Ok, here we go again! It’s another rant!
And the dragons are back!!! Yea!!
This is not a mad-rant like some others (ahem, Hilton), but it is a topic that gets me at least a bit feisty.
Today’s issue is one that I hear quite often — frequently enough that I want to write a post on the subject so I can send a link to people who ask about it in the future.
But before we get into specifics, let’s go over the basics of personal finance.
How Does Someone Become Wealthy?
There are actually many paths to wealthy. Life is complex and becoming wealthy is no different.
When I started this blog I wanted to distill the various ways to become wealthy to the essentials. I wanted to focus on the fewest steps it would take for MOST (not all) people to become wealthy. I also wanted to draw upon my own personal experience.
This is how I came up with E-S-I. It’s what I had done myself and seemed like a good summary of the many personal finance books I’ve read over the years.
If you want to know more about the history of the site, this philosophy is detailed more in my about page.
Yes, you could nitpick a bit here and there, but I think we all agree that earning, saving, and investing are at least near the top of the list when it comes to building wealth.
As the blog went on, I later wrote a post on how these three interact — how you can be good in some and “ok” in others and still become wealthy.
Then over time we added Millionaire Interviews. In this series each person has a different story. And yet they all ended up wealthy because somehow they applied E-S-I to different degrees in becoming successful.
The conclusion: earning, saving, and investing are all vital to becoming wealthy in one measure or another.
A Two-Legged Stool
And yet, there are those who want stories of how to build wealth with one of the three keys missing.
I won’t say more about it at this time — let me just give you a sample of what I hear quite often.
Here’s an email I received a couple months ago:
Hey. Love your blog. Especially the millionaire blogs. I would make a suggestion: I would like to see people that make $75 to $120K a year profiled. The high incomes of some of your folks are no brainers to get to $1M net worth….I would like to see more savvy folks with lower incomes featured… That’s interesting to me and a bigger audience….
If some guy/family makes $250k plus a year, that’s a no brainier….Hell I could do that with no investment risk and free cash flow unless I was an idiot. I feel like the strategies of the lower incomes are actually more savoy and represent a better path for most people to model or entertain.
I’m 48, at a lower income most featured and at almost at $1M……I make my decisions work. And pay attention. If I made $350K the last three years, I’d be done and financially independent. Walking around in sandals and saying “no” a whole lot.
The expenses of trivial stuff of those folks is ridiculous if they are half ass interested in building net worth. Those who have income levels that are better than most, but still act like suburban robots because of the yearly income are not interesting….No brainer. Hell I do better than that.
Love your millionaires blog, just like to see more low income innovation/success stories.
These requests come at a regular pace. At least this guy will allow people to earn up to $120k! Most want to hear from millionaires who have a “low” income. Since average income in the US is somewhere around $60k, then “low” is likely $45k or below. That’s going to be a bit tough.
My Response
Before I get into more specifics, here was my response to the email above:
I don’t really search out the interviews for specific criteria. I let people volunteer and they tell their stories. That’s it.
There are a handful with “lower” incomes — though those incomes are higher than the averages in the US (which $75k to $120k is). You’ll have to dig through them all to find those.
Finally, saying “do interviews where the income is lower” is like saying “do incomes where they save less than 10% of their income” or “do interviews where they don’t invest”. It’s a total package — you have to earn, save, and invest. Do all three. If you are good at two of them, you’ll become wealthy (usually — as long as you’re not terrible at the other one).
Instead of looking at the high income people and complaining that they had an easy path to wealth, how about learning from them and what they did to grow their incomes? As you’ll see, I ask them where they started (income level) when they began working. Almost all of them started at very low incomes and worked their way up. Lots to learn here.
One other learning: they rarely do it on their own. Yes, there are some families where one person earns $300k, but it’s usually something like this:
Husband: $150,000
Wife: $150,000
Side hustle/investment: $30,000
It’s very interesting if you dig into the data, which I will be doing (and writing about it) once I get 100 interviews complete.
This covers the main issues but I do want to elaborate a bit on many of the points above and a few others…
Becoming a Millionaire with a Low Income
Here are a few considerations for those with similar thoughts to the emailer above:
1. Millionaires volunteer for interviews, I don’t solicit them.
On every Millionaire Interview I always include a note that I’d like volunteers. Whoever volunteers, gets in.
I do not have the time, desire, or contacts to chase down millionaires with specific attributes. If anyone wants to find some and send them my way, I’m happy to let them tell their story. But the ones I “find” are simply volunteers.
In addition to the request for millionaires who became wealthy with lower incomes, I also get requests now and then for more interviews with women millionaires. Two comments on this one:
- See my last statement. I take volunteers. If more women volunteer, more women will get to tell their stories.
- The vast majority of millionaires I’ve interviewed (and most of them are men) are married. So while it’s the guy telling the story, the wife is just as much of a millionaire as he is IMO.
2. You can become wealthy with a “lower” income.
Yes, it’s possible to become wealthy with a lower income. I’ve even written about it and some millionaires I’ve interviewed have lower incomes (I used $100k and below in selecting these).
Here are some examples:
- You Can Become Wealthy with a Lower Income
- Examples of How to Get Rich on a Small Income
- Millionaire Interview 8
- Millionaire Interview 26
- Millionaire Interview 42
- Millionaire Interview 52
- Millionaire Interview 57
- Millionaire Interview 78
That said, while it’s possible to become wealthy on a lower income, it’s not optimal…
3. It’s easier to become wealthy with a higher income.
Let’s face facts, it’s simple math. It’s easier to become wealthy when you make $300k a year than when you make $50k.
This is why…
- …the “E” is the first letter in the name of this site — you have to earn something to create wealth. And the more you earn, the better.
- …I spend so much time writing about ways you can earn more money at your job. I even made a calculator to illustrate the power of growing your career earnings.
- …I write often about creating a side hustle. It especially helps you get to early retirement faster. You can run the various scenarios on my financial independence calculator to see the impact of a side hustle for yourself.
4. You can’t throw out one leg of a three-legged stool.
If you do, the stool collapses.
As I noted in Working the ESI Scale to Financial Independence:
Even if you’re “bad” in one of the steps you’ll likely be hindered significantly. There’s a reason Warren Buffett says “never lose money.” And if you’re bad at any of the three steps you’re going to lose money. Maybe you can overcome it with stellar results with the other two, but I doubt it.
And earning a low amount is “bad” in the “E” category. It can be overcome, but that’s way more the exception than the rule.
5. Concentrate on earning more yourself.
For whatever reason, people hate career advice. I don’t know 100% why this is, but they are doing themselves a great disservice by ignoring it since even a small bit of progress can have a massive financial impact.
Besides, I dislike whiners. Stop making excuses, get out there, and earn more! If it’s not with your career, look at creating a side business.
6. It’s a team effort.
As I said, most of the high-earning millionaires are high-earning couples.
If you don’t want to earn more, make sure your spouse is working on it! 🙂
7. It’s not a no-brainer for a high income individual to become wealthy.
Here’s an email I received just a couple weeks ago:
It seems most of your interviewees are executives or at least earn a higher than average salary. Anyone can gain wealth when they are making $200,000 + a year. How about interviewing someone who has an average income that has attained financial independence?
The fact is that high income is not highly correlated with wealth generation. (Given this, you’d expect more lower-income interviewees to pop up, but they don’t.)
Read The Millionaire Next Door and Stop Acting Rich if you don’t believe me. The people with the highest incomes are not the wealthiest (on average).
Yes, people with higher incomes have more POTENTIAL to accumulate wealth. But they do not realize this potential on average.
Why? Because they stink at one or both of the other keys — and it’s usually saving.
So while you think it’s a no-brainer to accumulate wealth with a large income, odds are that would not be true. And even if it is in your case, it’s not for most high earners.
The point of all of this is that if you ignore growing your income, it will likely severely hamper your wealth-building success. So don’t ignore it.
And don’t ask me to feature people who do! 😉
MissM says
Yes, yes and yes.
PS I have LOTS of friends who make LOTS of money… and they have significantly less wealth accumulation than friends making less … because they lack on the S and I principles. The fundamentals are more the driver of wealth than high income.
GenX FIRE says
I am in the same boat as you, and for a while, I was one of them. I did not pay attention. As I have gotten more and more interested in this community, I have started to earn more and more. I have also started to save more and more. I am now much better with the S and I parts, so there you go. My wife was great with the E and the S, but it wasn’t until I came into her world that she figured out the I. She would not have married me if I was not good at S when I met her, and the reverse is true.
The thing is, though, we both grew up in families that earned very little. The fact is that we can retire now with the 4% rule with the standard of living our parents gave us. This is not an attack, this is the American dream. One of her parents is not American born, and was raised on a rural farm. Her other parent, and my two, were raised poor in the inner city. They did as good as they could, and just fine. Hard workers all of them, but they did not know about S and I so much, and nor could they do so.
But, they set their kids up for better. The trick was for all of us to learn the other parts of this. I can assure you that I will do my best to make sure all of our kids can do even better with this knowledge. That’s the power.
If our parents knew more, I think they would have done more with the S and I, but before the internet, that knowledge was much harder to come by.
Gillian says
I agree with the post and with MissM. I know plenty of people who earn big and save nothing or have been swindled by unscrupulous money managers. For myself, I never thought of myself as a high income earner until I discovered the ESI blog. Why? Because of how hard I work and how little time I have for other things, like educating myself on FIRE and personal finance. Now I am obsessed with learning as much as I can. But starting earlier would have helped. Glad to have ESI!
The Physician Philosopher says
That very last point is spot on. If it were “so easy” to become wealthy with a high-income none of the almost 70 physician finance blogs would exist. The truth is that becoming wealthy is hard regardless of your income.
Often, people who have higher incomes – at least those that I interact with – have mountains of debt and consumer/spending problems. People spend what they make. It’s an American past-time.
It’s about as American as making up excuses for why others aren’t becoming wealthy.
So many people want the easy way out as if those of us that have high annual incomes just magically made that happen. I am pretty sure anyone is free to go to four years of undergrad, get a >3.8 GPA, study for the MCAT and obtain an adequate score to have a chance to get into medical school, hope/pray/travel your way through a lot of interviews to get into med school (which isn’t guaranteed), attend four years of medical school while sacrificing 60-80 hours a week studying, pass multiple heart-attack inducing licensing exams, go through 3-8 years of 80 hour work weeks while in residency, and do additional training in fellowship if they want… all so they can accumulate hundreds of thousands of dollars in debt.
Oh, and after all of that they might receive that magical “high-income” that makes becoming wealthy so “easy”.
This sort of rhetoric really gets me going. Most of us that earn a high annual income didn’t just wake up one day with a silver spoon in our mouth. While I had a lot of help along the way to get to where I am today, I worked my tail off for it.
Just like I work my tail off to pay down hundreds of thousands of dollars in student loan debt and to live on 20% of my income in the first two years out of training.
ESI, thanks for this rant. Really got me going!
TPP
Vicki says
“While I had a lot of help along the way…”
That, my friend, is the fourth hidden leg you guys don’t want to discuss.
BuddMann says
Like your response and assume it is quite true–I know I have had a lot of systemic help built in to my life…
Having said that, outside of family wealth being transferred generationally, how would you quantify the social success factors available to individuals who take advantage? Things like college grants, low tuition, and others?
Curious…
The Physician Philosopher says
What help do you think I am alluding to? I think this will be a fun educational moment.
Jeff S. says
As someone who feels very grateful for “ the help I had along the way “, ( and there was plenty) I had no financial assistance from inheritances, loans, cash gifts or support from wealthy parents. Additionally my parents did not have the intellectual capacity to assist me emotionally either.
The help I had was in the form of opportunities or mentors who saw me as worthwhile or coachable- eager to learn. I have to acknowledge the good luck – good fortune in my life and being able to recognize it.
What sort of variables regarding help are you speaking of ? I know that I’m certainly grateful for the help I’ve had.
The Physician Philosopher says
Completely agree. Vicki is just trolling.
I am happy to acknowledge all of the help I had from the same sort of people you mention, which is what I was alluding to in my original comment.
Vicki was likely just trying to get a rise out of us.
Your Money Blueprint says
Two rants in one week – I enjoy these. Nice to have an article you can reference for the emails you get too.
I’m hoping to hit you up in about 2 years for a millionaire interview for your lower income peeps if you’re still doing them. Last 10 years average income of $67,000
I like your comment about instead of complaining about an income level that isn’t relatable, learn from it instead. There is no better people to learn from than those that have done it already. Yes, incomes may be different, but there are still lessons to be learned and tools that can be used
Bernd Doss says
Thanks ESI for this contribution. IMO the many ways to build wealth always require the individual(s) attention, and dedication to the principles (ESI) which will assist them in reaching their desired results. I am a retired, disabled veteran on a fixed income, debt free, and save 66% of my earnings monthly. Not a millionaire but working on it and am satisfied with my lot.
Wealth, to me, means much more than just earning a high income. Your point on this rant, and your contributions are valuable to those who seek a measure of happiness, relative independence, and financially sound advice and education. SEMPER FIDELIS.
The Crusher says
That was an extremely well written semi-rant. Well done. 🙂
I agree completely that actually the vast majority of high earners are not truly wealthy due to lifestyle creep and poor life choices made daily. I find that to be the case with most of our semi-affluent friends (>$100K in annual income). Most are nowhere on the path to financial independence and actually think my wife and I odd since we are focused on this journey. High income does NOT translate for most folk to high wealth.
E without S and I is not a recipe for success. You really do need to focus on all three to make significant progress.
Paper Tiger (aka MI 27) says
You know, it kind of struck me that there is an “umbrella” over the ESI principals that deserves some attention and that is “C” for “Choices.” The Choices we make in life around these principals are potentially the determining factors in achieving wealth. Choices like, who to marry, how hard do I want to work, how much delayed gratification am I willing to take, how much sacrifice am I willing to make, how bad do I want it, am I willing to relocate to get a better opportunity, am I willing to leave a company for a better future, am I willing to go to school on nights/weekends to get a degree, how many kids do I want, am I willing to side hustle, am I paying for college, do I care about leaving an inheritance, do I want to stay an individual contributor in a job or take the risk of going into management, do I want to start my own business (high risk, high reward).
These are just a few of the crossroads I have come to in my life and I’ve had to make every one of these choices and many more. Your choices determine your trajectory or, attitude = altitude. I have been blessed to have been born in the “land of opportunity” and I have made good choices and bad. However, the key is to live with the decisions, learn from them, work hard, take care of your body, never stop growing your knowledge, never stop taking calculated risks, be organized, be disciplined, be nice, be helpful to others and never, ever give up.
Becoming wealthy is not easy, as stated by others, but it is possible with the right discipline and commitment to proven principals and making the best choices, learning from mistakes and continuing to persevere through any and all circumstances. Time is the great equalizer and if you do enough of these things long enough, over time, your goals and your dreams can be realized.
DaveS says
Super well said! Agree 100%. One of my sons wants a career in theatre. He knows financially it will be tough financially… and I’m not going to deter him. That’s his “choice”. Life is often comprised of trade offs and risks. What irks me is when people pursue the career they love knowing they may make less money, but then they rip on wealthy for not “giving” more away in taxes.. mind numbing. Making more money isn’t just a something you ask for… most of the time you have to bust ass to get it.
DaveS says
Wish we could correct dumb grammatical errors on this blog. Sometimes I get too excited and post too quick. lol
Mr. r2e says
Take the “million” out of the conversation. Apply the techniques that you read about in the ESI interviews and you can start achieving your own success. Success is defined by you alone. Don’t measure yourself against others.
I know this is playing with words but also change ‘wealthy’ to ‘wealthier.’ Wealthy is again defined by you alone. Wealthier means that you have improved your state of wealth (both personally and financially) from where you started.
We have plenty of close friends that have dual incomes that add up to my former single income. However, I do also know that some of those close friends spend like crazy while we have chosen to save and invest, while still spending a little on fun too!
Like Paper Tiger said – this is also highly influenced by choices. Making better choices will help you on your own journey to improving yourself. It starts with making a choice to know where you are and where you want to be and then working a plan to achieve that goal.
Tom Murin says
Great post. My thoughts about some of the interviews are: “what took them so long” to become that well off. That and a little bit of envy at times – thinking where I would be if I had that kind of income. Oh, well.
BuddMann says
Enjoy your posts and appreciate you setting up your analysis of the 100 millionaire interviews…looking very forward to that analysis ( a la The Millionaire Next Door )…I am ready for you to get to 100
Xrayvsn says
A high income definitely does not guarantee wealth. Physicians typically earn in the top 1% of incomes but there are so many that are living paycheck to paycheck years into their careers. They got the E right but not the S and I and thus have a very unstable one legged stool.
You really need all 3 legs (and I would actually want to add a 4th leg to make it even more stable as a table which is time) to have a great shot at wealth.
Otherwise it takes a lot of luck to make it big with just 1 or 2 of the 3 components.
We tend to do lifestyle inflation quite easy so a person make 6 figures gets the more expensive house and car and trophy spouse even. They are no better off and perhaps worse off than a lower income person who follows sound financial principles.
Stacy ER says
Great post. It is easier to make a million and become financially free with a higher income. I have been very fortunate in my life, but I have made wise choices and used my opportunities when they arose. I constantly upgrade my knowledge by studying things that improve my financial situation.
With that said, I have an uncle who is the epitome of frugal. He was always an hourly worker. He worked for the same company his entire career. When he started, he was third shift hours. His income increased over the years, but he never made over $30 an hour (started around $3.35 I believe). He worked extra shifts and holidays for extra money. He finally became a millionaire. He still refused to quit working. To explain how frugal he is, he just got his first cell phone 3 years ago. He still drives to the library to use the internet. It has been 20+ years since he has gone to the movie theater. He rents dvd’s from the library. He finally replaced his tv with a nice 32″ one last year because we kept complaining about the green tint and lines going through his old tube tv. He now complains about having to take his minimum required distribution because he was living just fine without it. The required distribution quadrupled his monthly cash that is available to spend. Does he spend it? Nope.
Almost anyone can save to become a millionaire if you go without things. If you work hard and continue learning new skills. If you save. If you invest. It can be a long road, but it can be done.
JeffB MI20 says
Sounds like he needs to loosen up a bit. He is over 70 and isn’t going to run out of money.
Jeff S. says
I guess ( maybe) he’s saying that it’s more interesting to find people who earn low incomes and who have a high net worth. Okay – well maybe. That is subjective. I disagree that “there are more of them”. That isn’t true. I believe that while high income is not always a correlate to high net worth, most people who have a substantial net worth do not have “low paying jobs”.
While my income now would be considered near the top 1% , I have not always earned at this level. I became a “ millionaire “ when I was earning approximately $150k per year at 40. Up to that point in life there were many years I earned less. I followed the principles of Dr Tom Stanley to get there- feeling confident that I would grow my income and net worth.
.
Would my current $360,000 income at 52 disqualify me from sharing my story since building net worth is now “ a no brainer” ?
What about the process in getting here – building 2 businesses , shuttering one and ultimately building a 3rd ? What about external factors ? Lessons learned in having to close a business during the 2008 downturn or navigating the rigors of a divorce ?
Choice of occupation, maintaining that occupation and building net worth in the process isn’t a “no-brainer”. It’s not only the investing habits or the total net worth figures here that implore me to read the blog. The journey to net worth ( or high income ) that is encompassed in most stories is just as important – to me anyway.
Phillip says
Your readership is reaching beyond the echo chamber. Please don’t become another Suzy.
DaveS says
Explain for us simple minded folks.
The Physician Philosopher says
ESI already wrote a post for this guy… You can find it here.
https://esimoney.com/you-are-an-internet-troll/
Jay says
ESI, It seemed like a normal vanilla request that upset you.
Did you think he was trolling or was there too many comments similar to his that it finally upset you?
A Millionaire Next Door says
Check out the interview on MillionairesUnveiled.com from September 17th. It features a guy who makes $40k per year who has become a self-made millionaire. For a good stroy on “how” making a lower income, this is a good listen.
George says
I remembered some of those interviews (and esi scale interviews where people make under 100k and are on their way to millionaires!) and it is nice of you to link them despite your irritation. ESI – as someone who works in data I’m curious- have you ever made a dataset with the interview data? Not just for statistical purposes (although that would be fun) but categorical and organizational? I work with grad students who would gladly do it for cheap- let me know if you are interested.
JeffB MI20 says
Ask all those athletes how they spent millions and are now bankrupt. Money doesn’t equal wealth or financial knowledge.
Mark Hamilton says
I absolutely agree and agree with a prior interviewee who stated that marrying the right person helps enormously too. My neighbour has a similar pension pot as me – yet his wife “spends every penny she earns, and has no idea how much is in the joint account”. He was made redundant last year and will have to continue to work into his 60’s as a consultant because he has never managed to have that difficult conversation with his wife about their spending. She still books them on multiple expensive holidays, they have a new car every 2-3 years etc etc… I’m 2 years younger but will retire within the next 2-3 years as my wife and I have similar views on money and investments, saving and retirement.
MI 60 says
For your list of low income millionaires, there are also some examples whose 9-5 income never made it to the $100K point, but were able to get there with the help of other income (side gig, rental income, pension, etc.). I was one and MI 45 was another. There are probably more.
I say this partly because I think many readers interested in growing their net worth are stuck in their careers and would prefer the “other income” approach to further cuts in spending.