Here at The Money Gym, we teach people there is only four ways to make money - using what we call the "Four Lanes Of The Wealth Highway". People get easily overwhelmed (I certainly do!) and if they feel overwhelmed, they feel helpless and therefore unable to take action. In Malcolm Gladwell's "The Tipping Point" he says that any number between 3 and 7 is manageable, so 4 is a good number to move forward with.

By breaking it down into the "Four Lanes" we can break down the question of how to become a millionaire within five years and examine each lane to see how suitable it is, as a vehicle to reach this goal.

We can then look at the fastest way to make money in each lane, then examine how achieveable this is, then look at what will need to happen to tackle the plan, then time-line it so we have some interim goals.

This article is in three parts so make sure and hunt down Part 2 and Part 3!

We have a lot of experience in strategic wealth creation planning, hundreds of clients have been through The Money Gym and we have heard every variation of every question.

First though, let's look at the definition of a millionaire and then lets dare to ask the question "why"?

1. What is the definition of a millionaire?

The official definition is someone who has more than £1 million in assets, after taking all liabilities (debts) into account. You must also consider how much that debt is costing them - how much does it cost to service it.

Thus who is better off? Someone who has over £1 million pounds worth of equity in their house and a mortgage of £500,000 at 6% over 25 years, with no consumer debt? Or someone who has £1 million of equity and a mortgage of £200,000 at 6% but £100,000 of consumer debt at 14%.

Once you know that £3000 of consumer debt at an average %, who is only paying just over the minimum off per month, will take 37 years to clear...it becomes obvious who is the more financially intelligent person there.

So once we know that you need a million pounds worth of assets to be classed as a millionaire, we can look at questions like "is it better to have a million in the bank or a million in equity in your house?"

The latter is the financially intelligent answer, as the million in equity has traditionally doubled in value every 7-10 years in most of Europe, the USA and Australia, so £1 million in equity will make another million in 10 years. What's more, there are ways to get at that money legally and tax free!

Whereas £1 million in the bank might be making 6-10% per annum at a push, but the rise in the cost of living and the fact that you will pay tax on any interest at your highest rate (40% or more if you have those kind of assets) will ensure that your million is effectively shrinking not growing at all.

don't take my word for it about it doubling in value? check your local Office of National Statistics website)

2. Why Would You Want To Become A Millionaire?

Moving onto the question of "why" we have to consider the question of why you would want to become a millionaire?

Most people would answer one of the following:

1. Freedom

2. Choice

3. Peace

Freedom from a job they hate, to spend time with the kids, to travel. Choice of how to spend their time, whether to have another baby, where to live. Peace from worrying about money and from having to do things they hate.

Well, you don't need a million to achieve all that. I could not believe my ears when I found this amazing fact out!

You just need to create a passive income from your investments to be able to cover your living expenses.

If you are having a pretty nice life on say $2000 net pay a month, and you are working for that and having tax deducted from your gross pay, then you only actually need to generate about $2500 gross a month from your investments, as there are quite a few more tax breaks for business people and investors than there are for the employed. (A great book to explain this clearly is "Swimming With Pirahna Makes You Hungry" by Colin Turner).

So let's say a really great living would be $5000 a month and you don't need a million in the bank, then all you have to do is look at each "Lane of the Wealth Highway" and figure out which one is most likely to get you to a passive income of $5000 a month the quickest.

So what are those "Lanes" that I keep talking about, then?

1. Property Investment

2. Business

3. The Stockmarket

4. The Internet.

LANE #1 - THE STOCKMARKET

Now, I'm going to largely leave the stockmarket for now, as the learning curve involved is a bit steeper for most people, but briefly, in order to generate 12 x $5000 a month, you would need to be generating $60,000 per year from your investments.

If you assumed that a good investment was generating say 20% per annum (and I know of many simple strategies that do that and more) then you could say that you would need to have $300,000 invested to generate $60k a year at 20% return.

The other challenge with the stockmarket is that you have to sell, to realise the cash, and that incurs charges, and capital gains tax.

LANE #2 - BUSINESS

Business is the way many of the wealthiest people in the world have made their money. They then often put their money into property and I'll come to that lane in a moment.

So what would it take to become a millionaire from the business Lane of the Wealth Highway?

You have two ways, to create a business that can pay you, over and above the amount you need to live on, $1 million over five years. So say you need that $60k to live on every year, your business would have to pay you $60k x 5 = $350,000 plus another $1 million (or $200,000 per year).

Now that nasty thing tax kicks in again.

if you want $1,350,000 out of your business but you are on 40% tax again, that $1,350,000 represents 60%, so you will need to be paid $2,250,000 in total over the five years or $450,000 per annum gross.

I worked this out by dividing the amount you want to take home by 60 then multiplying it by 100 to get the gross, after 40% tax has been deducted.

If you calculate that a business can afford to pay.....say.... 10% of it's profits to it's founder, then in order to pay you $450,000 gross per annum, then it must be making $4,500,000 ($4.5 million) per annum in pre-tax profits.

Now all you have to do is figure out which business to start that has that potential, and start building it.

The other, more attractive way, is to build up a business and sell it, usually for a multiple of turnover or profit - each industry sector is valued differently. Sometimes businesses are valued and then sell for x 5 annual turnover or x 10 annual profits for example.

So for you to pocket $1 million within five years, you need to enter a sector with good high valuations on sale, and then build your business to the levels when it becomes attractive to a potential purchaser.

If you are in a x 10 multiple of profit kind of sector, you need to build your turnover to profits of $100,000 per annum. Other factors are a good database of customers, repeat business ideally on some kind of automated marketing system and they really don't want the business to be dependent on you being there!

"Rich Dad's Guide to Investment" by Robert Kiyosaki is one of the best books I've ever read on this topic.

So that covers the stockmarket (not in detail but it's there) and the business Lanes of the Highway.

I will cover Lanes #3 and #4 in the second part of this article.