Editor’s note: This article was first published in March 2012, and its property-boom anecdote and remarks about the situation nowadays reflect Spain in 2012.
The only difference between a millionaire and us is that the millionaire has more money. Otherwise, you could say we’re practically the same. What’s more, these days millionaires themselves can tell us part of the secret of their success.
Alan Corey, an American multimillionaire, went over certain points in an interview that anyone who wants to become a millionaire needs to know and be clear about. He even repeated three times that if people could see how simple it is to get rich in about ten years, they would be amazed.
1. Self-confidence: you are capable
If you lack confidence, you won’t get rich. In fact, you won’t even land a job with more responsibility. What’s more, if you don’t trust yourself, you won’t even win the heart of the woman you want. Self-confidence is fundamental.
How will anyone invest in you if you don’t consider yourself a good investment? Only people who trust themselves are able to take risks, and to achieve financial success you’ll have to take a lot of risks.
There are two kinds of people: cowards and the brave. The brave can get rich or go broke, but the coward has only one option, and that is to be poor. Life gives them no other choice.
2. The sooner you start, the more likely you are to succeed
Alan Corey tells us the same thing we published in the Chinese ten commandments for entrepreneurs, because they also had a saying: “The sooner you start, the sooner you’ll be rich.”
There are several reasons people say you should start early. The first is in case you go bust. If your first company fails when you’re 20, or you lose your money on an investment at 21, you have plenty of time to recover. If you wait until 45 to take risks, your chances of recovering are much lower, though not zero.
The second reason is the learning you gain: getting into business at 18 means that by 25 you know more about business than a fresh university graduate. Either way, start early, and whether you win or lose you’ll come out ahead. And don’t be afraid of failing, because mistakes are part of learning.
3. Draw up a concrete plan to keep your ideas clear
Jen Smith, another American multimillionaire, argued that it’s important to set yourself concrete numbers (a plan). We can run very fast, but if we don’t know where we want to get to, we’re just running for the sake of it. Smith says that most Americans have set the exact amount of money they want to have when they retire.
The figure is 2 million dollars. If an American executive doesn’t manage to put together 2 million dollars for retirement, they probably won’t rest easy, especially if they have children who want to go to prestigious universities. Two million is an amount that, in Spain for example, few people can even imagine.
To draw up that plan, you usually work out how much money you need to save each month to reach that amount after 30 years. If you don’t draw up a plan, you run the risk of taking on more debt than usual or spending much more than you can afford.
Your personal finances work just like a company, and like any company they need a plan and a monthly or quarterly review, and if you don’t get the expected results, you need to change strategy.
Here’s an example. Say we want to have 1 million euros by the age of 70. This would be the monthly savings plan, assuming we start with 10,000 euros and our portfolio grows by 5% a year.
- If we start at 25, to have 1 million euros at 70 we only need to save 450 euros a month, about 15 euros a day.
- At 35, we would need to save 850 euros a month.
- At 45, the amount we would need to save would be 1,700 euros a month.
- At 55, we would need to save about 4,000 euros a month.
As we said at the beginning, the sooner you start, the better. That said, Smith is talking about reaching retirement with financial peace of mind, not about getting rich before 40.
4. Don’t take on debt early
The truth is that all the millionaires, Kiyosaki, Trump, Smith, Buffett and so on, agree on this point. The dream of taking out a mortgage at 23 doesn’t give you financial peace of mind. Instead, it puts a noose around your neck that depends on the stability of the chair under your feet. One unexpected movement and the chair falls and the noose tightens.
If you take on debt when you’re young, forget about saving, and therefore about investing, and therefore about achieving financial freedom. Still, you need to distinguish between good debt, bad debt, cheap debt and expensive debt, because borrowing is good as long as the debt brings us a return higher than the interest we pay on it. We’ll look at the types of debt in another article.
5. Go out with an entrepreneur’s mindset
The other day a client told me how he made his first big capital. He’s 29 and from Madrid. He told me that at 18 he came to study at the University of Granada, but with an entrepreneur’s mindset.
While most students lived in rented flats, he bought a flat. He took on 120,000 euros of debt, since of course he had to get a mortgage. The flat had four bedrooms, so he rented the other three to students, and the mortgage practically paid for itself.
Five years later, when he finished his degree, the property boom meant the flat was valued at 210,000 euros. So in the end he sold it and made 90,000 euros. There are business opportunities out there; it’s a question of going out with the right mindset.
6. Never live beyond your means
As we said in a previous article, the first step to becoming a millionaire is not to live like one, because looking wealthy costs money that could be used not to look wealthy but to actually be wealthy.
When you get a significant inflow of money, it’s time to practise voluntary austerity, because if you spend according to what you earn, over time you’ll end up living through forced austerity. Always keep your feet on the ground and never forget where you come from, because some of the biggest financial failures are made by millionaires who come from poor families. Never forget where you come from, and you’ll be clearer about where you’re going.
7. Do what you love
Passion is the battery that drives us, Donald Trump repeats in the mindset of an entrepreneur. If you don’t feel passion and don’t love what you do, you’ll never succeed.
Perhaps part of the problem we Spaniards have is that many of us like football more than finance. Rarely (though it happens) does a millionaire not understand finance. Being a millionaire is a profession where the product is money. If you don’t know how money works, you may never be ready to have large amounts of it.
Remember the old saying: “A fool and his money are soon parted.” Some people have been on the verge of getting rich until they had to hand over the management of their capital to a third party. That third party saw a fool with money and decided to swindle him.
Try to become passionate about finance. Even so, if fashion is your passion, find a way to make a living from fashion. If sport is your passion, make a living from sport. And if your passion is gossip and trash TV… well… not everyone can be a millionaire :).
8. Work hard, but work smart
There’s no reward without work. When we talked about the only secrets to getting rich, hard work was certainly the essential one. There is no millionaire who hasn’t earned their fortune through hard work. But besides working hard, you have to work smart. You can work 14 hours a day in a small business and still not make ends meet.
As we discussed in the story of the fisherman and the businessman, often, in order to work less in the future, we need to think like business owners and make a temporary sacrifice of our time.
Prepare properly and study everything related to your sector. I insist: spend time on financial education, because money can multiply if you know how to invest it.
As we said only yesterday, unless you were born in Somalia, these days your opportunities are exactly the same as those of any millionaire. But are you willing to do what these millionaires did in their day?
Featured image: OTA Photos, CC BY-SA 2.0, via Flickr.
