Millennials, listen up. If your goal is to build up a huge nest egg, you have to know some financial basics. Building up a huge amount of money is, in principle, actually quite simple. There are three main things to know. You have to control your spending, earn more investment capital, and then invest that money wisely.
Controlling your spending alone won’t make you a millionaire, but it will prevent you from becoming a pauper. Most would-be millionaires get stymied when they start accumulating wealth and new desires start calling. It’s all too easy to slip into debt. Large debts are the big killer to your potential million-dollar nest egg.
If you want to live like a true millionaire, then you need to learn from them. I can think of no better book on the subject than the ones by Thomas J. Stanley. Start with The Millionaire Next Door and then go to The Millionaire Mind. The author performed studies on the behaviors of actual millionaires. Most live surprisingly modest lifestyles. Read these books and apply the lessons to your own habits to get your financial house in order.
Earn More Capital
Unless you’re sitting on a million-dollar idea, you’ll need to invest. This means you’ll need to make enough money to get started. You should think of the profits you make off of your job as the seed money to make your nest-egg dreams a reality. Thus, if you have a job that pays more, the more you’ll have to invest for longer.
As a Millennial, you’re likely still in an entry-level or low-level management job. That’s okay, though! Young people may not make as much money but they have the advantage of time. Now that you’re in the workforce, you should start thinking of ideas on how to make more cash. This could mean investing in your chosen career path to gain higher positions, opening an online side business, or even moving to a place with a lower cost of living. Take advantage of the flexibility you have in your 20s while you can.
I also recommend avoiding purchasing a house. Houses are, at best, a hedge against inflation. At worst, they’re money pits that will suck away all your capital.
Investing Wisely When You’re Young
With that seed money, you can sink it into investments. But which one? There are a lot of options out there for investing. The difference between investments is largely a question of risk. High-risk investments offer the chance at a high rate of return along with a high risk of losing your seed money. Low-risk investments are the opposite. In general, it’s better to go with high-risk investments when you’re young since you’ll have time to make up any lost capital and you’ll build up money faster for larger and safer investments.
Scour investopedia.com to get a good investment education and don’t be afraid to ask investors questions about the market before investing. Ramit Sethi’s book I Will Teach You To Be Rich is full of investment advice for people in your age bracket.
The important thing with investing is to start, no matter how much capital you have. The sooner you can start leveraging interest rates, the faster compound interest will work in your favor. These ideas may seem basic, but applying these principles is trickier than you might think. Follow up on the links and books in this article and you’ll have the information you need to build up a million-dollar nest egg sooner than you think.
Gabby Revel is a freelance writer specializing in personal finance, business and family-related topics. A former New Yorker, Gabby now lives in rural Montana with her husband and son.