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GOLDSEA | ASIAN MONEY WORKS

HOW TO BECOME A MILLIONAIRE BY AGE 35
Discipline yourself to turn discretionary spending into the foundation for your first fortune.
by Mark Chen

or some of you 35 seems a lifetime away. Good. That means you have ample time to achieve the goal of becoming a millionaire by the age of 35.
     Let's start with the myths about what it takes to become a millionaire. Most believe that only someone making a six-figure income can reach that goal. Wrong. A six-figure income is more likely to lead to a six-figure debt rather than a seven-figure investment portfolio. Others think that only someone who starts his own business can become wealthy. Wrong again. Eight out of nine businesses fail within two years, leaving the fearless entrepreneur not only much poorer, but with bad credit and an uphill climb back to financial health.
     What separates millionaires from the people slaving away just to keep creditors at bay? Not superstar incomes, lucky business breaks, trust funds or spectacular inheritances. What separates most millionaires from average struggling consumers is nothing more or less than simple fiscal discipline. Most millionaires started out earning ordinary paychecks, just like you. But unlike most people, they understood and applied the principle of surplus and leverage.
     Here's how it can work for you. Let's assume that you are 25 today and will earn an average of $70,000 a year for 10 years. Let's further assume that you want to be worth $1 million by the age of 35. Here are the straightforward steps most millionaires take:

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1. Recognize that 60-70% of your income is discretionary!
        That may come as a shock because skilled marketers have convinced most Americans that they need everything they can afford, if not more. As a matter of fact, with a little discipline and the proper motivation, the average college-educated employed single person can live comfortably on 40-60% of after-tax income.
        Do a thorough inventory of your spending habits. If you are like most people, you spend the better part of your paycheck on extras: restaurants, packaged snacks, new cars, stereo systems, nice furnishings, designer clothes, jewelry, exotic vacations. By making a few intelligent adjustments, you can lead a more healthful, fulfilling and enjoyable lifestyle on half or less of what you now spend.
        Suggestions: ride a bike for exercise and transportation, brownbag fruits and nuts instead of overpaying for unhealthy lunches, explore hiking trails instead of golf links, read for entertainment, buy clothes on sale, buy used furniture. Once your lifestyle has been adjusted to fit common sense instead of marketing propoganda, you will easily save 40-50% of your after-tax income. When you get to that point, you will have taken the most difficult step to becoming a millionaire.
   
   
2. Have a portion of each paycheck deposited directly.
        It is just foolish to put your entire paycheck into your checking account. Out of sight, out of mind is a rule that works well for money you want to save. You can set up direct deposits to be invested automatically in specific mutual funds, money markets or other investments. You will want to set up one of your accounts as a tax-deferred IRA.
   
   
3. Establish yourself as a trustworthy borrower.
        As soon as you qualify, apply for several credit cards and use them for all your purchases, even groceries. Pay off your revolving balance each month. Before long your mailbox will be flooded with companies begging you to take their cards, car loans, home loans and other forms of credit.
        When your credit reaches the point where you are offered cards with interest rates similar to the returns you are earning on your most aggressive investments, use those cards up to near the credit limit and invest the surplus cash. Periodically pay off the balance. This will help boost your credit rating faster.
   
   
4. Regularly convert accummulated savings into real estate equity.
        As soon as you have saved about 10-15% of the price of the humblest condo or house you are willing to live in, stop renting and buy. The key is to buy in an appreciating area rather than a decaying one. Generally that means the outskirts or suburbs rather than the center of town. Keep siphoning off about 75% of your growing paper assets to use as down payments for more real estate purchases. Few investments are as reliable as rental homes in growing areas.
        It's almost always safer and more profitable to add more inexpensive properties than to upgrade your existing properties. Smaller condos and houses are always easier to rent profitably than big ones. Let your specific purchases be guided by factors like market conditions, exceptional opportunities, your time commitments, maintenance burdens and tax writeoffs. As you build experience with lenders, you can use more leverage for each purchase.
        Assuming you are reasonably aggressive, you will buy a new house or condo every 15-24 months. Don't succumb to the deadly temptation to buy a luxurious home and move in. That would destroy your fiscal discipline and cripple your prospects for becoming a millionaire by the age of 35! Foregoing a luxurious home is the core discipline at the heart of your financial ambitions.