After all, that’s the reason I do these interviews — so readers can learn what millionaires have done to become wealthy, then decide which of those steps they’d like to apply to their own finances.
I could have sliced and diced the information a million different ways (ha!) but in my on-going spirit of focusing on the big wins that lead to the most impact, here are 13 findings I think are worth sharing.
We’ll do this in typical E-S-I fashion, focusing on what millionaires have taught us about earning, saving, and investing…then adding in other results at the end.
Also to note, these interviews/this analysis is not meant to be a scientific study. So before the market research readers begin poking holes in these findings, let me suggest they relax a bit and enjoy what we’ve learned.
1. Most millionaires have high incomes, but it hasn’t always been that way.
The median annual income of my 100 millionaires was $250k, much higher than what’s been found in broader studies like those detailed in The Millionaire Next Door, The Next Millionaire Next Door, and the upcoming book Everyday Millionaires.
That said, millionaires do earn higher than average incomes in every study I’ve seen.
The main reason millionaires earn more is that they are great at growing their careers. They know that just a bit of extra, focused effort can make a huge difference in how much they earn over time (which is literally millions). As a result, they invest time and energy to grow their careers and the skills needed to get ahead.
Many nay-sayers will object to these findings and thus begin making excuses why they can’t be a millionaire. A common example is something like this: “If some guy/family makes $250k plus a year, that’s a no brainier….I could do that with no investment risk and free cash flow unless I was an idiot” (from my post titled How to Ignore the Basics of Personal Finance and Still Become Rich).
First of all, no, that’s incorrect. A large income alone does not guarantee a high net worth. In fact, there’s no correlation between income and wealth. If it was that simple this site would simply be called EMoney.com.
Second, most readers see an income of $250k and make the assumption that millionaires have been earning this much throughout their careers. This is incorrect as well. In fact, most millionaires started with very modest incomes and advanced over time.
This story from millionaire #95 is quite typical:
My first salary in 1988 at age 22 was about $10,500 and I was working in technology hardware sales. It was a very aggressive sales environment and I left it after 6 months to take another job with a company that was more technology service oriented. They paid me $17,000 per year and I had about $5,000 of debt.
Within 5 years my salary was about $46,000. I paid the debt and had about $41,000 saved – $15,000 in a tax free retirement account and $26,000 in cash.
My wife and I got married in 1994 and I spent the entire $26K on our wedding and honeymoon.
Within another 18 months or so I had saved an additional $20,000 and in late 1995 we bought our first house for about $265K, with the $20K as a deposit.
I stayed with the same company until 2005 and by then my total package – salary, bonus, stock options, was probably close to $500K per year.
So yes, millionaires make a lot of money at work. But it’s not like they’ve been doing it for the past 30 years. Most started low, applied themselves, and worked their way up the ladder.
Key learning: Do not get frustrated if your salary is currently low. Many millionaires were once in your shoes. Grow your income by applying my seven principles and over time you will make progress.
BTW, many millionaires have high incomes because both spouses work. So if making $250k seems too far out of your league, shoot for $125k plus a spouse who makes another $125k. 🙂
2. Millionaire work-life balance is a challenge but often improves with time.
As you might imagine, most organizations do not pay $250k per year to people who work 30 hours a week.
Most millionaires are a stereotypical lot with long work hours that eat into family and free time.
Here’s an example from millionaire #61:
As a working mother, married to a working father (he’s a mechanical engineer) work-life balance has always been a challenge.
Five years into my 20 years of private practice, I had a 7 year old and 1 year old, so I changed the office to half day off each Friday. My staff and I all enjoyed having a better quality of life, and as a result we are all very happy.
Now I work 3.5 days, and because of our traffic problems in the area (going 4 miles to work can take an hour) I go in at 7am and stay until 2:30p.m. Getting home early allows me to be there for my teenager as we no longer have outside family support like we did when we were younger. I no longer accept as many networking or professional engagements outside of my office hours, so my husband, daughter and I enjoy dinner together each night. Additionally, we all work out each weekday evening at the YMCA, and enjoy our family time.
We are jealous of our weekends, and other than our daughter’s music performances, we go to the cabin to escape the rat race of Silicon Valley. This allows us to enjoy our time together as we hike, go to the beach and cook together.
It’s typical to see millionaires with significant work commitments early in their careers. They then make adjustments along the way to get more balance when life changes (usually kids). And ultimately they apply even more/better changes as they reach economic security.
So it starts out tough, improves to bearable, and eventually is amazing.
This has mirrored my journey as well. It’s a challenge, there’s no doubt, and each family has to determine what works for them. In our case my wife stayed home and it made a huge difference. Many do the same. Others work out an arrangement agreeable to both partners.
Key learning: Making a higher-than-average income generally entails longer-than-average work hours. Each family needs to find a balance throughout their lifetimes. Many do so by sacrificing early in a career and reaping gains later.
3. Most have more than one income source.
Of the 63 millionaires asked if they have income in addition to their careers (I added the question starting with millionaire #38), 39 had one or more.
As you might imagine, many of them answered with something akin to “I already make $400k a year and am lacking time, so I don’t think I need a side income”. It’s hard to argue with that reasoning.
On the other hand, 62% of them did have at least one extra income source with the most popular being real estate (23 of the 39). Other popular choices were dividends, side businesses, and various investments.
It’s rather common to hear of millionaires investing in real estate. Before these interviews, my assumption was that this is how many made their fortunes.
But generally it works in this way: millionaire makes a ton of money at work and invests a portion of that in real estate. This then increases income even more, which provides even more to invest.
You can see how this leads to an awesome financial cycle that feeds on itself to drive wealth.
Here’s an example from millionaire #93:
Real estate investing has been our biggest and most fruitful side gig…though I’m not sure I can call it a side gig since my wife is now a Realtor and we earn as much if not more money from real estate than we do with my full time job.
Anyhow, we started getting into real estate investing after my wife and I bought our current house together 5 or so years ago after getting married and just before our son was born. At the time we each owned our own houses and decided to rent those and buy our new house together. We both still had mortgages on the other two houses and we bought those near the top of market in 2006.
We were still coming out from under the 2009 crash, but by 2012 the market was looking pretty healthy. We thought that we may as well keep those homes and see if we could gain some equity from them in the end. That decision combined with a well-timed equity pay-out from one of my former employers put us in the driver seat to capitalize on the next 5+ years of real estate growth in the Portland area. We have since sold those rental properties and bought and sold 8 other homes in the last 5 years for profits ranging from $40,000 up to $80,000 per property.
Our basic strategy with buying investment properties is to purchase distressed properties that can be rehabbed with around $15k – $25k with a profit of $50,000+. We sometimes will rent a fixed up property to someone we know to get past the 1 year short-term capital gains tax. We also stick to basic homes and condos on the lower end of the market which reduces risk of market fluctuation.
The same can be done with a side business (which is what running real estate really is — a side business) or any other source of extra income.
Key learning: Millionaires develop multiple streams of income that enable them to grow their net worths exponentially. To do the same, consider real estate, a side business, or dividend investing.
4. Millionaires save much of their income.
I know, not a shock finding.
That said, this point is why income alone is not enough. You MUST save it (which then allows investment). If you make $250k and spend $250k, you are no better off at the end of the year.
The median millionaire spends $90k a year while earning $250k in income, an impressive 64% savings rate.
That said, these numbers are likely off since some don’t compute when compared to other answers, some interviewees don’t count taxes in their spending, and so forth.
So take this percentage with a big grain of salt and simply consider it as “they save a large portion of their income”.
Despite these big numbers, it hasn’t always been that way. Just like with their incomes, millionaires generally started low then grew savings over time.
Here’s an example of this from millionaire #70:
From age 23-33 I saved some amount diligently in my 401K (but did not necessarily max it out), and then over and over again would take out 401K loans for big expenses; essentially I was never able to accumulate a healthy principle. I literally had $0 in savings at age 33.
From age 34 onward I have been maxing out my 401K, maxing out my ESPP options, saving my employer stock and pushing up my savings each year into a mix of taxable and non-taxable accounts.
When I became eligible to participate in my employer’s deferred compensation plan that helped me further expedite my savings and minimize my taxes. For the last 3 years I have gradually pushed up my savings from 60- 72% of my total compensation. And I have accumulated my entire net worth in the most recent 8.5 years.
This is a perfect example of small progress over time making a big impact.
Key learning: If you want to grow your savings, start anywhere (even if it seems too small) and build over time. As it grows, so will your net worth.
5. Most millionaires do not have a budget.
This was probably the biggest surprise for me. I would have guessed that 75%+ would have had budgets.
In reality 46 of the 63 asked do not have a budget.
While it was not expected, the reasons millionaires don’t need a budget makes sense — they make a lot and have self-control.
Here’s an example using numbers we’ve already discussed:
- Annual income: $250k
- Annual spending: $90k
In other words, they make a ton, spend only a portion of it, and have plenty left over. Who needs a budget?
Here’s a common point of view from millionaire #12:
I track our accounts using Mint and Personal Capital, and use cash back credit cards exclusively for every possible expense. But, we have never made a formal budget. Every few months I look to see if my cash balance is bigger than it was a year ago. If it has grown, I invest the money. If dropped, I try to hold off on discretionary expenses. Last year according to Mint, we spent $90K, including $13K on home improvement projects.
What we do is we buy things that we need. Not things that we want (except my luxury car). We cook from scratch and only go out to eat for special occasions like birthdays and anniversaries. We go to nice restaurants, but never order appetizers or drinks. Maybe share desserts. Since I’m an immigrant, we love ethnic food and you can have wonderful dinners out at ethnic restaurants for a fraction of the money paid at a fancy restaurant. We shop for clothes at Kohl’s, with their great discounts and we stack them. Our early summer vacations were to visit relatives/friends where we got to stay for free. We never had cable. We are the last to get the new flat screen TV or the iPad. Actually the iPad is Apple refurbished! We do have Netflix and Amazon Prime though.
We have taken some wonderful vacations in the Caribbean, Europe, and Asia when we got great deals. We are looking for deals all the time as we love to travel.
This is similar to my personal experience. We had a budget early in our marriage. We weren’t making what we would in later years, wanted to see where our money was going, and felt a budget gave us more control.
Over several years of using it we developed our moderately frugal lifestyle to the point where it was second nature. We knew we would not over-spend.
At the same time our income increased so the gap between earnings and savings left a large margin of error. We then stopped doing a budget and didn’t have one for 15 years until we approached retirement. (Note that we did track our spending those years through Quicken.)
This is the experience most millionaires have. Their incomes have grown, they don’t spend a lot relative to those incomes, and so they don’t use a budget. Yet many still track spending in one way or another.
Key learning: A budget is great for the early phases of a financial plan, but if you can grow your income and develop self-discipline not to spend, it’s not vital to your success later on.
6. Travel is their favorite splurge.
It can’t be all high incomes and low spending on the path to millions. That makes Jack a dull boy.
No, millionaires need to enjoy their lives too and thus spend on things that make them happy.
To tease out what they do with their “fun money” I ask:
What is your favorite thing to spend money on/your secret splurge?
By far the overwhelming answer is “travel”.
Consider this from millionaire #76:
Travel is our hot button.
We are pleased to know that thanks to Personal Capital, we have come to realize that we can allocate $30,000/yr into travel and still have a 98% chance of meeting our financial goals until age 95.
While they control their spending, millionaires also make room for fun. They work hard and enjoy the fruits of their labor by traveling.
Key learning: The road to wealth isn’t simply saving every penny you can. You need to enjoy the ride, so spend some on what makes you happy.
7. Millionaire’s investments are generally simple and low cost.
As you might imagine, millionaires have a wide range of investing ideas and plans.
But when it comes to the majority of their investments, they generally buy and hold low cost stock index funds https://esimoney.com/why-i-invest-with-index-funds/.
Millionaire #63 offers a great example:
I’m no genius, I can’t predict the markets, and I don’t enjoy following the market.
For that reason I used the VTSAX index fund for the majority (95%) of our investments. I love the fund’s low cost (.04%), diversification, and simplicity. We do not have any bond allocation because when we turn 60, we’ll receive pensions of roughly $50k combined.
We’ve discussed index funds quite a bit, so there’s no need to beat a dead horse. But suffice to say that the high returns and low costs of stock index funds (I personally prefer Vanguard as do many millionaires) are the foundation that many a millionaire’s wealth is built upon.
Key learning: Low cost stock index funds purchased and grown over time are a key part of building millionaire wealth.
8. Most millionaires check their portfolios daily.
This was another big surprise for me.
I ask millionaires the following:
How often do you monitor/review your portfolio?
Of the 60 millionaires that answered this question, 31 said “daily” or “several times a day.”
This is surprising because checking daily balances often leads to over-trading (getting nervous that “something is happening” and taking action) that almost always is not in the investor’s best interest.
In fact, this is one of the top mistakes that average investors make — watching the markets so closely and making investment moves that are often detrimental.
And yet millionaires get away with this habit. It’s likely because the self-control that makes them such great savers also aids their investing. So while they may watch their investments daily, they don’t panic when things go wrong and make tough situations worse.
Millionaire #47 sums it up briefly with the following:
I monitor daily but change infrequently.
I can’t recommend checking your investments daily for most (I myself check maybe once a week or so), but millionaires make it work.
Key learning: Self-control in finances is a powerful attribute that can help in investing as much as in saving.
9. Most millionaires became wealthy by simply focusing on the basics over time.
The upcoming book Everyday Millionaires lists a couple myths about millionaires as 1) they inherited most of their wealth or 2) they took big risks and got lucky.
I have had one or two interviewees with some sort of fortunate life event (like working for a start-up company that made it big and paid stock options), but almost all of them grew their wealth the old-fashioned way: they earned a lot, saved a ton, and invested for a long time.
No, it’s not glamourous and doesn’t make for a compelling story. They just covered the fundamentals and kept at them for a while. Boring stuff, but effective.
Here’s an example from millionaire #55:
We focused on our careers, made some good decisions in that regard, saved a ton, and frankly had some good fortune with our investments along the way.
We started with literally nothing at ages 27 and 25, and never really made big salaries (although if someone had told me when I started out that I’d be making 6 figures someday, I would have told them they were crazy). We had some luck selling homes at the right time and made a few dollars as we were forced to move a couple times. But there was certainly nothing strategic about the timing.
In all honesty the biggest moment in our financial life came when an older co-worker literally walked me up to HR back in 1992 and made me sign up for this thing called a 401k. If he hadn’t been so forceful and insistent, I might not even be answering this interview as a millionaire.
It’s like this for most of them. They make solid money moves over time and ultimately become wealthy.
Key learning: Becoming wealthy is simple — create a gap between earning and spending for many years. A huge inheritance or hot stock tip is not required.
10. Most millionaires believe “if it ain’t broke, don’t fix it”.
I have always wondered if the wealthy change things up a bit once they see some success. We all hear that the rich have access to investments and opportunities that everyone else doesn’t, right?
I was interested in finding out what these secrets might be, so I ask them:
What are you currently doing to maintain/grow your net worth?
This is where they would spill the beans, tell how their millions opened new doors, and share the secrets of the uber-rich.
But the answer I get almost every time is something like this: “We’re doing the same things that led us to this point.”
Millionaire #73 says it better:
My plan is to continue doing what I am doing until I decide to retire.
And why not? What they’ve been doing has made them wealthy, so why switch it around?
That said, the real test will come when they retire. At some point they will have “won” the game and need to do things differently (i.e. transition from accumulating to drawing assets).
Key learning: If you’re having financial success (which you will if you cover the basics), keep on the same course to add more wealth.
11. All millionaires have made money mistakes but they’ve avoided death blows.
From personal experience I know that you don’t have to make 100% right moves to grow your net worth. That’s why I like to post about my mistakes from time to time — to let readers know it’s possible to become wealthy while making a few missteps along the way.
Millionaires are the same. They haven’t made only right moves to get where they are. Which gives us a chance to learn from their mistakes. In fact, sometimes more can be learned from mistakes than from successes.
To get millionaires talking about their troubles, I ask a couple different questions:
- What road bumps did you face along the way to becoming a millionaire and how did you handle them?
- What money mistakes have you made along the way that others can learn from?
The first addresses the fact that bad things happen in life — unexpected misfortunes descend upon us all.
The second addresses actions we took that were mistakes and hurt us financially. Yes, sometimes we shoot ourselves in the foot.
Here’s an example of the latter from millionaire #77:
I have made so many mistakes when it comes to investing.
Because of my Chinese American background, I was taught in an early age to put all my money in the bank and to stay away from “risky investments” such as stocks and real estates. I used to have money in the bank earning 0.01% interest without realizing I’m actually losing money having it there when I factor in inflation. I need to get money to work for me instead!
I used to think borrowing money to invest in real estate is risky and I should only buy when I have saved up all the money to buy. Only after I purchased my second building did I realized that taking a reasonable risk by borrowing money is necessary when investing.
I once invested in a biotech company; what a mistake! What do I know about biotech? Nothing! Why would I even invest in something I don’t even know? I lost my shirt on that investment.
Just like most others, millionaires had challenges and mistakes to overcome on the way to becoming wealthy.
That said, none of them made huge mistakes that doomed their finances. No one said, “I took all my money to Vegas and placed it on black”. Said another way, their mistakes were not so costly that their finances were crippled.
In addition, millionaires helped themselves out by generally avoiding the ten worst money mistakes anyone can make, especially the most impactful ones towards the top of the list.
Key learning: No one needs to be perfect to become wealthy. Circumstances conspire against us and mistakes are made. All millionaires have these challenges, have persevered to overcome, and also avoided huge mistakes that could doom them.
12. Millionaires are concerned about healthcare costs.
I ask millionaires if there are any retirement issues that concern them.
The top answer by far (from 36 of 61 who answered this question) was healthcare. Another few answered with the closely related “good health”.
Millionaire #66 sums it up as follows:
Definitely health insurance.
The healthcare system in the U.S. is very scary and concerning to me (again, I’m from Japan where they offer universal health insurance like Canada).
We are trying to learn about individual health insurance (I keep reading your blog post about it). We also haven’t ruled out a move to Japan.
A health issue can be one of those killer circumstances we talked about in the last point. And yet the way to protect yourself from that problem is so expensive in and of itself that it’s a concern for even those who have a large amount of wealth.
It’s their wealth that often makes things worse (or more specifically their income). If millionaires amass enough wealth to provide a decent income, the subsidies under the Affordable Care Act disappear.
And if they don’t get subsidies, the ACA is anything but affordable.
This is especially troublesome for early retirees who have limited affordable health insurance choices before Medicare kicks in.
Politicians don’t seem too concerned about this issue, so my guess is that a solution is far from close.
Key learning: Even the wealthy have money issues, and retirement healthcare is at the top.
13. Most millionaires do not have a formal estate plan.
Sure, almost all have “talked about it with their spouse”, “have a general idea what they’ll do”, or “need to work on that”, but 38 of 61 do not have a written estate plan.
This makes them pretty average as only 4 in 10 Americans have a will or trust.
Most millionaires don’t answer with a straight “no” but rather talk about what they plan to do, indicating they have not yet done it. Here’s an example from millionaire #68:
I will definitely leave something behind, however I don’t know how it’ll play out yet. My dream would be to teach my kids well enough that they wouldn’t need anything from the estate when we pass.
I’ve seen many kids grow up wealthy and lack the drive to make something of their own lives. I don’t want to raise entitled children who know they will always be well off. All the things I had to hustle for and earn made achieving them feel so much more worth it.
I would love to spread our wealth widely across the family when we pass. A little bit of money can help a lot of people rather than a few getting more than they would need. In fact, my goal is to start doing these actions long before we pass away. I love giving to others.
You’d expect the wealthy to have a bit more planning and organization (at least I do), but that’s not the case.
And who am I to talk anyway? My last will was written so long ago that Ben Franklin could have been the witness. (BTW, I have contacted an attorney and we’re currently working on an updated plan.)
Yes, millionaires know this is something they need to address but most haven’t gotten around to it.
Key learning: Even the wealthy have gaps in their financial plans.
Overall, I found this information quite interesting. It was both insightful and full of great tips, two reasons I love millionaire interviews so much.
I can’t say that I am wowed by the findings. After all, this site is named E-S-I for a reason. Instead these interviews reinforced the good money principles we regularly address here.
Over the next few months I’ll be reviewing specific learnings in more detail and focusing posts on one key wealth-building finding at a time.
It promises to be a fun ride.
P.S. For those who prefer a video version of this post, see the ESI Money YouTube channel.