If your goal is to become a millionaire, you might think you need to make six figures, receive a windfall or be a genius investor. But according to financial influencer Humphrey Yang, you can achieve this without getting lucky, being a math whiz or understanding complex money topics.
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In a recent YouTube video, Yang recommended tracking four simple numbers to make progress toward having $1 million. Find out how you’re doing based on his suggested targets, and try some smart money moves if you need to get back on track.
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Savings Rate
Yang said, “Most Americans save less than 5% of their income, which virtually guarantees that they’ll never be a millionaire unless they get a crazy windfall of money, like an inheritance, lottery or maybe a huge payout from their company.”
Do differently by consistently saving 10% to 20% of your after-tax pay. Yang explained that this higher rate should eventually help you achieve millionaire status, but you’ll need to avoid lifestyle inflation.
He also recommended three buckets for the money: a regular savings account with a three- to six-month emergency fund, an investment account and a short-term goal savings account.
How you allocate funds to those latter two accounts will depend on your goals and situation. For example, after you’ve saved up for your big vacation, you may put more toward retirement. You can also consider Dave Ramsey’s guideline of a minimum 15% retirement contribution rate.
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Fixed Expenses
When looking at your budget, you’ll likely find that your monthly fixed expenses — like your transportation costs, rent/mortgage and debt payments — take up much of your income.
Yang’s suggested target is spending no more than half your after-tax pay on these costs. While going a bit over is fine, spending 75% or more would put you in the danger zone.
He said that even a 5% reduction in fixed expenses can make a difference if you’re off track. While you might consider canceling a subscription, targeting your biggest expenses is wiser. According to data from the Bureau of Labor Statistics, those are usually housing and transportation costs.
Consider asking your landlord about cheaper lease options or splitting housing costs with a roommate. Yang also suggested potential ways to lower transportation expenses, such as refinancing your car loan, transferring your lease or finding a cheaper insurance policy.
Discretionary Expenses
Your money for discretionary expenses is what’s left from your pay after accounting for your fixed expenses and savings contributions. For example, if you spend 60% on fixed costs and save 15%, you’d have 25% left for discretionary purchases.
Yang suggested a maximum rate of 30% for these expenses, as this ensures you make progress toward becoming a millionaire while still having some money to enjoy life. He also recommended considering your values so you make more conscious and strategic spending choices.
“For example, if you value travel but find that most of your discretionary money is going towards random Amazon purchases, that’s when you may want to realign your spending,” said Yang.
Net Worth
Yang’s last recommendation is to track your net worth, which is what’s left after subtracting the debts you owe from the values of what you own. For example, if you have a $20,000 savings account, a $250,000 house with a $150,000 mortgage and $5,000 in credit card debt, your net worth is $115,000.
Eventually, you’ll want this number to reach $1 million, but you should first know your starting point and regularly track how your debts and assets change. Due to the widely fluctuating values of certain assets, such as stocks, Yang recommended quarterly to annual net worth calculations. However, you can also do more frequent updates to check if your wealth is going up.
The Office of Financial Readiness offers a net worth tracker to use.
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Sources
Humphrey Yang (YouTube), “Focus on These 4 Numbers To Become a Millionaire“
FINRED, Track Your Personal Net Worth
This article originally appeared on GOBankingRates.com: Track 4 Things if You Want To Become a Millionaire, Says Humphrey Yang
