In my third millionaire interview, one commenter was a bit put off by the fact that two of the three interviews featured people with incomes of $500k. He was not rude by any means, but wanted to see some alternative interviews:
May I then make the request my own… The interview series has been really interesting. It is useful hearing people’s suggestions and their mistakes. I would humbly request, if you are able to find someone, who’s “E” has been more south of the $500k than interview 1 & 3.
These people would (possibly) have a completely different set of recommendations and warnings compared to the 2 x MD family or 2 x Lawyer family.
In other words, how about interviewing people who make way less and still become millionaires?
Well, this blog kind of fits that request as I didn’t earn $500k per year throughout my career.
Furthermore, I have done many of these interviews over the course of three blogs and I can say that most of them will not make $500k per year. Time will sort this out (BTW, if anyone wants to be interviewed for the series, shoot me an email — people would love to hear your story.)
Another commenter watched our conversation and laid out the following facts:
Forget the earning side for a moment and just look at the savings rate you need:
1. Savings Goal (example: $1M)
2. Time to get there (example: 30 years)
3. Expected Interest rate (example: 6%)
$1M savings = $995/mo or ~$12k/yr @ 6% for 30 yrs. this seems pretty darn doable.
* want $2M? $2k/mo or $24k/yr @ 6% for 30 yrs
* want $3m? $3k/mo or &36k/yr @ 6% for 30 yrs
* want $4m? $4k/mo or $48k/yr @ 6% for 30 yrs
There’s little magic in how to develop net worth as a W2 earner: save money and invest it. Don’t like your outlook, find out how to (1) earn more so you can save more, (2) find a different investment vehicle (real estate rentals, a side business, etc), or (3) really get extreme on savings/lifestyle to save a higher % of your income.
Some “lucky” people may get there from primary residence value growth, but that’s pretty rare (San Fran, San Jose, NY, etc), so I wouldn’t base your plan on that.
I do think this site is geared more towards higher income earners (since that’s ESI’s path), but the principles apply to everyone.
Very nice comment! I’d like to add on with a few thoughts:
- As I’ve said previously, there are many ways you can become wealthy. You simply need to work the E-S-I scale to do so.
- Personally, I favor an ever-increasing earning capacity as it makes everything else much easier. This doesn’t mean you need to make $500k a year, $250k a year, or even $100k a year. What it does mean is that wherever you are starting from, you should be working to grow your income. Doing so will have fabulous financial benefits over the life of your career. So if you’re now making $50k, work to get to $60k. Then $70k. Then $80k and so on. You can ignore the “E” part of E-S-I and simply stay where you are and get average raises and promotions, but why do that? Financial life so much easier with a higher income.
- No matter what you make, you need to save. The larger your gap the better. We saved a large percentage of our income which ultimately allowed us to retire early. Saving percentages and earning needs work inversely: if you make a higher income you can hit your goal with a lower percent saved. If you make less, you need a higher savings rate to save the same amount. This is why I like earning more — it opens up more possibilities and creates more cushion.
- Once you save, you will need to invest or you won’t make much progress. You have to get your money working for you. My path was index funds for growth initially and then real estate later for income. Your path might be different but you will need growth for much of your investing career and then transition to income, especially if you want to hit financial independence at a lower age. In the end, time is your main weapon for investment growth so invest early and often.
- Looking at the savings rates above from the commenter, someone who makes $70k per year and saves $12k per year has a 17% savings rate. That is by no means unreasonable, especially when you couple consider an employer match in a 401k. For someone who makes $50k a year, $12k is a 24% savings rate. Still very do-able!!!
- It all boils down to math: ((Earnings – spending) * (1 + return rate)) * years = net worth. (For you math geeks, I know this is not the EXACT formula because there is compounding, etc. but it gets the idea across). So pick your poison. If you don’t want to earn more (or can’t), then save more and/or get a better return on your money. Or earn more, save less (as a percentage), and earn a decent return. Or earn average, save average, and be the next Warren Buffett (unreasonable, but it can be done.) In the end, you at least have to do one of the three (ESI) well and the other two at a decent level.
- If you want to retire early, you’re going to need to do at least two of the three well. Otherwise there’s not much chance of retiring before 60 unless you can live on a dime.
To wrap it all up I want to say that you certainly can become wealthy (in this case $1 million net worth) with a lower income as long as you do well with saving/investing and have enough time.
If you want to have more and/or hit your goal faster, you will have to do more.
Thoughts on any of this?
If you’d like more on this topic, see these: