A large salary helps, but you can become a millionaire without one.
When you think of the typical millionaire, the first thing that comes to mind may be someone at the top of their field with a huge salary. According to research by Dave Ramsey's company, Ramsey Solutions, that couldn't be further from the truth.
This year, Ramsey Solutions released The National Study of Millionaires. It's based on a survey of over 10,000 millionaires, who were asked about their careers, financial habits, and much more. The most common millionaire careers probably aren't what you'd expect, and they show that making a lot of money isn't the only way to build wealth.
The top five careers of millionaires
Here are the top five careers of millionaires, according to the Ramsey Solutions' study:
- Engineer
- Accountant (CPA)
- Teacher
- Management
- Attorney
As you can see, not every career is one that's typically associated with a high salary. While some millionaires make significantly more than average, that's not the norm. Only 31% of those surveyed averaged $100,000 per year over their entire careers. One-third never made six figures in any year of their careers.
To be clear, income certainly matters. When you earn more, you can save more money and invest more. But you don't need to be in the top 10% or 25% of earners to become a millionaire. You could achieve it on an average salary or less with the right financial habits.
Millionaire financial habits
The financial habit that nearly all millionaires share is that they're careful about their spending. Of the survey respondents, 94% said they live on less than what they make. Even after achieving financial success, they still largely avoid overspending. In addition, nearly three-quarters of those millionaires had never carried credit card debt.
To get on the path toward being a millionaire, it's crucial to save money every month. If possible, saving at least 20% of your income is recommended. Make sure you also avoid high-interest debt, like credit card debt, or pay it off if you're currently in debt.
Next is deciding what to do with that money you're saving. Most millionaires use one simple, effective method to grow their money -- investing. Here's what Ramsey Solutions found:
- Eight out of 10 millionaires invested in their company's 401(k) plan.
- Three out of four also invested outside of company plans (options include IRAs and individual accounts with stock brokers).
- 75% of millionaires said that regular, consistent investing over a long period of time was the reason for their success.
- No millionaire in the study said that single-stock investing was a big factor in their success.
Instead of single-stock investing, most investors are better off putting their money in index funds that invest in a large assortment of securities. For example, there are plenty of exchange-traded funds (ETFs) that invest in the S&P 500. That index tracks the 500 largest companies listed on U.S. stock exchanges. Funds like this are a simple way to invest and offer better returns than most investors get by picking stocks themselves.
Consistency pays off
The millionaires surveyed by Ramsey Solutions are predominantly people with reasonable incomes who saved and invested. There are, of course, outliers who made a large amount of money or inherited wealth. But the research shows that becoming a millionaire is an achievable goal, and that's good news for everybody.
Making more money can certainly help you build wealth more quickly, so it's smart to look for ways to raise your income. However, the key is to consistently invest your money. If you invest a portion of your income every month for decades, you'll likely be on track for a million dollars or more.
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As a financial expert with a deep understanding of wealth-building strategies, let's delve into the concepts discussed in the article, "A large salary helps, but you can become a millionaire without one." The information is derived from The National Study of Millionaires by Ramsey Solutions, a reputable source in the personal finance domain.
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Millionaire Careers:
- The article highlights that the common perception of millionaires earning high salaries isn't entirely accurate.
- The top five careers of millionaires, as per the Ramsey Solutions' study, include:
- Engineer
- Accountant (CPA)
- Teacher
- Management
- Attorney
- Notably, these careers may not always be associated with exceptionally high salaries, challenging the stereotype of millionaires as high earners.
-
Income and Wealth Building:
- Only 31% of surveyed millionaires averaged $100,000 per year over their entire careers.
- One-third of millionaires never earned six figures in any year of their careers.
- The article emphasizes that while income matters, it is not the sole determinant of wealth.
-
Millionaire Financial Habits:
- The critical financial habit shared by nearly all millionaires is careful spending.
- 94% of respondents live on less than what they make.
- Nearly three-quarters of millionaires had never carried credit card debt.
-
Saving and Investing:
- Saving money consistently is crucial for building wealth, with a recommendation to save at least 20% of income.
- The article underscores the importance of avoiding high-interest debt, such as credit card debt.
- The majority of millionaires invest in their company's 401(k) plans and also invest outside of company plans (e.g., IRAs).
- Regular, consistent investing over a long period is highlighted as a key factor for success.
-
Investment Strategies:
- The article suggests that single-stock investing is not a significant factor in the success of millionaires.
- Instead, a recommended strategy is to invest in index funds, such as ETFs that track broad market indices like the S&P 500.
- Consistency in investing over time is emphasized, with 75% of millionaires attributing their success to this approach.
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Consistency Pays Off:
- The study reveals that millionaires, for the most part, are individuals with reasonable incomes who saved and invested consistently.
- While outliers with large incomes or inherited wealth exist, the research underscores that becoming a millionaire is an achievable goal through disciplined financial habits.
In summary, the article provides insights into the diverse careers of millionaires, challenges common misconceptions about income and wealth, and emphasizes the importance of careful spending, consistent saving, and prudent investing for long-term financial success.
