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Stick to a budget

The journey to millionaire status begins with a classic discipline: budgeting.

The budgeting process will make it clear where there’s waste and just how much money you can use to invest. Tilbury refers to budgets as “a guide to make more informed choices.”

First, figure out how much money you take home each month. Create a spreadsheet broken down into two main categories: necessities (rent, groceries, utilities) and flexible spending (electronics, vacations). Paint a clear picture of exactly how much money you can set aside and invest.

It doesn't mean it's all work and no play: there's still plenty of opportunity to indulge and have fun, even when squirreling money away. There are a variety of budgeting strategies available. Find the right one that suits your needs and lifestyle.

Once you have a budget in place, you can determine other ways for you to grow your money.

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Invest in low-cost index funds

Befuddled beginners often hit two common obstacles: what to invest in and how to invest. Many of those mysteries can be resolved thanks to the ubiquity of index funds. The key is to avoid fads and let your money stay put so it can grow.

Tilbury gave the example of investing $250 a month in an S&P 500 Index fund and getting an average annual return of 7%. In 40 years, you’ll find yourself with $656,000. The impressive part, he said, is that $536,000 of this is from compound interest.

That means, you only have to put in $120,000 of your own money. He adds that, once you hit that $100,000 mark, “compound interest stops being lame” and “once you get to this point, it’s almost inevitable that you’ll be wealthy if you just invest in a low-cost index fund.”

These types of funds peg their financial performance to an index — hence the name. They also offer instant stock diversification, low costs and little to no maintenance.

Smart tax management

With managing your taxes, you often get what you pay for. There’s a big difference between doing it yourself with a software program versus hiring an eagle-eyed (and potentially pricey) professional who learns your situation and knows the tax code cold.

However, think of hiring a professional as another investment: chartered professional accountants earn their keep in finding you lucrative (and legal) deductions or devising a tax-effective financial strategy.

Speaking of deductions, independent contractors can claim lots of them — from computers and smartphones to the square footage in your home you use as an office. And less in taxes equals more to invest.

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Pay off debts

Compounding can also work against you — and credit card debt is an example of how things can go wrong.

As of April 2024, the average credit card interest rate was 27.90%, according to Forbes Advisor. Even a small amount of high-interest debt can chip away at the money you could have used for investing.

For example, a $10,000 balance with a 25% APR turns into more than $16,800 if you pay the monthly minimum of $309. It will also take you more than four years to pay off. Credit card calculators, like this one from Experian, can help you get a handle on paying off those debts.

Find additional streams of income

One way to increase your income — and put more money into your tax-advantaged accounts — is to consider a side hustle.

Having another source of income will not only add a bit of padding to your budget, but also possibly increase your peace of mind around money matters. Side hustles don’t have to mean finding part-time work at a grocery store — many can be done from the comfort of your own home.

“As of 2023, 50% of Americans have a side hustle, even if they earn over $100,000 per year,” Tilbury said, adding that it offers “multiple advantages by diversifying your income.”

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Lou Carlozo Freelance writer

Lou Carlozo is a freelance contributor to Moneywise.

Disclaimer

The content provided on Moneywise is information to help users become financially literate. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional. We make no representation or warranty of any kind, either express or implied, with respect to the data provided, the timeliness thereof, the results to be obtained by the use thereof or any other matter.