2 Things You Should Never Do if You Want to Be a Millionaire

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Many people want to be a millionaire. Keep reading to learn about some moves to avoid if you want to achieve this financial milestone. 

Do you want to become a millionaire?

Many people aspire to this financial goal, which is why playing the lottery is so popular. But since your odds of winning the grand prize on a PowerBall ticket are 1 in 292,201,338.00, you’re going to have to come up with a better strategy if you want a seven-figure bank account.

There are some must-dos to hit millionaire status, including investing plenty of money in your brokerage account. And there are also a few things you absolutely must avoid as well. In particular, here are two things not to do if you want to become a millionaire.

1. Spend more than you earn

The first thing you have to avoid is spending more than you earn. If you spend every dollar — and then some — you can’t possibly grow your net worth to become a millionaire. This is true no matter how much money you make. If you earn $1 million a year but spend $1,000,001 on consumer goods, cars, and luxury trips, you still won’t ever become a millionaire.

Rather than spending more than you earn, you need to spend less. Ideally, you’ll save at least 20% of your income consistently over time. If you do that, it’s almost inevitable you’ll become a millionaire with a long enough timeline.

In fact, say you made just $40,000 a year over your entire career, but you saved 20% of that amount ($8,000 a year) consistently for 28 years and earned 10% average annual returns. At the end of that time, you’d have about $1,072,620.23.

To be sure you’re spending less than you earn, make a budget that treats saving 20% of income as a must-pay bill. Work the rest of your spending around that so you can live within your means, and make sure you’re making automated transfers of your required 20% to a brokerage account on every payday so you never miss a chance to save.

2. Gamble with your investment dollars

The next key thing to avoid is gambling with your investment dollars.

You need to invest in order to benefit from compounding returns, which is when returns are reinvested and earn returns of their own. Thanks to compounding, your money works for you so you don’t have to work as hard. To understand the impact, consider what would happen if you invested that same $8,000 over 20 years and earned only a 1% average annual return because you kept the money in a savings account. You’d have just $256,777.06 instead of over $1 million.

But, while you need to invest, you also don’t want to gamble. After all, if you lose all the money you’re putting into the market, you’ll be left with nothing.

For many people, buying an exchange-traded fund (ETF) that tracks the performance of the S&P 500 is the best bet. It’s simple, presents minimal risk, the ETFs come with low fees, and the S&P 500 has consistently produced 10% average annual returns over time, before inflation. If you would prefer to pick individual stocks, you can — but be sure you’re smart about how you do it. This means developing an investment strategy, doing your research, and investing for the long term.

If you can avoid these two things, millionaire status should be within reach even if you don’t earn a huge income. Just invest smartly and consistently over time and the millionaire lifestyle will be yours.

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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Christy Bieber has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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