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Who hasn’t dreamed of being a millionaire? Unless you win the lottery or get a spectacular promotion, it’s hard to get there overnight. The key to making your first million is to establish a budget, savings and investment strategy and stick to it. Here are our six tips for becoming a millionaire. 

1. Budget and avoid debt

It may sound cliché, but making a budget is a crucial step towards financial prosperity. A good budget keeps you on track with your financial goals, lets you know how much money you’re making each month and defines how much you allow yourself to spend. As such, Hardbacon’s app has a designated section to help you budget.

Before you make a purchase, always consider asking yourself, “Do I really need this?” We’re not saying that you should completely deprive yourself of any pleasures, such as a dinner out or a trip to the movie theatre! But try to avoid unnecessary expenses.

Another thing to watch out for is unpaid credit card balances. It can be tempting to pay only the minimum amount on your credit card when a month is more difficult financially, but with the interest and the impact on your credit score, it can quickly become a slippery slope. So avoid as much debt as possible that will keep you from moving toward your goal. 

2. Save and stay disciplined

To make your first million, saving is a must. Here again, you need to be disciplined. Set a fixed percentage to put aside each pay cheque and stick to it no matter what your salary is. Tip: Set up automatic withdrawals to ensure you don’t forget to save!

Instead of saving in a regular account, opt for a tax-sheltered savings account, such as a TFSA or RRSP, to grow your money. With this type of account, you can even invest in the stock market with National Bank Direct Brokerage (NBDB). 

3. Start early and be patient

They say that time is money, and when you’re aiming for a million, it’s true! To reach your financial goals, it’s best to start early. Thanks to the magic of compounding and its exponential nature, a small amount of money can become huge. 

Let’s say you invest $1,000 in the stock market in a stock that generates an annual return of 10%. In the first year, you will have earned a nice $100 return. Even without investing one cent more, in the second year, assuming a constant return, you’ll pocket a return of $110, with the $10 representing the return on the $100 return in the first year. 

With compounding, again assuming a constant 10% return, your $1,000 would be worth over $1 million after 73 years. The result is shown below:

Hardbacon Compound Interest Calculator
Hardbacon Compound Interest Calculator

The exponential nature of compound returns thus makes it much easier to get richer by starting to invest early. It is not for nothing that Warren Buffett, whose fortune comes from his stock market investments, started investing in the stock market at the age of 11. 

I know what you’re thinking! You don’t have the patience to make it to 73 and that you’re not Warren Buffett. That’s true, but it doesn’t mean you won’t become a millionaire. Let’s say you invest $15,000 today, and you get a realistic 7% compounded return… With a monthly deposit of $500, it will take you about 35 years to reach $1 million in savings. You can use our Compound Interest Calculator to see how much you could achieve based on your investments. 

Hardbacon NBDB Compound Interest Calculator
Hardbacon Compound Interest Calculator
Hardbacon NBDB Compound Interest Calculator 2
Hardbacon Compound Interest Calculator
Hardbacon NBDB Compound Interest Calculator 3
Hardbacon Compound Interest Calculator

Multiplying your investments is within everyone’s reach, but it requires patience and a cool head. Your investments won’t turn into a million overnight: you have to give them time to grow and develop over a long period. This is the method advocated by Warren Buffett.

Don’t succumb to the temptation to pull out of your stocks when they are high or low. Stay invested; you will reap the rewards over the long term. Many people lose in the stock market because they withdraw their investments at the wrong time. It is virtually impossible to predict the market and get in and out at the right time. In addition to holding your investments through market fluctuations, keep adding to them with your systematic savings strategy.

4. Reduce risk and avoid speculation

Do you know the two rules that made Warren Buffet, considered by many as the best investor of all time, so successful? 

Rule number 1: never lose money. 

Rule number 2: never forget rule number 1. 

If Warren Buffett is undoubtedly a deadpan, what he tries to explain with his rules is that risk management is crucial when investing in the stock market. Indeed, it only takes one catastrophic investment to wipe out the returns of an extraordinary investment. 

Rather than trying to hit a home run by investing in volatile stocks, Warren Buffett prefers to invest in stocks with good potential returns… that have limited downside risk. In other words, he looks for companies that can withstand economic fluctuations. 

Over the longer term, investors who have managed their risk better are the ones who do better over a full economic cycle, even though these more cautious investors tend to generate lower returns during bull markets.

Another way to minimize risk is to diversify your portfolio. This can be done by investing in different stocks, or by investing in exchange-traded funds (ETFs), baskets of stocks that have the advantage of already being diversified. You can also diversify your portfolio geographically (buy foreign stocks in the right currency), sectorally (buy companies in different sectors), and in terms of asset classes (don’t just buy stocks, but also gold and bonds). 

The main idea is not to put all your eggs in one basket to avoid unpleasant surprises if a stock loses value, if an entire industry collapses or if a country’s economy collapses. 

5. Minimize your investment costs

Keep more money in your pocket and invest with commission-free brokers. You can do this with National Bank Direct Brokerage, which provides access to the Canadian and U.S. stock markets with $0 commissions on online trades. It is therefore to your advantage to choose stocks and exchange-traded funds (ETFs) offered through NBDB to maximize your returns.

Choosing independent brokerage allows you to reduce fees, but it also allows you to be directly involved in your portfolio management. Take the time to understand what you are investing in. Learn about the management fees charged by ETFs and mutual funds. 

6. Stay curious and informed

You’ve put money in and let your investments grow, but that doesn’t mean you should sit back and do nothing. Cultivate your curiosity and continue to get information from reliable sources on a regular basis. National Bank Direct Brokerage offers several tools to help you do this.

Attend webinars, watch tutorials, read articles to learn about the stock market. Follow the financial news through the NBDB platform, which gives you access to National Bank Financial and Morningstar analysis, as well as a monthly newsletter.

Free analysis tools are also available free of charge via the platform to help you make informed decisions. Build and validate your investment strategy with the Strategy Builder, Value Analyzer and ETF Center tools. 

Don’t just rely on current trends that can easily distract from your goals, use all the tools at your disposal and validate your information sources.

Ready for your first million?

Seeing your bank account reach seven figures is not something you can do with a snap of your fingers. It takes time, a solid plan of action and, above all, discipline. By sticking to your plan, adjusting it when necessary, and staying on top of things, your money can grow and reach new heights. To get started, open a $0 commission account with National Bank Direct Brokerage.

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