Can you become a millionaire by 40?

a man relaxing on the floor enjoying his spare time

How do you become a millionaire? It's not a complicated matter, if you have time.

If you don't want to wait until an old age though and you want to become a millionaire by age of 40, what can you do? Turns out, there are very universal truths one must follow.

There are some all-or-nothing strategies too, but the most probable one to succeed in becoming a millionaire by 40 is slow and boring.

But who am I to really say? I'm not a millionaire. But I'm not 40 either. I'm on that path though and it is still a possibility for me to reach.

Would it be possible for you? Depends mostly on two factors: your age and your future earning potential. You'll learn why as you read through the tips.

Start early

The sooner you start, the easier it will be for you. Even if you start early, it's still incredibly hard. But the longer you wait, the harder it gets. Follow the advice of @KUWTBulls and start early!

For example, if you assume you can get 7% annual interest (net), then starting at age 20 it is enough to save around 2,000 € per month, as suggested by @retireeprep

I know, who in the hell can save even 1,000 € per month?!

Turns out if you "only" save 1,000 € per month, even starting at 15 years old would not get you to a million by 40. You'd be about 300,000 € short.

The later you start though, the more difficult the game gets. Starting at age 30, you already need 6,000 € saved every month. If you haven't saved anything by 30 then what are the chances you might be able to suddenly save 6,000 €?

This doesn't remove the difficulty to save 2,000 € per month at such an early age. What if you could save 1,500 € per month once you graduated at 25, how large a nest egg would you need to have to be on track? Turns out that's roughly 200,000 €.

The earlier you start, the more likely you are to succeed.

I personally started saving 1,500 € / month at age 24 once I had graduated, but I did not inherit 200,000 € to start with. I've focused on improving my skills so that they're worth more.

Continuously improve

You're not finished, ever. Start with that, and the rest will follow. Take advice from @financialshaper and become a learning machine.

Improving the value you create, either in your salaried job or anything else, will yield the largest returns over the long haul. No-one is going to hand out raises for you just because you asked. Instead, if your skills are surpassing your peers and they become invaluable to your employer, they will be much more willing to keep you.

As you improve, others will start to notice, too. Make sure you let your network know when you've accomplished something. It's great marketing for your company and it makes others notice you. This is particularly handy, as recruiters will effectively negotiate your salary for you by trying to snatch you.

Improve your skills now, not once a year. Do some online training every month, set new targets and don't get too comfortable.

Increase your income

As you are improving, remember to increase your income. You won't succeed in becoming a millionaire by 40, unless your income is well above average.

If you are in a profession where the potential is high, work on that. If you are not in such a profession, you'll need to think outside of the box.

If you're building a career, make sure to advocate yourself, like @iliketodabble suggest.

This doesn't mean shameless self-promotion that alienates you from your colleagues. Make sure people know what you can do. And as your income increases, make sure your expenses don't increase at the same rate.

Control your expenses

I'm not saying you need to delay all gratifications until you're a millionaire. But since saving a huge amount consistently every month is necessary, you cannot give into lifestyle creep, unless you're willing to let your goal slip away.

Do you want to become a millionaire by 40? Are you sure? It requires significant compromises.
  • When your friends upgrade to larger homes with an ocean view or pool, are you willing to live smaller?
  • When your friends go out to party, are you willing to get wild sober? (I actually recommend doing this anyway)
  • When your neighbors have new BMW's, are you willing to drive a used Skoda?
  • When your friends go on expensive vacations, are you willing to stay home in order to meet your savings goals?
  • Are you willing to put effort into home cooking?
Lifestyle creep is a real threat. The good news is that most of the materialistic things listed do not add to your happiness! It's all in your head! Experiences are an exception, so do go to many vacations (skip some), but otherwise, you don't need a big house or a new fancy car.

Every year I study and classify all the expenses I've had during the year. In 2018 I spent 26,477 €. Roughly a fourth (578 €/mo) went into housing costs, which I think is quite reasonable. The best way to keep your housing costs in control is to own your home and repeatedly re-negotiate your mortgage rates.

As @JoneyTalks also suggests, always remember to negotiate your mortgage and salary - like your life depended on it. There's a great book on the topic of negotiation called Never split the difference (AmazonAudible). After reading that, I've increased my own salary by 1,500 €/mo.

A fifth of the expenses went into traveling (483 €/mo), which I actually think could be higher! What surprised me was that every month I use over 200 € for eating out. When you consider that lunch at work costs 10€, this doesn't seem so bad anymore.

Bottom line: understand your expenses. Know where to spend and where not to.

Invest your surplus

Saving only will not be enough for most. As the Rule of 72 states, assuming roughly 7% interest, whatever you have by 20 will be quadrupled and whatever you have by 30 will be doubled by age 40.

The power of compounding works when you let it. Rather than asking for permission each month from yourself to spend, @MoneySavvyMind recommends you to set up automatic savings/investments.

This is very solid advice, since it forces you to make do with less - and you will. Pay yourself first.

Protect your capital

When I think of an example in this topic, there's one story that comes to my mind first, and that's the story by my friend Tony at Tony story about losing 45,000 € in algo trading deserves your read.

It's a great reminder for all readers of this blog as well. When I write about investing high-interest platforms such as Crowdestor, that boast interest rates of up to 21%, these are all very high risk investments. My capital is certainly at stake. I lost tons of money on Envestio and Kuetzal.

Also on Trine (a platform I very much love), they've had a project that defaulted.

Losing money is to be expected.

However, taking unwarranted risks is unwise. When you read into Tony's story, the mistake he admits to have made is not understanding the risks well enough. I'll also point out another one: not diversifying enough.

Diversification is the best method of protecting your capital. That, and not doing anything stupid.

Build a business / add revenue streams

Building multiple streams of revenue is essential, but sometimes making one big bet can pay off. Building a business is not however a sure thing, so betting everything on this is likely not a sure way.

Most of your peers will be leading comfortable lives, in comfortable jobs, doing ordinary stuff. You can not afford to be ordinary to reach a millionaire status by age 40. There are a lot of great advice in this tweet from @DavidIHarrison, but the one I want you to focus on is building a business.

If you have enough financial maneuverability though, you might be able to start a business and not compromise your savings too much. If you're already well off and you're not risking all that, maybe having a huge upside is a worthy risk?

With financial maneuverability comes the opportunity to explore many avenues without forcing to focus on a single bet.

Marry right

No, I don't mean marry someone rich, not sign a prenup and then frame them to cheating and run away with half of their worth.

The path to being a millionaire by 40 is rough. "Why can't we just enjoy the money we have?" is such a great argument. "Why are we piling all this wealth, if we can't enjoy it?"

If your spouse isn't on board, it will never work. I'm lucky to have a wife that makes more than I do and has gradually eased into accepting and sharing the dream of a "work, optional" life.

I want you to really pause on this for a moment while you read the advice from @FullTimeFinanc

If there's any friction in this, if there's any misalignment on the topic with your spouse, will you succeed? Which is more important to you?

A concrete timeline

Let's say you graduate at the age of 24 with a salary that nets you 2,500 € per month. Now that's a higher-than-average salary to start with at least where I come from. Let's assume your expenses are only 1,100 €/mo. That's quite low, but possible, especially if you have someone to share your home with.

The income-part is critical. Nailing the income side requires you to work relentlessly on your salary or creating multiple revenue streams - or both. Assuming you get this right and you keep increasing your net income by 10% every year, you would hit a net income of 7,000 € by age 35 (like I have). Keeping that level is enough, if your expenses don't grow too fast.

Internalize this piece from @BaldMoneyGuy:

Your expenses can grow by 7% every year and will be about 2,300 €/mo at age 35 (like mine are). The less your expenses grow the better, but it's unrealistic you'll be comfortable with the same standard of living years later as you were right after you graduated.

If your net monthly income stays at 7,000 € until age 40, you can keep on increasing your expenses by 7% every year, ending at 3,250 €/mo, which in Finland would luxurious.

This is extremely difficult to accomplish. Both keeping your expenses low requires a lot of things to go right in your life, but especially being able to increase your net income in such a manner succeeds rarely. It can though. My net income at the moment is over 7,000 €/mo and I live in a welfare state. But it has taken me 10 years of thinking about my finances.

If you were to succeed in this path, how would your wealth develop? How about your FIRE number, the number you need to cover your expenses? Turns out you'd reach your FIRE number just a little below 1,000,000 €, at the age of 39. Adding a year of accumulation adds a bit of buffer to your plan.

By age 40, this plan has resulted in you being a millionaire and being financially independent. It's not easy, but it is possible.

Getting to a million by 40 requires you to be systematic, have exceptional income and a great life partner to keep you on track.

What do you think? Is it realistic to be a millionaire by 40, if you start early enough? What is the toughest part of this plan? Comments welcome below 👇

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