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Making It Big on a Paycheck

Follow these 12 steps to become a millionaire as an employee.

A number of the people profiled in our cover story made their millions as entrepreneurs. But working for the Man doesn't mean you have to be a wage slave or resort to buying lottery tickets to strike it rich. The trick is to maximize your income on the job (and know when to move on), make the most of your employee benefits and tax breaks to pocket more cash, and use that extra money to start investing. Here's what to do:

Get a raise

1. Keep your eyes peeled for better ways to do your job. Streamline a procedure, shave costs, create a new profit center, become an expert on a specific topic, volunteer for a company committeeQanything that will make you stand out as a prime candidate for a promotion or a pay boost.

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2. Don't be afraid to negotiate. In a study of master's-degree graduates from Carnegie Mellon University, economics professor Linda Babcock found that those who negotiated their first salary boosted their pay by 7.4% compared with those who didn't bargain.

3. Get your ducks in a row and your numbers on paper. If possible, quantify how much your efforts add to the company's bottom line. If that's not feasible, spotlight your value with comparable salaries for workers in your position from a Web site, such as Salary.com, or from a professional association.

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4. Plot your strategy when it's time to move on. Create a professional-looking page on MySpace that tells prospective employers why you're an exceptional candidate, recommends John Challenger, of the outplacement firm Challenger, Gray & Christmas. And don't neglect more-conventional networking: Join a professional association, or show up at school reunions toting business cards.

Milk your benefits

5. Contribute as much as you can to your 401(k) and other tax-deferred retirement plans. You'll not only build a bigger nest egg, but you'll also cut your tax bill. In the 25% federal tax bracket, every $1,000 you contribute to a 401(k) trims your taxes by $250. And you'll save on state income taxes, too.

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6. Flex your tax-saving muscle. Contribute pretax dollars to a flexible spending account to pay for dependent care or out-of-pocket medical expenses. If you set aside $1,500 per year and youUre in the 25% bracket, avoiding federal income and Social Security taxes means Uncle Sam will subsidize almost $500 of your expenses.

7. Review your tax withholding. If you're expecting a refund this spring, you're having too much tax withheld from your paycheck -- and making an interest-free loan to Uncle Sam. That's no way to become a millionaire. Put more money in your pocket by using our withholding calculator and then filling out a new Form W-4.

8. Stash savings in a Roth IRA, if you're eligible. Withdrawals in retirement, including decades of compounded earnings, will be tax-free. This year, income-eligibility limits for a Roth increase to $114,000 for individuals and $166,000 for married couples.

Invest like crazy

9. Don't delay. The quicker you get a jump on putting money aside, the easier it will be to stuff a seven-figure cushion. If you start at age 25, for example, investing $286 per month will get you $1 million by age 65, assuming you earn 8% annually (for more calculations, go to kiplinger.com/links/million).

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10. Invest automatically, either through your employer's retirement plan or by setting up a regular deposit to a mutual fund or broker. You'll never miss the money, and you'll avoid two big mistakes: buying too much when stock prices are high and not buying at all when prices fall.

11. Watch for fund fees. The more you pay, the tougher it is to earn an above-average return. The typical hedge fund, for example, takes 20% of any gains, and that's a huge hurdle to overcome. A better bet: no-load mutual funds with low expense ratios of 1% or less. If you trade individual stocks, watch those commissions.

12. Keep it simple. Be wary of get-rich-quick schemes or sales pitches for complex investments, such as oil-and-gas partnerships, that trade on the millionaire cachet to lure investors into buying high-fee products they don't understand. Most millionaire households accumulate their wealth over the long term by sticking to a regular investing plan in a balanced portfolio.

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