How Ordinary People Can Build Wealth: Seven Steps Toward Becoming a Millionaire

At the beginning, one of the most common ways to manage personal finances is to force yourself to save a certain amount of money every day in a savings jar. Ideally, the jar should be transparent, and you should record your savings every day. The transparent jar allows you to see your financial progress at any time, while keeping records helps you develop the habit of tracking your finances.

As your daily savings accumulate and reach a certain amount, you can transfer the money into a savings account. By doing this consistently over time, you can gradually develop good saving and money-management habits. Whatever you do in life, whether you develop good habits can determine your success or failure. The same principle applies to financial management and investment. Once you develop good investment habits, you may find that achieving consistent results in the market becomes much easier.

STEP 1: Make Up Your Mind to Manage Your Own Finances

Many people believe that “financial management” is equivalent to “not spending money.” They therefore assume that managing money will reduce the enjoyment and quality of their lives. For young people who enjoy the pleasure of spending, it is understandable that they may resist the idea of financial management and think, “I’ll worry about money management when I’m older.”

Is this really true? Of course not.

The main reason young people dislike or neglect financial management is that they fail to recognize the difference between “people” and “money.” Almost everyone knows the saying, “Money makes money.” In other words, having money work for you can be faster and more effective than relying solely on your own labor to earn money.

So, how can you make money work for you?

First, you need to have your “first pot of gold”—an initial amount of capital that can be put to work and generate additional money over time. But where does this first pot of gold come from?

In everyday life, temptations such as “clearance sales” and “no annual-fee credit cards” can make it difficult for us to control our desire to spend. As a result, we repeatedly miss good opportunities to build our initial savings.

Therefore, only after making the decision to manage your own finances can you take the first step toward successful financial management.

STEP 2: Eliminate Harmful Debt and Control Manageable Debt

Once you have decided to manage your own finances, the next step is to establish financial independence.

Here, “financial independence” refers to eliminating harmful debt, controlling manageable debt, and learning about financial management and investment.

Harmful debt refers to debt caused by events that are difficult for an individual to control, such as illness, accidental injury, or traffic accidents. These events can create significant financial burdens. Having appropriate insurance can reduce the financial losses caused by unexpected events by transferring part of the risk to an insurance company.

Therefore, one step toward financial security is to obtain insurance that is appropriate for your circumstances, so that unexpected financial losses do not leave you without protection.

Manageable debt refers to expenses and obligations that you have some control over, such as living expenses, entertainment expenses, children's education costs, and housing loans. In other words, you can decide how much you spend each month, whether to live with your parents or move out, and whether to buy a house or have children after getting married.

STEP 3: Learn About Financial Management and Investment

As mentioned earlier, financial independence involves eliminating harmful debt, controlling manageable debt, and learning about investment and financial management.

Financial independence begins with establishing the right mindset, but there is still considerable preparation required before achieving it. Learning about personal finance is one of the most important steps.

Make Rational Investments

What is a rational investment?

Simply put, it means investing only after understanding the nature of the investment and the reasonable return that can be expected from it.

Why is rational investment so important when managing your own finances?

Because inappropriate investments can lead to serious financial losses and even excessive debt. Rational and well-informed investments can increase the gap between your income and expenses, strengthen your financial position, and help you achieve your long-term goals.

Should You Leave Financial Management to Experts?

The idea of entrusting your investments to professionals has some advantages. Professionals can devote their time to financial management and usually have access to more resources and tools, which may help them manage investments more efficiently.

But why should you still learn about financial management yourself?

Before giving your money to a professional, shouldn't you have confidence in that person and make sure that they will genuinely act in your best interests? You also need to understand whether and when you will be able to access the money you have invested.

If you can be completely confident about these things, then learning the basics of financial management yourself is still valuable.

STEP 4: Set Personal Financial Goals and Create a Plan

Set Financial Goals

Financial goals should ideally be measurable in numbers.

Calculate how much you can save each month, determine what level of return you expect from your chosen investment tools, and estimate how long it may take to reach your goal.

It is generally advisable not to set your first goal too high. A period of around two to three years may be a reasonable timeframe for an initial financial goal.

Achieving Your Financial Goals

Once you have established a personal financial goal, how can you achieve it as efficiently as possible?

Without considering other complex factors, achieving a financial goal generally depends on several variables:

1. The amount you invest

The amount invested can be either a one-time investment or a series of regular investments.

2. The return on the investment

Investment tools may include fixed deposits, mutual funds, stocks, futures, bonds, and gold. Generally, investments offering higher potential returns also involve higher risks.

3. The length of time invested

Money has a time value. Generally, the longer money remains invested, the greater the potential for accumulated returns.

Therefore, the most basic approach is to first determine how much money you can invest and then select an appropriate investment instrument. The expected investment return should ideally exceed inflation. Over time, consistent saving and investing can help you work toward your financial goal.

STEP 5: Develop Good Financial Habits

Don't Consider 1,000 Yuan Too Much or 1 Yuan Too Little

One of the simplest ways to begin managing your personal finances is to force yourself to save a certain amount of money every day in a savings jar. Ideally, the jar should be transparent, and you should record your savings every day.

The transparent jar allows you to observe your progress, while keeping records helps you develop the habit of tracking your finances.

As your daily savings accumulate and reach a certain amount, you can transfer them into a savings account. Through consistent saving over time, you can gradually develop the habit of saving and managing your money.

Develop the Habit of Keeping Financial Records

The second step in everyday financial management is developing the habit of keeping financial records.

The benefit of recording your expenses is that you can see exactly where your money is going each day. When you need to reduce your spending, you will also know where to make adjustments.

Modern financial software can help analyze your spending records, making financial tracking much easier and more useful than it was in the past.

STEP 6: Start Investing with Mutual Funds

Why is it suggested that beginners start investing with mutual funds?

Doesn't that mean handing your money over to professional fund managers?

In fact, the principle of managing your own finances remains the same. However, many investment tools have relatively high entry requirements. Therefore, beginners may temporarily make use of professional fund managers while accumulating enough capital and knowledge to manage more investments themselves in the future.

For example, in some stock markets, the minimum trading unit may require the purchase of a relatively large number of shares. Some high-quality companies with good market prospects may therefore require a significant amount of capital to invest in.

Although some stocks may be inexpensive, they can also carry substantial risks, including significant price declines or other investment risks.

Mutual funds can help address one major problem: concentration risk. Instead of putting all your money into a single investment, a fund can spread its investments across multiple assets, depending on the fund's strategy. This diversification can help reduce the risk associated with relying on a single investment.

STEP 7: Regularly Review Your Results

By integrating all the financial-management and investment steps you have taken and applying before-the-event, during-the-process, and after-the-event controls, you can better understand the importance of regularly reviewing your financial results.

Regular reviews allow you to determine whether your financial plan is working as expected, identify problems, and make adjustments when necessary.