Now I’d like to dig deeper into some of the more interesting and useful questions. I think this will help us add to the wisdom these wealthy individuals have to share.
Today we’ll focus on answers to this question:
How did you accumulate your net worth?
I ask this question to get millionaires to tell their stories, which are often packed with unique stories and valuable lessons.
Instead of simply telling you what the lessons are, I’ll let the millionaires do it by sharing their stories. I’ll make comments after each story and summarize at the end.
Obviously, we have 100 stories and can’t share them all (you can read all the interviews if you want). So I’ve selected seven today to represent the group.
And really we don’t need to hear every story of the 100 anyway. The reason? Many of them are very similar.
Not to be too self-promotional, but story after story reflects three key principles:
Sure, the millionaires applied the principles in different ways, in different circumstances, and in different combinations, which is what makes the stories fun (there are many ways to skin the cat!)
But in the end, it comes down to working the ESI Scale to grow your net worth. Pretty simple stuff.
But forget me telling you about it. Let’s hear from the millionaires themselves…
The Basics Work
We begin with millionaire #4 (net worth: $2.3 million) who certainly started this series off on the right foot:
Our net worth has been mostly accumulated in retirement savings, building an emergency fund and paying off our house. We also invested some in mutual funds.
My wife and I didn’t really have salaries that individually went over 6 figures but our combined did. So never more than $200k EVER. I have always been cautious with our investing and also a little aggressive knowing that the wife had a pension. Our failures have never been too much to handle.
I have always paid extra on a mortgage in rounding up to a whole number. If the mortgage was $1488. I would pay $1500. Then I got more aggressive in some years so when the mortgage was $1542 I would write the check for $1750.
First bought our current house with a 30-year mortgage of $129K. Paid on the mortgage for 3 years then refi to a 15 year and did not change the payment much. Then started to aggressively pay on the mortgage with extra cash as income grew. This is how I paid off a $129k loan in 12 years (3 years on a 30-year mortgage and then 9 on a 15 year).
This strategy was based on the recommendation from another blog that supported this concept and saved me thousands in interest that I am now investing. Then all savings went to college savings to make sure I did not have that anchor of kids’ college debt hovering over them and potentially us.
We have never leased cars as I never could make the numbers work. Always owned the vehicle at least 5 years or until around 100K where max depreciation occurs. The biggest drain on us has been my wife’s work is 25 miles one way while mine is 7 in the total opposite. Biggest benefit is my father has a vehicle discount with a car manufacturer that has saved us thousands and always bought new and now our son has similar benefit working for a car manufacturer.
Always live below your means and keep your existence humble to your wage. Live in a middle class hard working city with a mix of blue and white collar people. Never owned a flashy car or cottage in the woods. We’ve taken mostly simple vacations but we have gone on cruises which are too expensive for my taste. We have been to Disney twice at the resorts and once on the Disney cruise so we never denied ourselves the opportunity.
But we never went into debt and never financed a trip and always had enough to pay it off. If we didn’t have the money, we didn’t do it. Our 25th wedding anniversary was a wonderful trip that I saved $25 per pay from hers and my paycheck for 25 months. The trip’s budget was what it was and we had enough left over to continue the savings and make it a priority.
Some money takeaways from me:
1. Overall, they simply made decent incomes, controlled spending, and invested for a long time to let it grow. Pretty basic (and effective) stuff. Told you. 😉
2. The mortgage trick is an old and popular one. They didn’t put all their extra money into the mortgage, but a bit here and a bit there adds up.
3. Notice the cost of the house? With an annual income somewhere between $100k and $200k, they could have afforded much more. But they controlled how much they spent on a home, a key factor that determines wealth (the more home you buy, the more you risk harming your net worth).
4. While neither income was over-the-top, they did earn above average salaries each and when combined they did very well. Easier to save that way.
Slow and Steady
Millionaire #7 (net worth: $1.1 million) became wealthy the old fashioned way — slowly:
Slow and steady wins the race. I never made more than $25k a year until I was 28 years old.
I made $40k at my first job out of MBA school and felt rich. For a year or so, I got into a little credit card debt but after I came to my senses, I paid off my school loans ($12k) and my recently purchased car ($13k) so I could purchase my first home when I was 31 years old.
Spend less than you make. I’ve always looked at how to save money including purchasing used cars instead of new, living in a less expensive house/neighborhood than a bank would say I could afford and buying things on sale or used. Some would say living on one income in the SF Bay Area is impossible but we’ve done it and still been able to save.
Always be grateful for what you have. I’ve been tithing (contributing 10% of my net income) to my church for the last twenty years. Since my mindset is to live on 90% of my income, it’s helped me be disciplined in my other financial responsibilities.
Take advantage of financial opportunities at work outside of your base income. For example, if your company has a 401k match, contribute at least that much to gain the match. I used to have an ESPP (employee stock purchase plan) at work and even though my budget was tight, I’d buy company stock at 15% below market rate and then sell six months later if I needed to pay expenses.
Some great learnings here:
2. No matter what you earn, you need to spend less than that. I know, kinda old-school but it’s stood the test of time. 😉
3. You can become financially independent living in a high-cost city — you will simply need to save in other areas unrelated to your basic living expenses.
The E-S-I Way
Now let’s hear from millionaire #14 (net worth: $2.2 million) who detailed her path to wealth using my own words as guides:
EARN: Worked really, really hard for 30 years to increase my salary. Also started in the workforce early (age 18), while going to school part time for free on the company’s tuition reimbursement program.
SAVE: Started early (age 18) and saved consistently – we never touched the accounts once we added to them. Each raise would increase the 401K contribution rate (and some IRA contributions during the good years).
We didn’t increase our living style as my salary went up, and we never counted on the bonus – when it came, we’d splurge with a gift for ourselves, then save or invest the rest (usually in one of the properties). We also saved a ton of money over the years by doing 95% of home improvements ourselves (my husband can do anything when it comes to house projects, and I’m pretty handy myself).
INVEST: Investing in funds/stocks for long-term – no quick trades or the latest hot stock. We also bought our first rental property 15 years ago – and continue to use equity money or my bonuses to buy/improve additional properties. We now have 4 units, and renovating a 5th – that is where we will stop, since we manage the properties ourselves.
My thoughts on these:
1. She made great efforts in all three of the key areas needed to become wealthy — earning, saving, and investing. Doing well in two of these three can make you wealthy. Doing all three almost guarantees it.
2. Again it’s time. Notice it’s “30 years” not “30 days”, though many Americans only want to be wealthy NOW!
Low Income, No Problem
Next is millionaire #26 (net worth: $3.4 million), a woman with a relatively low income compared to most:
I invested when I was young, and compound interest did its magic.
The majority of my net worth comes from the beginning of my career. A lot of expatriate workers use the low cost of overseas living plus the tax savings to have a good time. A lot spend their money on exotic travel, and some drink their salary away. But not everyone does that. I lived with extreme frugality, and plowed money into low-fee mutual funds. Even when my salary wasn’t very high, I saved up to 70% of my gross income.
In the first fifteen years of my career, I saved an average of USD 40,000 per year. That average varied a lot from year to year: one year was zero, for example. The average was USD 40,000 per year. After I got married my salary continued to go up, but my savings rate tapered off. In the last 10 years I’ve averaged USD 15,000 per year.
All of my savings went into mutual funds. My return on income (ROI) has averaged 9% per year. That’s not as spectacular as ESI’s return, but it’s roughly the same as the S&P500 over the same period, so I’m happy. That brings me to today’s total of USD 3.4m.
Great stuff here:
1. If you can save early, you can let time do its magic and make you rich.
2. If you save more early on, you can save less later and still become wealthy.
3. Life is about what you want it to be. Sure, you can travel and have fun. Or you can save a ton and become wealthy. Or you can reach a balance. It’s your choice.
BTW, my investing return isn’t that much better than 9% (in fact I use 8% for my estimates). The growth of my net worth is much higher (13.7%) because it includes both investment gains and savings.
Millionaire #34 (net worth: $1.9 million) is a bit unique:
I’d say a combination of three things:
I’ve always made reasonable money by focusing on my career and growing my income, just as you teach on your site.
Secondly, I started investing in residential real estate in my 20’s, when I made a lot less money than I do now (the earlier you invest the better).
Lastly, I track every penny we spend with a monthly budget and always force myself to save and live below my means, never accumulating debt unless it was low interest mortgage debt (also known as leverage).
1. He avoided debt — something many millionaires do because debt is expensive.
2. Looks like he did something very close to the one-house-per-year investment plan — and it worked.
3. Having a strong earning potential opens the doors for a lot of financial success.
Starting with Nothing
Next is millionaire #55 (net worth: $1.7 million) who began his journey pretty much where I did — with nothing to his name:
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.
The biggest point here is that they became wealthy by simply focusing savings/investing in their 401k.
The upcoming book Everyday Millionaires (which I highly recommend) found “79% of millionaires reached millionaire status through their employer-sponsored retirement plan.” This millionaire is a perfect example of this.
Another 401k Millionaire
Millionaire #82 (net worth: $4.8 million) has a similar story to #55:
Our salaries averaged about $100k a year with both working. That is because my earning potential went down after forced retirement. We still managed to accumulate a decent net worth.
We worked hard for what we have. We took advantage of any company matching, and we saved of lot of our income and invested well. I also had a stock purchase plan at work. I always purchased the maximum at 85% of the stock’s value and immediately when I could, sold at a 15% gain plus or minus any gain or loss (usually a gain) that took place during the holding period.
Employees need to take advantage of any financial opportunities that are freebies. Stock purchase plans, stock options offered by the company, and 401K matching are all freebies.
I also took advantage of the MBA program offered by my company. If your company pays for education, take advantage of it. As the old adage goes, “never look a gift horse in the mouth.”
Always keep learning and avail yourself of any opportunities that arise from your company. And do it as soon as you can. A company can offer a freebie one day and take it away the next. I have seen that happen.
Thoughts from me:
1. This millionaire not only took full advantage of the 401k but of other benefits as well. These can be fairly lucrative and be a great assistance in growing wealth. I was always amazed by my colleagues who didn’t take full advantage of their benefits.
2. Getting an MBA can be a great money move just by itself, but when someone else pays for it, it’s generally very good.
Wrapping It Up
So what are the big picture learnings from this question?
1. Just to say it one more time (because I’m a dad and that’s what I do — repeat myself until something is internalized), there are lots of different ways to become wealthy. All the stories are unique and yet end up at the same place — with a millionaire. That’s because you can play with the key levers to wealth in a variety of ways. Personally I love that it’s this way because different people have different strengths, interests, ideas, and so forth and they can choose the path to wealth that matches their personalities. That said…
2. …While the stories were different, the principles are the same. It’s because the basics work. And it’s the reason “E-S-I” is the first name of this site — these are the keys. Of the 93 responses not shared, most of them said some form of “I earned, I saved, and I invested over time and became wealthy.” It’s not compelling because it’s boring. I get it. But I would say it is compelling because it’s so consistent and repeatable by most people.
3. Time is a great asset. People can overcome a lot of obstacles (low income, low savings, mediocre investment returns, etc.) by simply saving early and letting time work. I tell my kids this all the time — they have the potential to do very well because time is on their side.
4. Big wins are not required. You don’t have to get an inheritance or win the lottery to become wealthy. Notice that most of the millionaires started with very little and simply made slow progress over time.
5. Big losses are to be avoided. These millionaires made mistakes and had obstacles to overcome, but none of them made such a terrible move that they could not recover. And they avoided big money mistakes that could have severely hampered their progress.
Those are my thoughts from these stories. Anyone see something I missed?
P.S. For those who prefer a video version of this post, see the ESI Money YouTube channel.