4 Moves to Ensure You’re a Retirement MultiMillionaire

When it comes to solid financial planning, the truth remains that you’ll reap huge benefits by doing a few key things correctly. You don’t need to be a perfectionist or a fortune teller, but you do need to take some basic actions as soon as possible to put yourself on the right long-term track.

4 Moves to Ensure You're a Retirement MultiMillionaire

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4 Moves to Ensure You’re a Retirement MultiMillionaire

Here we’ll explore some of these actions that anyone can do — or at least begin to do — today.

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1. Become tax aware

Nobody is asking you to sit down with the latest unedited version of tax regulations, but you should know a few foundational tax concepts that will make your investing life a lot easier.

First, be aware that short-term trading (defined as entering and exiting positions within the span of a year) will cause any gains to be taxed at your ordinary income rate, which is typically your highest rate. Stocks and other securities held for longer than a year are eligible for long-term capital gains treatment, which implies that any gains will be taxed at a preferred rate. It’s in your interest to hold for the long term, at least from a tax perspective.

Next, think about the location of your investments (or the specific account type that houses each position you hold). Stocks and other long-term holds are best held in taxable accounts, while securities that generate most of their return from income (like bonds and REITs) are best held in tax-deferred accounts, like 401(k)s and Traditional IRAs.

These small optimizations will likely end up making a very substantial difference in your ability to become a retirement multimillionaire.

Retired couple driving on highway on beautiful sunny day

2. Open a Roth IRA

Gallery: 15 Financial Rules to Live By if You Want to Become a Millionaire (The Motley Fool)

Can you become a millionaire?

Becoming a millionaire may seem like a lofty goal. But the good news is, it’s actually one that is within reach for most people. The key is to follow a few simple money rules if you want to build a seven-figure nest egg.

So how can you achieve millionaire status? Just follow these 15 rules throughout your life.

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1. Live on a budget

If you want to reach millionaire status, you need to spend purposefully and wisely so you have plenty of money to save. Living on a budget is the key to consistently spending responsibly over time.

There are different kinds of budgets, so you can adopt one that works well for your spending style. But be sure you prioritize saving and are consistent in sticking to your budget if you want to become a millionaire.

ALSO READ: 4 Stocks That Can Make the Average Investor a Millionaire

2. Live below your means

No matter how much you earn, you can’t become a millionaire if you’re spending all the money that you’re making. If you want to build wealth, you need to live below your means.

This typically means keeping your spending to no more than 80% of your income — and perhaps less, depending how quickly you hope to become a millionaire.

3. Don’t confuse looking rich with being rich

If you want to become a millionaire, you can’t afford to live like one when you’re trying to build your nest egg.

Buying fancy homes, lavish jewelry, expensive cars, and other luxury items is likely to prevent you from actually become a millionaire since you’ll be spending money on possessions instead of wealth-building assets.

If you want to become rich, avoid these trappings and use your money wisely to improve your long-term financial situation.

4. Keep your fixed costs low

When you’re aiming to keep your spending below your income, it’s a lot easier to make a sacrifice once than it is to deprive yourself of spending on things you enjoy for years to come.

In other words, you’ll do a lot better to buy a less expensive house and car than try to save money by never eating out or giving up your daily latte.

If you keep fixed expenses low, you’ll have more money to save without continually living a life of deprivation.

5. Avoid high-interest debt

Debt can destroy your efforts to become a millionaire.

If you are paying a lot of credit card interest or, worse, you’ve taken out payday loans, you’re going to tie up so much of your money that it will be all but impossible to save enough to amass a million-dollar nest egg.

Avoid taking on this type of debt, which impairs your financial flexibility and makes it harder to live within your means in the future.

6. Use debt as a tool to build wealth

Although high-interest debt isn’t good, borrowing in itself isn’t inherently bad. In fact, debt can actually be a tool that helps you build wealth and increases the chances of becoming a millionaire.

The key is to use debt responsibly.

Borrowing to start a business or earn a degree and improve your earning potential could be smart moves. So could taking out a low-interest mortgage so you can free up more of your money to invest rather than paying cash for a house.

7. Start saving ASAP

The sooner you start saving money, the easier it will be to become a millionaire. That’s because your money can work for you and you can benefit from the power of compound growth.

If you start saving when you’re 20, you’ll have many more years of investing to build your $1 million nest egg than if you start saving when you’re 40.

The money you invest will earn returns, which can be reinvested and earn money itself. Over many years, the money you originally invested will earn a lot of money on its own even without any further contributions from you. This compound growth can make it much easier to build wealth.

8. Set clear savings goals

If you want to become a millionaire, it’s important you know exactly how much money to save to make that happen by your target date.

It’s easier to break that big goal of saving $1 million into small goals so you’ll know how much to set aside each month and each year.

Investor.gov has a calculator you can use that will show you exactly how much you need to invest over time to become a millionaire by your desired date.

9. Take advantage of tax breaks for saving

The government can actually help you become a millionaire if you take advantage of tax benefits provided for savers.

You can use tax-advantaged accounts such as 401(k) or IRAs to save for retirement with pre-tax dollars. Or you can use Roth accounts if you want to be able to withdraw money tax-free as a retiree.

Just be aware these accounts come with restrictions on when you can make withdrawals. If your aim is to become a millionaire well before the traditional retirement age and live off your wealth, you may need to use other accounts as well.

10. Invest to build wealth

It’s really difficult to save $1 million without investing. That’s because you won’t earn the type of returns that help your wealth grow quickly.

Traditional or high-yield savings accounts often provide a very low return, which may not even be enough to keep pace with inflation. Putting some of your money into stocks is key to consistently earning more reasonable returns over time that make millionaire status achievable even without a huge income.

ALSO READ: Do You Really Need Investing to Become a Millionaire?

11. Choose the right asset allocation

Although you need to invest in some riskier assets, such as stocks, in order to maximize your returns, you don’t want to take on too much risk. That means you need to devise an asset-allocation strategy appropriate for your age and investing timeline.

The more risk you’re willing to take, the higher the potential returns but the greater the chance of losses — at least in the short term.

If you are a younger investor with time to bounce back, you can have a very different asset allocation than an older person close to retirement who doesn’t have the time to wait out a market downturn.

You’ll also want to make sure your portfolio is diversified, which means investing in a mix of different assets so you don’t put all your eggs in one basket.

12. Invest in what you know and understand

It’s important to understand what assets you’re investing in and how they are likely to make you money over time.

You don’t want to invest in something you don’t fully understand because it’s too hard to assess whether the asset is a sound one, so you increase your risk.

If you’re willing to take the time to learn, investing in individual stocks can have a big payoff. But if you want a simpler approach, consider exchange-traded funds (ETFs), which are easier to learn about and which reduce your risk by providing instant diversification.

13. Invest for the long term

Chasing short-term profits is a really risky investing strategy. If something goes wrong, you could be stuck with an investment that can’t withstand a downturn.

It’s far better to buy solid investments that you want to hold onto for the long term. That way, if you don’t happen to time your investments perfectly (which is really hard to do), you should still make money over time because your assets will be able to recover and grow.

14. Take advantage of market downturns

A market crash shouldn’t be something to fear, but instead should be looked upon as an opportunity.

As long as your investing thesis doesn’t change, you can keep your current investment mix to wait for recovery. And you can take the opportunity to buy more assets that are on sale because of the crash but that have solid long-term potential.

As Warren Buffett advised, it’s best to be greedy when others are fearful and fearful when others are greedy.

ALSO READ: How to Be Greedy When Others Are Fearful

15. Steer clear of get-rich-quick schemes

Finally, if you want to become a millionaire, it’s important you avoid scams and schemes that promise to get you there quickly or effortlessly.

While almost anyone can become a millionaire, it takes time, diligence, and responsible spending and investing. Trying to take shortcuts is only likely to make things harder.

Follow these 15 rules to reach millionaire status

While following these 15 rules may be a challenge, it’s well worth the effort if you end up with $1 million or more in the bank.

Get started ASAP in following the rules, and you’ll soon see your wealth growing and know you’re on the way to becoming a millionaire.

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17/17 SLIDES

One of the easiest things you can do today to improve your chances of retiring with millions of dollars is to open a Roth IRA. This is true for two reasons.

First, a Roth IRA is meant to hold after-tax money — in other words, money that’s already been taxed. Any amount contributed to a Roth IRA won’t be taxed as it grows or when it’s withdrawn in retirement, which makes the account a valuable shield against any future tax.

Second, there’s a reasonable probability that taxes are “on sale” right now. Taxes are already slated to increase in 2026 as per the 2017 Tax Cuts and Jobs Act, so to the extent you’re able to divert money to post-tax accounts like the Roth, it’s certainly not a bad idea. In the worst-case scenario — if taxes were actually to decrease in the future — you’d still be left with a tax liability of zero when it comes to Roth assets.

3. Be consistent

When it comes to contributing to your employer’s retirement plan — and this is especially true if they offer an employer match — be consistent. This means that consistent contributions to your 401(k) or 403(b), regardless of where the market happens to be trading at the time, will be a vital piece of your asset base as you grow closer to retirement.

The beauty of scheduled and recurring investments is that emotion is removed from the decision — in fact, there’s no emotion at all. If all you do is set your retirement plan contributions to 10% and do literally nothing else, you’re pulling a very important lever that will have positive consequences in future years. In short, be sure to contribute to your employer’s plan early and on a fixed schedule.

4. Diversify broadly

Because none of us can predict the future, it’s in your best interest to develop a robust asset allocation that can handle all different types of market environments. To be clear, asset allocation is another way of saying “how your investments are divided.”

You’d be well advised to invest in both domestic and international stock and bond markets. If one market segment is doing poorly at any given point in time, you have other pieces of your asset allocation that can potentially pick up the slack. Diversification in this way can help protect the long-term growth of your portfolio and simultaneously give you peace of mind.

Do a few things right

Good financial planning involves a series of deliberate, small decisions that ultimately have outsized impacts in the long run. By simply becoming a little more tax aware, opening a Roth IRA, consistently contributing to your employer plan, and diversifying broadly, you’re giving yourself the best chance possible to retire with a seven-figure portfolio. Take the time to learn and implement these key ideas and let the results speak for themselves.