This guide uses data to show you how to become a millionaire from nothing. The goal is to reverse engineer what research has said about what gives someone the best chance.
There’s certainly a lot of bad advice on the idea, such as following millionaires on social media and obsessively focusing on developing multiple income streams.
These are attention-grabbing tips, but the data says they’re not what actually works.
Here’s a step-by-step approach.
#1. Set the Goal
Key takeaway: Set a goal of becoming a millionaire. This is the first and most crucial step.
One of the first people who aimed to reverse engineer how to become a millionaire was Napoleon Hill. In his multi-generational bestselling book Think and Grow Rich (originally published in 1937), Hill extensively interviewed over 500 millionaires to try and understand their success.
While many principles in the book are timeless, one theme that arose repeatedly was the importance of setting a goal. It was so important that it’s number one in Hill’s list of “Six Steps to Accumulate Riches.”
As Hill wrote:
“Fix in your mind the exact amount of money you desire. It is not sufficient merely to say ‘I want plenty of money.’ Be definite as to the amount.”
Today, research has widely backed the importance of setting clear goals. A study conducted by Gail Matthews of Dominican University in California found that you’re 42% more likely to achieve your goal if you write it down (and 76% more likely if you share goal progress reports with a friend).
One widely accepted financial goal-setting framework is the SMART model, which stands for Specific, Measurable, Achievable, Realistic and Timely.
When you set your goal, it should contain all these characteristics.
For example, “I want to be a millionaire” is not a SMART goal because it lacks a time-bound aspect.
On the other hand, for someone who is 25, “I will have a liquid net worth of $1 million by the age of 35” is considered specific, measurable, achievable, realistic and timely.
#2. Build Your Human Capital
Key takeaway: Invest in yourself in a way that increases your future earning power.
What you should be thinking about today is how you can go about building valuable skills and connections that allow you to maximize your earning power.
The goal isn’t just to invest in yourself by reading personal development books or attending conferences, but to invest in yourself in a way that leads to a more productive career.
The path to building career capital is going to be different for everyone.
For some, it may make sense to pursue educational opportunities that lead to a better-paying job. These can even be short-term opportunities, like a certificate program or boot camp.
Another strategy is to work for someone who is already doing the things you want to achieve. I did a lot of freelance writing and work for publishers before I started The Ways to Wealth. I learned much more than I did from any blogging course, and got paid well in the process.
The best strategy is to think about what you want to do in your future and then build the skills and make the connections required to do so.
#3. Spend Less Than You Earn
Key takeaway: You’ll never become a millionaire if you’re constantly spending more than you earn.
Decades after Napoleon Hill interviewed many of the world’s wealthiest individuals, Thomas J. Stanley and William D. Danko extended that research. While Hill interviewed the likes of Andrew Carnegie, Henry Ford and Charles M. Schwab, Stanley and Danko aimed to find and interview millionaires among everyday people.
While they started their search in the most affluent neighborhoods, they found that the rich were not who they expected. Instead, they were clustered in middle-class and blue-collar areas.
The difference between the actual millionaires versus those who had a rich lifestyle was their savings rate.
As their research goes on to say:
“Wealth is not the same as income. If you make a good income each year and spend it all, you are not getting wealthier. You are just living high. Wealth is what you accumulate, not what you spend.”
No matter your income, if you’re spending more than you earn, your net worth decreases. It’s a simple concept but often lost on people. You can make a good income and still have a negative net worth if you spend more than you earn.
#4. Use Compound Interest to Grow Your Money Fast
Key takeaway: Compounding average returns over a long time period is the surest path to becoming a millionaire.
There are a lot of ways to become a millionaire. To name a few, you can start a business, invest in real estate or win the lottery.
The odds of you achieving your goal vary depending on your strategy. Data from the U.S. Beauru of Labor Statistics shows that only 25% of businesses make it to 15 years. That’s pretty good compared to the lottery, in which you have a 1 out of 292.2 million chance of winning the Powerball.
So what strategy gives you the highest chance of becoming a millionaire?
While widely-known for his shareholder memos — which Warren Buffett has called his favorite investing writing — Howard Marks is quite the investor.
The firm he co-founded, Oaktree Capital Management, has over $150 billion in assets under management, which has allowed his net worth to surpass $2.1 billion.
Marks gave a tremendous interview on the Invest Like the Best podcast, where he tells the story of a client he met early in his career that went on to guide his investment strategy:
“ […] I ran into a client and he explained that he’d been managing this portfolio for 14 years and he’d never been above the 27th percentile or below the 47th percentile. That is to say, he’d been solidly in the second quartile every year for 14 years in a row.
And where do you think that put him for the 14 years overall within his competitive universe? 4th percentile.
In normal life, we say, well, if you range from 27 to 47, where are you on average? About 37. And the answer in his case was 4. The reason being that in investing most people eventually shoot themselves in the foot and that he had been able to eliminate all bottom half observations.
My reaction was, my clients, don’t care if they’re in the top 5% in any given year. And they’re certainly unwilling to be in the bottom 5%. The only thing that matters is where you are in the long run.”
Financial writer Morgan Housel summed this up nicely, saying, “average returns sustained for an above-average period of time leads to extraordinary returns.”
One of the first concepts I like to teach new investors is the rule of 72.
The rule states that to find the number of years it takes to double your money at a given interest rate, you divide 72 by the interest rate. While you’d need a calculator to perform the logarithmic calculation, the number 72 is a shortcut to estimate how long it would take a sum to double based on a given interest rate.
For example, if you’re earning 10% a year, it would take 7.2 years for your money to double (72/10). At a 5% return, it would take 14 years.
Doubling your money again and again throughout your life is the surest path to becoming a millionaire. Someone who starts investing in their teens and has an investment horizon of 72 years can double their money 10 times over their lifetime. This is why it’s so important to get out of high-interest debt as soon as possible, start investing as young as possible, and to avoid throwing it all away on bad investments.
What’s even more powerful is new contributions added to your original investment — for example, investing 15% of your paycheck through an employer-matched 401(k) or IRA. Of course, you can only do this when you’re consistently spending less than you earn.
What’s nice about this strategy is that significant returns and beating the market aren’t required.
#5. To Shorten the Time, Take Asymmetric Risks
Key takeaway: Identify low-risk, high-reward opportunities.
Increasing your income, spending less than you earn, and a simple investment strategy for an extended period of time can make you a millionaire from nothing. But, let’s face it, most of us want to become a millionaire as fast as possible.
What’s then the best way to go from being a millionaire in decades to a millionaire in a few years?
While there’s no surefire formula or plan, understanding the concept of asymmetric risk is critical to achieving this goal.
Asymmetric risk means that the potential downside of a choice is much smaller than its potential upside.
Sam Altman, former CEO of the famed Y Combinator startup accelerator, sums this concept up nicely in an article I find myself revisiting once a year, “How to Be Successful”:
“Most people overestimate risk and underestimate reward. Taking risks is important because it’s impossible to be right all the time—you have to try many things and adapt quickly as you learn more.
It’s often easier to take risks early in your career; you don’t have much to lose, and you potentially have a lot to gain. Once you’ve gotten yourself to a point where you have your basic obligations covered you should try to make it easy to take risks. Look for small bets you can make where you lose 1X if you’re wrong but make 100X if it works. Then make a bigger bet in that direction.”
An excellent example of this would be starting a business that requires little to no up-front cost. With such a business, you’re risking very little for a potentially significant increase in income and even the potential value the company builds.
Compared to betting it all on a particular cryptocurrency or penny stock, your chances of success are exponentially higher.
Of course, it’s not always easy to identify these asymmetric opportunities. That’s why Altman mentions trying a lot of different ideas.
Start a business or build a side hustle with a lot of potential. The goal is to increase your chances of finding that one opportunity that could potentially change your life forever. And then when you do, it’s time to commit to the idea.
How to Become a Millionaire From Nothing: FAQs
Set a realistic goal to become rich, increase your ability to earn money by investing in yourself, spend less than you earn, invest the difference between your income and expenses, and take advantage of asymmetric risks. You can learn more on all of these concepts in our article on how to get rich quickly.
Look for high-reward low-risk opportunities that are available to you. The best idea is to start a business that takes little to no capital, takes advantage of your existing career capital, and is in a high-growth industry.
Some of the jobs that will most likely get you to a seven-figure income are entrepreneur, early-stage startup employees, enterprise sales, investment banking, consultant, and C-level executive. You can learn more about these and other ideas in our guide to jobs that pay seven figures.
Final Thoughts on Becoming a Millionaire From Nothing
While there’s no secret formula for becoming a millionaire, these are the steps that can help make that a reality:
- Set a SMART goal.
- Invest in yourself to maximize your earning power.
- Spend less than you earn.
- Invest wisely.
- Take advantage of asymmetric risks.
This provides the surest path available to someone who is starting from nothing.
While it takes time and there will be challenges, consistency and focus on these core steps will allow you to slowly but surely achieve your goal.