Bloomberg recently published some statistics on the odds of becoming a millionaire. They compared the rates of millionaires between different levels of education, race, etc. They identified the unfortunate truth about how you are more likely to be a millionaire if you are white, less likely if you are Asian, Hispanic, or Black. They show how increasing levels of education are directly related to levels of wealth.
This type of analysis really gets on my nerves. Just because statistics are correlated, it doesn’t prove they are causal. Maybe the wealthier and more educated your parents are means you have more freedom and resources to spend education? This doesn’t prove that education is causing the wealth, these two outcomes may be co-incidental. Educated people live in a culture that values education. But a graduate degree may not be the source of wealth itself.
The relationship between education and wealth needs to be thought of in terms of the source of wealth. When writing about the “odds of becoming a millionaire” as Bloomberg has done, we need to consider the ways people become a millionaires. What Bloomberg hasn’t done in their analysis is strip out everyone who is already a millionaire. If your parents are millionaires, its a lot easier for you to become a millionaire. Children of millionaires have an easy path to riches, their parents eventually die and leave them an inheritance. Also, if your parnets are millionaires, its much easier to pursue education and business interests. Its easier to start and grow a new business with the support of a rich family. Bloomberg did not talk at all about what role your starting point of wealth contributes to the likelihood you will become a millionaire. My guess is where you start (or where your family is) makes a huge difference to your odds of becoming a millionaire.
The best way to consider the question of the odds of becoming a millionaire is to isolate those who start with zero wealth. We need to consider the “self made” millionaires. How likely is it that someone can start with zero wealth and become a millionaire? This question is beyond the realm of journalism. Isolating self made millionaires and determining their likelihood is a problem for economists and social scientists.
What are the odds of becoming a millionaire if your goal is to become a millionaire? Off hand, I would say the odds are very high. In North America, there are many straight-forward paths to becoming a millionaire. The “mass affluent” is a large and growing segment of the population. Becoming a millionaire isn’t a secret formula, there are many well knows paths to becoming rich. Let’s outline some straight-forward strategies to becoming a millionaire.
Let’s also keep in mind that if you start with nothing and your goal is NOT to become a millionaire, the odds of you becoming a millionaire are very low. The odds of picking the next Microsoft in your retirement account or winning the lottery, without making any other effort to become a millionaire means the likelihood of becoming a millionaire is slim.
But if your goal is to become a millionaire and you make this a major life goal, I estimate the likelihood of becoming a millionaire is very high. There are many ways to become a millionaire and they mostly involve hard work and diligence, but not much luck.
Becoming a millionaire may involve some sacrifice. You might not be able to have everything in life. You can increase the likelihood of becoming a millionaire by foregoing certain things and focusing your time, energy, and resources on things that contribute to your economic success. Having kids and being responsible for a family will likely decrease your chances of becoming a millionaire. Remember, we are discussing ways to become a millionaire, we are not discussing ways to lead a “good life”. While being responsible for a family and raising kids might be worthwhile for non-monetary reasons, they will certainly take away from your economic success. Kids take time and resources which can otherwise be invested in your economic success. You may also want to forgo luxury spending. All these resources can be contributed to your economic success.
So the first place to start if you want a low risk way to become a millionaire is to pick a profession. You can become a millionaire in a variety of professions such as medicine, dentistry, finance, law, engineering, etc. If you choose one of these professions, focus on an area with the most lucrative economic benefits. If you become a doctor, don’t go overseas and volunteer. Instead, build your practice in a wealthy community and provide a specialized service where you own your own practice. Become a surgeon, radiologist, create a hip and knee replacement service, or a pain clinic, or cater to geriatrics.
Within your profession, get good at the business side. Most of the professionals in your field will have got into it because they are passionate about their profession, not because their goal is to become a millionaire. If you become good at the business side (marketing, practice management, finances, administration) you can scale your practice. Other professionals will want to team up with you because you can provide them with scale and allow them to focus on providing services to clients. Being good at the business time will also allow you to have more billable hours and make best use of your administration staff.
If you work all the time you will burn out. So as a successful professional you will also benefit from a healthy lifestyle. This includes eating well, exercise, friendships, hobby’s, romance, and charitable service. Under the umbrella of “charity”, focus on ways that you can contribute your time and expertise. This might involve volunteering on the fundraising committee of a local charity you are passionate about. These types of activities are also great for networking and meeting new clients.
As a successful professional, you need to save and invest in order to become a millionaire. Complementary to the business skills you are developing in your practice, use these skills to manage your personal finances. Put together a team that will help you such as a your accountant and your investment adviser. You’ll need to cultivate relationships with other professionals in order to leverage your time and their expertise. Diversify your holdings. Take the profits that otherwise don’t need to be invested in your practice and invest in other non-correlated investments. Buy stocks, bonds, and real estate.
Over time, as a successful professional, it is almost certain you will become a millionaire. You don’t need any capital to get started. In Ontario for example, it doesn’t matter what your economic background is, you will have access to any profession. Banks are happy to lend money to anyone pursuing a profession because banks know that those future professionals are their best future clients.