According to a recent survey by TD Ameritrade, 53% of millennials believe that they will become millionaires. But, we all know that hard work alone isn't always enough to become wealthy. To be financially successful, you need to meticulously plan ahead, take risks, work hard and get lucky.
Don't Look for a Passion, Look for Something You Are Good At
Many career advices will often suggest people to combine their career and their passion. However, this is often highly unrealistic and actually counterproductive for a number of reasons. First, mosts people will never really realize what profession they are passionate about. Also, most "passions" tend to be related to hobbies without true job prospects. For example, 80,000 Hours showed that 90% of students are passionate about sports, arts or music, while only 3% of jobs are available for those fields. Not only that, people's interests often change over time. Ultimately, a combination of these factors culminate in mediocre result as the impetus to find a passion often discourages people from fully committing to their career.
Source: 80,000 Hours
A much more practical and effective approach to career is to find something that you are good at. If you are good at something, you are most likely going to succeed. In turn, a successful career can make your life enjoyable and even breathe passion into a job that likely is going to be somewhat painful and boring at times; afterall, no job is going to be fulfilling and interesting 100% of the time.
Spend 5 Hours a Week to Learn Something
Bill Gates famously said that you are being irresponsible to yourself if you don't' spend at least 5 hours a week learning something. Supporting this claim, Rich Habits Study that interviewed 233 wealthy individuals and 128 poor individuals also found that millionaires tend to devote an hour a day to education and self improvement. Fact of matter is that most people will get off work, grab dinner and watch TV, exercise or do something fun to relax and prepare for the next day. But what if you could spend 5 hours a week to acquire new knowledge or pick up a new skill? After only a year of doing so, you could be 260 hours more advanced than your peers, an edge that could help you advance and increase your income over time. To have a successful career, it's often more important and easier to build your advantage piece by piece over time rather than trying to rely on 1 big thing.
Start Saving & Investing Early
In lieu of our previous advice, planning out your finances early in your life could pay off hugely over time. The road to being a millionaire starts with increasing your savings and putting them to work through investing. If you start early enough, compounding effect and time can grow your wealth over time on its own. For example, we found that saving and investing S$500 per month could take 33 years to build a million dollars at 8% annual return, while saving S$1,000 per month reduces this time by 8 years.
To get started, you should first set a monthly budget and savings goal. To reduce your spending, you should start closely recording how you spend your money on a daily basis and then identify where you tend to spend more than you need to. You should also make sure you are using the right credit card that earns various rewards like cashback and miles on your expenses. When choosing which credit card to use, you should try to find a card that rewards you the most for your biggest and most frequent expenditures. Also, while mile credit cards can help you reduce your spending on vacation expenditures on flights and hotel bookings, cash back credit cards can help reduce your bill immediately and tend to be much more effective for most consumers. So long as you use them properly and pay your credit card bills in full and on time, credit cards can be a very convenient and effective tool that can help you save more money that you can put into your investment portfolio.
Once you've started saving money, you should start investing them right away. When it comes to increasing your wealth through passive income, time is of essence. For example, power of compound interest could help one person accumulate more than 2x higher wealth than another purely by investing 10 years earlier. To get started, you could open an online brokerage account, devote 5 hours a week learning how to invest and start trading stocks. If that's too difficult for you, there are also other options like ETFs or crowdfunding platforms that have been generating healthy returns for their investors as well.
Take Advantage of Asymmetric Risk Reward Opportunities
You are succeeding in your career, increasing your income and investing your savings. But, it may still take 15-30 years for you to achieve your goal of becoming a millionaire. If you want to accelerate your progress, it will likely be necessary for you to take some risks. However, risk taking can often lead to bad if not terrible results. Whether it is quitting your job to start a company or going to the casino hoping for a big win, you are probably more likely to lose money than not.Then how could taking risk be a productive exercise that helps you succeed?
Investors have concept called "asymmetric risk reward." Essentially, it refers to situations where potential gains of an action greatly exceed its potential losses. For example, what if someone offers you a coin flop where you have 50% chance of winning S$100 and 50% chance of losing S$50? You should play that game as long as you can, as you will eventually profit massively. While most real life situations won't present such a clear view of their potential risks and rewards, keeping an eye out for this type of mismatch can help you make decisions that could pay off in a big way while minimising your potential losses at the same time.
Duckju is the Senior Vice President of ValuePenguin Singapore. He covers the financial services industry, consumer finance products, budgeting, and investing. He previously worked in the financial services industry, including at such hedge funds as Tiger Asia and Cadian Capital.
This article was first appeared on ValuePenguin.