How to become a millionaire from nothing - Easy investing in your 20's

If you are a young person who is serious about becoming a millionaire one day, then you'll want to continue reading. 

Becoming a millionaire can seem like such a far-fetched goal for most of us. But, it's not that unlikely at all when you consider what a millionaire is.

Simply put, a millionaire is a person with assets worth over a million dollars. These assets could include real estate, stock investments, cryptocurrencies and many more. 

Before getting into the tactics and whatnot, we must ask ourselves what brings us to want to be rich at all?

Is it to fund our lavish lifestyles composed of designer clothes, fast cars, drugs or worst of all, avocado toasts?

Maybe, but the idea behind this article is to answer the following question:

How can you create a financial situation that can handle an emergency, losing your job or going into retirement without worrying about losing everything?

Now, this is entirely subjective to your lifestyle. Still, assuming you're not constantly keeping up with the Joneses and their gadgets and lifestyle, I figured being a millionaire should be good enough to cover this.

To learn how, continue reading below.

How easy is it to become a millionaire?

It's not only possible; it's highly likely and even quite easy if you're patient enough.

What if I told you that there was an almost certain way for you to become a millionaire?

That you don't have to be a successful entrepreneur, you don't have to have an incredible salary and that you don't need to marry a rich person, although that certainly helps fast-track this whole process.

If you're reading this and are in your 20's, you're already a step ahead. 

Great, now let me show you how easy this is if you start investing early.

Let's look at two people, each representing two scenarios.

First, we have X, who is 23 and recently graduated from college. X read this article and decided to get a head start and begin investing right away. He goes ahead and maxes out his TFSA for 12 years until he turns 35 because he's had enough and decided to splurge a little.

At this point, X has contributed about $72,000 (assuming a contribution room of $6,000 per year - similar to the last few years).

Second, we have Y, X's friend from college, who did not invest until he turned 35. To make up for it, he decides to max out his TFSA until he retires at 65.

By then, Y will have contributed about $180,000 (again, assuming a contribution room of $6,000 per year).

At 65, who do you think will have made the most returns? Surely, it's Y, who contributed almost 3x as much as Sam, right?

Here is what their returns (assuming a rate of 7%) would look like when they both retire at 65:

• Y will end up with $585,254 while
• X ends up with $848,005

Even though X stopped investing by the time Y started and contributed 2.5x less than Y did, he still came ahead!

This shows the power of compound interest and investing early. 

Now, what if X never stopped? His TFSA would be worth $1,436,262, well over 1 million dollars!

This is surprisingly easy, and many people have done it without earning crazy six-figure salaries!

Before diving into how to do this, let's look at two critical factors: lifestyle inflation and debt.

Avoid Lifestyle Inflation and Debt

Without money to invest, well, you can't invest, which means this won't work.

As you can imagine, you'll face certain challenges along the road.

Debt

Let's first talk about debt.

It's usually best to pay off your high-interest debt before you begin investing at all—for example, credit card debt.

By paying off these debts first, you'll free up more money to put towards your investments. There is no point in investing your money to earn 7% when the APR of your debt is around 15%, which is the case for credit cards. You'll lose money, which will slow down your ability to invest and compound your wealth.

Lifestyle Inflation

Let's now talk about lifestyle inflation or lifestyle creep. 

This is a big problem, and it happens to almost everyone. It happens when your spending increases at a faster rate than your income. Let's say you have a $50,000 salary, and you spend $1,000 per month on 'stuff'.

Next year, your salary increases, so you decide to buy more stuff. And this cycle goes on and on.

Because of lifestyle inflation, a salary increase does not lead to money saved because the additional income is spent on a new phone, a new car lease, a bigger house, more hobbies, etc.

Of course, you're bound to upgrade your life at one point; this is inevitable. You work hard and deserve it. But, there's a limit to all the upgrades you "need." 

Treat yourself, because what's the point of making money if you can't enjoy it?

But, be wary of the things you spend on because they quickly creep up. Make sure you always have money saved for emergencies and investing.

The types of Accounts you can invest in

The RRSP

The registered retirement savings account (RRSP) is a type of account that is made for Canadians who wish to save for their retirement. This investment account is similar to a 401k in the US. The RRSP allows investors to defer paying taxes on their money until retirement, which means more money is available for your savings since the amount contributed is tax-deductible. This is great because you'll likely pay less taxes at retirement than you would now. 

The TFSA

As an introduction to investing, the TFSA (Tax-Free Savings Account) is one of the most important accounts you can put money in. This investment account is similar to the IRA in the US.

The purpose of the TFSA is to help you save, build your net worth and get ahead financially. It's an investment account that allows you to invest after-tax money for a tax-free return. 

But there's more to the TFSA than just the tax advantages. TFSA accounts are similar to a retirement savings plan. However, unlike the Registered Retirement Savings Account account, you don't have to leave your money in the account until retirement.

The TFSA is a great way to save for retirement because you don't have to wait until retirement to start contributing to it. When you invest your money in a TFSA, you're investing it tax-free.

The personal trading/investment account

Once you've maxed out your TFSA and RRSP, invest in the regular personal trading account. This type of account comes last because it doesn't have any tax benefits. The good thing is that it does not come with any contribution limit, so you can invest as much as you want once the first two are maxed out.

Just like the TFSA and RRSP accounts, you'll want to invest in it. You can invest your money in stocks, but we won't do that. Remember, this is a foul-proof road to being a millionaire! We're not going to risk it with stocks.

Which brings up the next part, what do we buy then? 

What to invest your money in

Investing in stocks is cool and all, but we're not going to do that. It's complicated, risky and most of us don't do enough research to beat the market. In fact, the chances are that you and I will not beat the market. So unless you love researching the best stocks and can stomach volatility, avoid stocks. Again, this is a simple way to become a millionaire with little research done at all! Stocks are everything but simple, so we're not buying any stocks.

Instead of buying individual stocks, we'll buy all of them!

Index Funds

When you invest in an index fund, you are essentially investing in a group of stocks. Index funds track the performance of an underlying group of investments (like the S&P 500) and charge lower fees than actively managed funds.

It turns out index funds actually beat the returns of mutual funds with much lower fees.

Not only do you get a decent and safe average return, but you can also easily diversify your investments.

Roboadvisor (Automated investing)

If you're looking for another option that requires even less maintenance and effort, you can let a roboadvisor like Wealthsimple do everything for you.

Here's how a roboadvisor works. You complete a risk tolerance questionnaire, and Wealthsimple decides what type of asset allocation to invest for you.

Then you set up an automatic deposit, and they invest your money in a basket of stocks and bonds based on your risk tolerance. They manage it all for you. It doesn't get easier than that!

Plus, their management fees are only 0.5%. The only way you'll get lower fees is by doing it all yourself. And this is much better than the usual 1 - 3% mutual funds charge.

Using a roboadvisor is the best option if you're not interested in learning about investing yet still want to invest and earn significant returns.

It's great to start with Wealthsimple so you can invest and learn more about investing at the same time.

Then you can move on to specific index funds that suit your needs and tolerance and buy them directly for lower fees. If you don't want to do anything, you can stay with Wealthsimple. Not everyone is interested in diving deep into investing.

How Much Do I Need To Invest to Become a Millionaire?

Assuming you're reading this at 25, if you start investing in your TFSA right away until 65, you're guaranteed to be a millionaire. 

With a monthly contribution of $410 and an average return rate of 7% (which is very conservative at this time), you'll end up with $1,019,447! You're not even maxing out TFSA with that contribution amount! 

If you just put an additional $90 per month to max it out, your TFSA will be worth $1,243,228. This is assuming the annual contribution limit remains $6,000 over this hypothetical investment term.

Try it for yourself with this calculator!

But I want to be rich quick

Don't we all?

Getting rich quickly is a lie sold to you by people who get rich from greed and laziness. And I get it; it's tempting to buy that $X,XXX course that is supposedly going to make you tons of money. They're compelling, and I almost bought one myself. You're better contributing what that course costs to your TFSA or RRSP. 

The only way to become a millionaire is to save, invest, and compound your money for a long time or start a successful business.

But neither is quick. If you cannot stick to it for the long run, you won't reap the results.

That's why most people who want to get rich quickly never do. 

Creating wealth requires consistency, self-discipline, and patience.

This doesn't mean that you can't take risks by starting a business, investing in stocks and cryptocurrencies or any other venture that could make you a lot of money.

You can go for it, but you're likely wasting your money if you think you can make millions within weeks because of a guru on the internet.

The purpose of the article is to show you the easy and safe way to become a millionaire by retirement. Even if all the above fail, you created a financial situation that has your back in case of a job loss, emergency or retirement.

Action steps 

Now that you're done reading this article, here are some action steps to help you get started right away. As you saw from the comparisons between person X and Y above, time is money, so you should hurry and get that head start! You'll thank yourself in the future.

Click here for the free step-by-step

1) Pay off any high-interest debt such as credit cards.

2) Avoid bad money habits and If you're keeping up with the Joneses, stop right now. If not, good for you! Skip this step.

3) Chose how much of your monthly take-home (after-tax) income you want to invest. I personally put 20% as per the 50-30-20 budgeting rule.

4) Depending on your situation and preference, set up a TFSA or an RRSP with Wealthsimple and answer their risk tolerance questionnaire (the younger you are, the more risk you can handle since you have more time in the market)

5) Set up an automatic deposit every month from your bank account. It's so convenient and makes this whole process pretty much maintenance-free. Even if you can't max out your TFSA by the end of the year, any amount counts!

6) Move on with your life and enjoy the profits!

7) Bonus: if your employer offers an RRSP/401K matching, set up automatic contributions up to their match amount. It's free money.

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