennial, don’t believe the naysayers who claim you can’t become a millionaire.

You can, provided you take control of how you spend money, earn money and invest money.

Building wealth is a marathon not a sprint. The sooner you start, the sooner you’ll finish. Good luck!

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