I’ve been a financial coach, author and educator for 16 years, and hands down this is one of the most-asked questions I get. So, without further ado, here’s the step-by-step answer to unlocking your first million without having to own real estate, buy and sell businesses, or participate in any get-rich-quick schemes.
Begin with the $1,000,000 goal in mind
Never underestimate the power of vision and focus. People who are financially focused, with clearly defined and written-out goals, are three times more likely to achieve what they set out to do. Start visioning $1,000,000 today. Try this Q&A visioning exercise and, if you’re into vision boards, make one.
What does $1,000,000 look like to you? Is it a bank balance you see? Is it a way of life? Describe it.
How does it feel emotionally to have this money? Are you financially fearless?
What are you doing at the exact moment you make your first million?
Describe what $1,000,000 would do for your life. What changes?
Open the right accounts
Tax-advantaged investment accounts are the way to go. Open up your TFSA and RRSP plans along with any pension plans available through work. You’ll be contributing regularly to these. Once these plans are fully funded, you can turn to non-registered investment plans to grow your money. When you’re choosing where to open these, get referrals from people you trust who actually have money. Are they using a wealth adviser, a robo-adviser, or a bank?
Fund the accounts with your unique number
Have you ever played around with a compound interest calculator? If not, it’s high time you do. These calculators are free online and can be extremely motivational when you’re building your nest egg to hit your first $1,000,000. I like the ones where you plug in the end goal ($1,000,000), your age (say 35) and the rate of return you plan to achieve (anything between five and eight per cent is fine to use if you’re younger than 50 and plan to keep the money invested for a minimum of 15 years). The calculator then gives you a number: how much you need to save monthly or annually to hit your $1,000,000 goal.
Let’s say you have 30 years to invest and have $10,000 saved. If you earn a six per cent rate of return, you would need to fund your accounts to the tune of about $935 per month to be a millionaire by retirement. If you have 20 years and the same scenario, it’s more like $2,100 per month. The less time you have, the more you have to save monthly, which is why starting to invest early is always best.
Many people have to supercharge their progress by making larger lump-sum contributions to their tax-advantaged accounts, especially if they are behind on saving. One popular technique is RRSP loans.
Make your growth compound through investing
Your money within your tax-advantaged accounts needs to be invested to grow it. It’s not enough to just sock it away. To invest well, you need to be in it for the long term and choose high-quality investments.
The way to do this is to first determine the kind of investor you are through risk assessment. Then, select investments that are aligned to your risk profile. A professional investment adviser, financial planner, robo-adviser or money coach should be able to assist you with this and provide specific advice regarding how much to put toward your tax-advantaged accounts. If you have limited to no experience with investing, don’t DIY the investment selection process. Hire a professional (or service) to ensure you’re properly diversified. Unfortunately, DIY investors without ample experience have a poor track record of achieving optimal returns.
Automate this system and celebrate
One of my favourite books when I was early in the process of building my first million was “Automatic Millionaire” by David Bach. The book’s core lesson is to outsmart yourself through automatic contributions. So, on payday (or weekly or monthly), automatically contribute your money toward your investment accounts. Investment providers will allow you to do this through a pre-authorized contribution agreement. Once you have a good idea of what you should be saving to hit your million (the compound interest calculator will make this clear), set up your automatic contributions. If you’re invested in funds, most are automatically rebalanced for you. If you’re using a wealth manager, they probably have some kind of automated system to help ensure your portfolio is properly balanced.
My pro tip here is don’t over-automate things to the point where you stop looking at your investment portfolio. You still need to be present — this is your money!
Guess what the secret ingredients are in this five-step process? Patience and consistency. Building wealth takes time and effort. And that, my friends, is how to make your first million in five steps.
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