2022 is right around the corner. It’s time to start thinking about what we want to accomplish in the new year. Who wants to become wealthy? Who wants to become financially free? According to a report from the Credit Suisse Global Wealth Report, 1.7 million Americans became new millionaires in 2020. Quite a few people want to be millionaires, but did you know there are different types of millionaires, and not all are created equal?
Here are the different ways people become millionaires:
Inheritance. These are the millionaires who inherited money from a rich relative. They may have been named in the will as heirs to receive a large sum of money, or simply inherited the family business. Their time as a millionaire may be short lived unfortunately, if they run out of their inheritance money or mismanage the family business.
The net worth millionaire. This millionaire has a net worth of $1 million or more. In many instances, these millionaires will include their residence in their calculations. However, if the value of their home drops, they could lose their millionaire status.
The crypto millionaire. Cryptocurrencies haven’t been around very long, but they have created many millionaires. The following cryptocurrencies are some of the most well known and made the most millionaires in 2021:
- Bitcoin (BTC)
- Ethereum (ETH)
- Bitcoin Cash (BCH)
- Ripple (XRP)
The saver/investor. These millionaires made their money via investments, such as the stock market and their employer’s 401(k). Their ranking as a millionaire could fluctuate, depending on stock market turbulence or crashes.
High income earners. These are individuals who earn $1 million or more per year for their services: athletes, entertainers, doctors, lawyers, dentists, etc.
The passive income millionaire. This millionaire receives their millions from passive income, such as from rental property and royalty payments.
You Make the Million, But Can You Keep It?
As we can see, there are many ways to make a million dollars, but how many of these individuals can keep those millions? Most people want to get that million, but what happens after you get it?
Sadly, many people who make that million eventually lose it:
- 60% of NBA athletes go broke within 5 years of retirement.
- 70% of lottery winners and individuals who receive a large settlement (lawsuit) go broke within several years of winning.
- 70% of wealthy families lose their wealth by the 2nd generation, and 90% lose it by the third.
- In some instances, large inheritances can be lost within 5 years.
- Millions saved via investments (home, stock market, etc.) can be lost due to market crashes and recessions.
Yes, you may want a million, but just as much thought should be put into keeping your wealth as well. Just because a person has seven figures now doesn’t mean they will always have that wealth. Financial education and having a millionaire mindset are the keys to preserving your wealth.
One of the best ways to keep your wealth is by investing in multiple assets that generate revenue. This way, a person can pay their living expenses and maintain their standard of living without touching the principle. Here are a few examples:
Rental property. A person who has several rental properties will have a guaranteed income stream as long as they have tenants. Take a portion of these proceeds to purchase more rental property, thus giving you more income.
Stock dividends. Many companies like XOM, PG, PFE, PEP and others pay monthly, quarterly, or annual dividends to their shareholders. Accumulate enough shares to live comfortably off the dividend without ever liquidating the shares.
Online businesses. Monetized websites and selling merchandise online can be a great way to receive income on a consistent basis.
Own franchises. One franchise is nice, but the key here is to own multiple franchises. Here are a few famous franchise owners:
- Rick Ross. Owns 10 Wing Stop restaurants.
- Peyton Manning. Owns 31 Papa Johns Pizza establishments.
- Venus Williams. Own 4 Jamba Juice smoothie franchises.
- Shaquille O’Neal. Owns 155 Five Guys, 17 Auntie Annie’s Pretzels restaurants, a Krispy Kreme franchise, and nine Papa John’s.
- Chris Brown. Owns 10 Burger King restaurants.
The rationale here is simple: create multiple streams of passive income and don’t touch the underlying asset. In addition, take some of the monies generated to buy or create additional assets.
This is a mistake many unsuspecting millionaires make: they steadily dip into the principle and underlying asset instead of living off the revenues generated FROM the asset. (Instead of living off the rent received from the rental property, they sell the house, or they sell the shares instead of living off the dividends received).
They don’t buy assets with their money, they buy items that lose value, which include fancy cars, expensive homes and fancy trips. In time, their portfolios shrink, which causes them go broke.
What’s Your Freedom Income?
While many of us are focused on achieving the magical 7 figure number, there’s another number that may be more important: Your freedom income. Freedom income can be best described as calculating the total of all your bills, and how much passive income needed to cover them.
In other words, you may not have to get a million dollars to live comfortably.
Passive income is the money you earn when you are not actively involved in the activity. Examples include rental property, royalties from book sales and monetized websites. This money could be made while sleeping.
Here is a sample Freedom Income Calculator:
|Expenses||Monthly $$$ Amount||Total|
To calculate your freedom income follow these steps:
- List all your expenses and their monthly cost.
- Add them together
- You now have your freedom income number.
With this dollar amount, you can devise a plan to create your passive income streams.
If your passive income exceeds you monthly expenses, you are now financially free! In other words, you don’t have to work anymore (unless you want to), and you may not need to have 7 figures in the bank to retire from your job:
The Time is Now
While the goal of many is to become a millionaire, you may not have to have 7 figures in the bank to live comfortably. By knowing your financial freedom number you may be able to retire with far less than you originally thought.
With that said, there are many ways to become a millionaire. Which method is your best option to generate wealth? Most importantly, can you keep your riches?
In addition to the classic books listed above, get more great tips in my books here at the Yes We Did Virtual Learning Center: Invest For Success: Millionaire Wealth Strategies Not Taught in School,and Planting Seeds: the Children’s Guide to Entrepreneurship (also available in French.)
Want more? Register for our online course on Udemy: Tired of the 9-5? How To Retire Early With Passive Income.