What can you do to become a millionaire?

Becoming a millionaire may seem like a pipedream that’s reserved for fancy business owners and people with elaborate titles. However, this doesn’t have to be the case.

It may be more feasible to earn your first million than you think. We found out how a millionaire is defined, what it takes to achieve this title, and how you can get started.

Tip: Before you earn big, you need to settle your debt. Click here if you need help with this today.

What does it mean to be a millionaire?

According to Geo Botha, director and wealth manager at Bovest Wealth Management, there are various definitions and measures as to what exactly qualifies a person to be termed a millionaire. 

“Most commonly it’s stated that once your nett worth – which is your assets minus your liabilities – is in excess of 1 million in your specific currency, you are a millionaire,” says Botha.

However, he explains that due to inflation, a currency gradually loses some of its value and having a nett worth of R1 million is not that hard to reach.

“Therefore, in the wealth management world, we would classify a millionaire as a person with R1 million in investable assets. This will be your assets, excluding your primary residence, car, and furniture, and minus your debt,” says Botha.

“It’s common to see individuals who earn a big salary, but also have high living costs and therefore they don’t build wealth or reach millionaire status.  They often have a lot of debt and the bank owns a big portion of their assets,” he adds.

Therefore, he believes a millionaire is not someone who earns an annual salary in excess of R1 million per year, but rather someone with R1 million in investable assets, over and above any debt.

How to arrange your eggs

Botha says that becoming a millionaire is definitely within a lot of people’s reach, but it will require patience and sacrifice, which are virtues that most people neglect.

“Building wealth is a combination of gradually increasing your income, keeping your expenses low, and making sure that the balance is invested and growing at a rate above inflation,” says Botha.

He refers to the classic book by George Samuel Clason, Richest Man in Babylon, where the author explains how to build wealth in a very simplistic way.

“Clason says that you should think of your monthly income as receiving 10 eggs. Take two of these eggs to pay off any debt you have, then take three eggs and invest them somewhere they will gradually grow. Finally, live off the remaining five eggs,” says Botha.

He points out that it’s very simple, but not so easy because it requires sacrifice and discipline. Botha outlines the following practical example:

• Sit down and revisit your budget. Try to minimise unnecessary expenditure and find R5,000 you can invest each month.
• If this grows on average by 10% per year and you increase your contribution by 10% each year, it will take you just over eight years to reach R1 million.
• If you manage to invest R10,000 each month, it will take you just over five years.

“It’s important that your money is invested so that it can grow. A big mistake people make is to leave it in their bank account or hide it in their cupboard. Make sure your money works for you,” says Botha.

Another unique way to invest or save your money is to place it in a bond. Have a look at whether your home loan can be a good savings tool.

READ MORE: 5 Questions to ask about your investments’ performance

Find your niche

Louis Schoeman, CEO of SAShares, takes a different approach to Botha. R1 million doesn’t make you a millionaire anymore, he says. At least R3 million in nett assets are needed, in Schoeman’s opinion, before you qualify as a millionaire.

In order to achieve this, Schoeman believes you need to be dedicated to a unique niche.

“The market is highly competitive, so you need to pick a lane and stick with it. If you don’t focus on what you do and the strategy behind it, you will land up changing tack because of what’s happening in the market, or when something goes wrong,” says Schoeman.

This is particularly true with shares or Forex trading. Schoeman explains that he often sees investors reverse their strategy when they should have stuck with their initial plan.

“In addition, too many people try to spread themselves thin by doing a lot of different things, which is not good business sense. At the outset, having a niche is always best. Later on, once you have made your first million, you can look at broadening your focus,” Schoeman says.

He recommends starting immediately, and says that the first step is always the most difficult.

“Create a roadmap for yourself and rigorously follow it for 24 months. Don’t give up when it gets difficult. Rather push through because what is on the other side is worth it,” he encourages.

“You may have to adapt your strategy and make adjustments. But too many people give up just when they are almost there. That is why many businesses fail in the first two years,” he adds.

Schoeman says that if you want to start by investing in shares, for example, decide on where you want to be in 24 months, 48 months, and even further ahead.

“What kind of returns do you want to see? Do you have the time to day trade? If not, don’t even waste your time. Rather invest to see returns in the long term,” says Schoeman.

“Educate yourself, learn from others, study the market, and once you decide how you’re going to do it, stick with it. That is a niche strategy. The same applies if you are starting a business or expanding a business with a new product. Having a focused niche is the best way to go,” he insists.

READ MORE: Everyone needs a financial adviser, not just the wealthy

What should you expect?

Schoeman says that becoming a millionaire isn’t an overnight process. There are many people who get attracted to get-rich-quick offers which promise overnight success.

“The reality is that millionaires are not made overnight. Getting to six figures takes a lot of sacrifice, blood, sweat, and tears, and a lot of lonely nights,” Schoeman says.

“Your family won’t always understand your absence in their life. However, in the end, the rewards of financial freedom do pay off.”

Start investing towards your first million today by opening a unit trust account.