Through the years, I have interviewed hundreds of millionaires with the goal of learning from their experiences and knowledge.
I’ve published these as Millionaire Interviews, featuring my specific questions and their responses.
After a few hundred interviews, I realized that there was phenomenal wisdom in several of the questions I asked, especially when the responses from different interviewees are read one after another.
I’ve decided to publish these here on ESI Money in my Millionaire Wisdom series.
Note, not every millionaire answered every question and I did change around questions from time to time, that’s why every millionaire isn’t listed below.
Today we continue the series (see part 1 here to start the series) with millionaires addressing the following question:
What advice do you have for ESI Money readers on how to become wealthy?
Here are their responses…
Set SMART goals for yourself. Goals that do not fit the criteria of SMART goals are really just hopes and dreams. SMART goals are Specific, Measurable, Achievable, Relevant, and Time-bound.
When I hear people complain that they are not reaching their goals (explicit or implicit complaints), I do tend to see some trends in their behavior. Going back to something I mentioned earlier in this interview, I do feel that many people struggle from a lack of discipline. So many people want to “arrive” before they arrive. Meaning, they want to act like they have money before the money has been had. This might result in purchasing designer or luxury goods, overbuying a home, overbuying a car, eating out as too large a portion of their budget, or any other version of living beyond their means.
When people do this, they hamstring themselves. Anytime an opportunity arises, you want to be able to seize it, right? Seizing a dream usually comes with a price tag and if you are unprepared or unable to pay that price, the dream can’t be seized, or at least it cannot be seized in the way you originally intended. Don’t let that happen.
You don’t need designer jeans or dinners at steakhouses. You need to be ready for opportunity. No amount of income can make up for poor spending habits so get that piece of your house in order first.
I think the path to wealth is going to vary dramatically for individual situations, however it is always going to be some combination of earning, saving and investing. The important thing is not to let one of the categories become such a burden on the other two that you cannot get ahead.
Most importantly, I think it is important when looking at your situation and goals, not to prematurely constrain your solution set…i.e., when I was burning out in my first job, we ended up deciding to sell our house (at a small loss), sell everything we owned, and head on the road for full time locums medical care with complete schedule control, a higher per hour compensation, and a wonderful family adventure while our children were younger. But I heard from so many older burnt out colleagues “I couldn’t do that” either due to a failure of imagination, or because they had over-committed themselves so much that despite their high income they didn’t have any financial flexibility to take a risk of not getting a regular paycheck from an employer.
If you leave everything on the table as a variable, you are likely to come to a much better fitted solution than if you artificially limit your options.
No one cares more about your future more than you do. Be deliberate about saving, growing your earnings, and investing. If you have an interest in investing, learn from blogs, podcasts, and books and take the time to save and invest based on what you learn. If you have no interest, consider interviewing and hiring a professional to manage your finances for you.
Best advice: SAVE and set it up on autopilot.
Be accountable to yourself. Develop an attitude that if it’s going to be, it’s up to me.
The E, S and I of ESI Money are so inter-related, and yet for me it’s the invest part that made the difference. At a $190K/yr salary, I now have a sustainable retirement nest egg from which to draw. If your household income is half that at say $95K/yr, that just means you don’t have to save as big of a nest egg as me to maintain your current lifestyle. If you want to increase your lifestyle, then you can adjust your rate of savings, rate of (investing) return or length of time you’re invested accordingly.
Know thyself and your comfort with risk. If you’re uncomfortable with risk, invest in S&P 500 index mutual funds that are not “actively” managed by a manager, rather the mutual fund owns stock in each of the companies that comprise the S&P 500. Know that there are three main variables, time, rate of return and the amount of money (principal) you save. Each of us gets to choose which lever of the three variables that you pull.
Obviously, there are many ways to become wealthy, and what I’ve shared during this interview is simply what worked for me.
Never stop learning.
At the core, the ESI model for becoming wealthy is simple (not necessarily easy, but simple): Increase your income, decrease your expenses, and invest the gap.
The only addition I would make to the model would be add a Time component: ESIT. The trick to making this model work is to be consistent over a (sometimes) long period of time. The duration of Time needed will depend on the size of your gap. However, if you follow the process for a long enough time, wealth is inevitable. After all, it is only math.
After you max out your retirement accounts, figure out what brings value to you and concentrate your spending there.
We could care less about fancy cars but really enjoyed vacations to places like Spain and New York City.
Follow the ESI principles.
Invest in yourself and take some calculated risks at work putting your name in the hat for new opportunities as they came up to be able to grow your earnings.
Live below your means, but enjoy life along the way and don’t just save to be able to retire early.
Educate yourself about investing in the stock market as early as possible. With the internet and social media (used the right way) this is so much easier today than it was even a few years ago.
As I mentioned above. Have marketable skills, do your job extremely well, be a solution for people (not a problem).
This doesn’t work for everyone, but it primes you to be someone who Opportunity finds.
As Edison stated, “Opportunity is missed by most because it is dressed in overalls and looks like work.”
My number one advice is that you have to get your entire family on board with your strategy. My wife and I were always aligned thank goodness but to be truly successful with a family you have to get your kids fully bought in.
In my case my kids knew I was going to be working terrible hours but that I would give them time when I could.
They understood that we were different and would not spend like our neighbors and they helped us by not complaining about and even embracing our spending decisions.
E.S.I is the foundation.
If FIRE is your goal, you have to be willing to take some risk if you want to make big gains and retire early with a hefty NW. However, they need to be calculated risk, don’t get so aggressive you could blow yourself up and have a negative NW that will takes years to recover from.
Stay humble and realize luck does play a role in your success (if you doubt that last statement, just realize that being born in the USA alone, makes you extremely lucky and already more advantaged over most people in the world.)
Keep your spending in check and contribute to retirement accounts regularly over time and compound interest will make you wealthy by traditional retirement age.
Pick a career you love.
I have 3 children. Going into college 1 of the 3 knew what they wanted to do. As a parent I have found it very hard to help them as I knew what I wanted to do in 8th grade. It’s such a necessity though. You have to love what you do; the money will follow.
Another area I have strong feelings on is college. Most parents want the best for their kids. That is of course a great thing. My concern is many parents think they are doing the best for their children but might be doing them a disservice.
All 3 of my kids have gone to state schools. That allowed me to pay for the majority of their schooling — roughly $100,000 for a 4-year degree. While I didn’t forbid them to consider colleges outside the state you could say I really steered them heavily in state.
I see so many parents that allow their children to go way too deep into college debt. To compound this problem, they co-sign this debt because again, they think they are helping them.
I’ve even known of some cases where the parents had bad credit so the grand-parents cosigned. I actually get stressed out just hearing about these people who I know are good people, they are just making very bad decisions.
Becoming wealthy is fantastically dull. Be prepared to feel very bored, and at times deeply unsatisfied, as you slowly and steadily add dollars to the bank account.
My friends have boats and cars and nice houses and other fun toys, but they are stuck at their jobs and probably will be until they are very old.
I’m free, and that’s better than any possession.
The first thing you need is a quality support system. This could be friends, family or colleagues. In my case, my wife has been fantastic. I could also trust my business partner completely.
If you have the personality for risk, start a business that you believe in deeply. If you cannot find anything that you are passionate about or you have a low tolerance for risk, then become very specialized at a job, earn as much as you can and save as much as you can. Use that savings to plan slow growth in real estate and low risk stocks and bonds or any other established asset class that you are comfortable in.
I think savings rate makes a difference. Always save for a rainy day. Emergencies will happen. It happened to me, losing a job is one of them.
Having a full emergency fund makes financial sense. It didn’t rock my financial base too much. It made a dent, yes, but I am able to stay in the right path to wealth. By paying off the mortgage early, it didn’t steer me too much out of my target.
I didn’t have to rely on unemployment benefits from the government. The unemployment benefits are a blessing to reduce the rate of drawings from our emergency fund.
Probably the best advice I can offer in this area is that wealth is not just about money. It’s about relationships, being a contributing member of society, and giving back more than you take from the world.
There’s great advice in the ESI blog about how to build your relationships and activities as you approach retirement. Basically, retire TO something, not FROM something.
Also, I read a great book a couple years ago called “The Second Mountain”, by David Brooks. Its premise would probably resonate with many of the readers of this column.
Finally true wealth, and your ability to enjoy it, is based on your health. Don’t ignore that or kick it down the road until retirement.
Read books about any kind of finance and investing, blogs, and magazines, listen to podcasts, talk to people, and do whatever you have to do to find out about investments.
Only invest in what you understand.
The biggest hurdle is to get to $1 million net worth (without your primary home), but once you do you can be considered accredited and an incredible array of investment options opens up.
You have to do your due diligence, so you are back to reading and listening and talking to people. If you’re really lucky and can find a good mentor, I think you can really cut down on potential pitfalls.
Find your passion, get very good at what you do, continuously invest in yourself. This should help with your Earn side.
Live below your means (I did experience lifestyle inflation). Save. Invest.
Repeat.
It begins with spending – keep it under control and do not go into consumer debt.
Invest what you can when you can. No amount is too small. If you have $5 left at the end of the month, invest it. Time is your best friend. The earlier you invest, the more often it will compound. That $5 will be worth a good bit more than that when you’re ready to retire.
And, importantly even when you’re young, invest enough in your 401(k) to get the company match. To not do so is akin to turning down a raise.
Read all the personal finance blogs and books you can.
If you don’t like reading start listening to podcasts or audible.
I am not that smart, but there are whole communities that can help you get there. If I can do it, anyone can. Lean on them because from what I have seen, they sure are a bunch of cool people!
Be content with what you have. Don’t buy junk. There’s this hilarious tweet from writer Paige Kellerman “Not everyone realizes this, but if you clean the pile of receipts out of your purse and stack them together, it makes a teeny tiny book about why you’re broke.” Don’t let that teeny tiny book exist!
Keep track of your savings and spending. You don’t need to have a detailed budget, but you need some data or feedback that tells you whether your behaviors are supporting the results you want.
Pick your spouse wisely. I know it appears that I’m the heavy lifter when it comes to my family’s finances. But our life as we know it is only possible because we chose one another. We share it all and we like it that way.
I know this will be a divisive statement, but if you are married or otherwise in a lifelong commitment, just put everything together! I know some couples that keep finances separate, and honestly it seems so complicated! I think it helps that we both feel an obligation to be good stewards of our shared financial resources. If I waste a ton of money, I’m not just jeopardizing my financial future, it will impact our family.
Having shared goals and a shared vision will go a long way in shaping behavior to facilitate growing wealth.
Educate yourself about personal finance including investing as early as possible. Buy the books, read the blog posts, join the MMM forum and ask questions.
Choose a career or trade that will help you earn enough money to have a good life while at the same time allowing you to save and invest enough to become financially independent and retire early.
Control spending and set saving and investing on automatic as much as possible. Invest only in low-cost index funds and avoid actively managed funds, stock picking, market timing, and whole life insurance.
Do not be too conservative. Make sure you are investing enough in assets that beat inflation overtime, such as stocks and real estate.
There are many ways to become wealthy. No matter what path you use to generate income, be sure you know what you have coming in and where it is going. Don’t throw your money away on depreciable assets, don’t let people take advantage of you, pay yourself first, automate your investments, and expenses. Read and research finance to see from multiple perspectives.
Take care of yourself. Feed your body and brain the best you can. Education, food, exercise (we hike, bike, kayak, Mr Handsomeness lifts weights, and I do yoga and pilates), as well as proper health care (for us, it is our Chiropractor and Clinical Nutritionist).
Don’t cash out the small mutual funds and take advantage of company matching funds.
We always review how we spend our money and if we can do it cheaper more than likely we will.
Pretty basic for us:
- Always live below your means. You will have good years and you will have bad years, be sure that a bad year is a year where you do not save as much as you want vs. not saving at all (or needing get into your savings).
- Max your 401K—start with your first job, and develop your budget post savings—that way, you will not get used to a higher paycheck without saving.
- Do not have debt other than mortgages. Aggressively pay down mortgages.
- Pay cash for cars. Do not buy more car than you need unless you are old and debt free and a millionaire. Keep them a LONG time.
- Invest in company stock purchase plans if there is a hefty discount. Anything that was automatic really helped me to save without thinking about it.
- Limit eating out—this is a hard one for us.
- Network and broaden your career opportunity. This has been key to me: obtain a degree that is valuable and will always be valuable. Work hard, and opportunities will open up.
- Utilize rental property investments knowing that it may not be huge cash flow short term (hard to do these days), but for the future. You will likely have multiple income producing assets owned outright.
- Slow and steady wins the race. But don’t be afraid to take calculated risks.
- Marry someone with a similar enough financial philosophy.
- Balance saving with enjoying life.
First, take the time to understand what “wealthy” really means to you and what it would look like in terms of concrete changes to your life.
Set clear goals and be honest with yourself about whether your current path will allow you to achieve them.
Focus on the big wins. If you save 50% on a $10 shirt, that’s nice but the $5 savings is not going to move the needle on your finances. But if you can save 50% on your housing or 50% on your car, that is really going to add up.
Be on the same page as your spouse.
I know that my income plays a huge role in what we have achieved. But no matter what your income is, saving and investing are the keys to building wealth.
Readers, pick a course and stay the course.
I won in business, life and money through staying power. I was smart, quick, tough and lucky. There were smarter, quicker, tougher and luckier people than me all around. But they didn’t have my staying power. I outlasted them. I showed up and outlasted them.
- IMHO, there are no short-cuts or overnight success. The race is a marathon, not a sprint.
- Find a career which enables personal growth and competitive wages.
- Day 1, consistently invest in your retirement savings programs.
- Throughout your life, control expenses.
- Establish long-term financial goals and consider those goals when faced with spending opportunities.
- Build an emergency fund which covers 6-9 months of expenses as it enables you to take calculated career chances and cover unexpected expenses.
- Take care of the things you already own to control future “replacement” expenses.
- Plan for future expense and start saving now!
- Whenever possible, avoid interest and fees. Use a credit card, pay the balance off each month. Purchasing a major appliance, look for zero percent interest offers, 90-days same as cash, etc.
- Never spend future earnings – Don’t take a vacation now, assuming you will pay it with a bonus, which isn’t guaranteed. Don’t be Clark Griswold in Christmas vacation.
Have a plan, and work your plan – consistently.
It’s not too much different than exercising – you’ll see your greatest gains if you have a plan that you stick with. I had an experience like that when I turned 50 – I joined a small gym that held me accountable for what I ate, and doing intense workouts regularly, three times a week. After only six weeks, I got in the best shape of my life, so I believe others can apply similar principles to their own financial fitness.
Find a career that is known to pay well so that your starting salary is at a higher level.
Being motivated to keep learning and wanting to move up in the firm/field.
Figure out your priorities and make a plan that supports them.
Changes will disrupt the original plan and you’ll have to make adjustments, but without any plan you can easily drift through life spending money on things that don’t really support what you want in the long-run.
At the risk of stating the obvious, I view wealth accumulation as a simple formula: spend less than you earn.
It’s essentially the same principle as dieting, if you want to lose weight, burn more calories than you eat, just applied in reverse. If you keep your spending under control from the outset (and below your take-home pay), you will accumulate wealth.
If you are able to avoid significant lifestyle creep, and grow that spending more slowly than you grow your income, you will accelerate that growth.
I fully recognize that this strategy is much easier to follow when you have a good income from the start, but for us, that formula has worked wonders.
We live in a nice house in a nice neighborhood, but it is not the nicest house in the neighborhood. We drive 10+ year old cars. They are nice enough, but many of our friends and neighbors drive expensive new imports, and we bought ours used and with cash. We have significantly grown our income over the past 15 years, but we have not increased our spending at the same rate, and that spending should go way down once the kids leave home. Not overspending on cars, homes, furnishings, or clothes has let us put a lot more of our money to work in investments.
Read.
There are so many more resources online (like ESI) then there were when I was coming up.
Lots of great books already existed, Rich Dad/Poor Dad, Richest Man in Babylon etc, but the internet was not robust.
Get a good mentor.
If you do get married, follow the advice on ESI, make sure they are 100% on the same page as you financially, with similar goals. Also make sure you both agree on kids, whether that is yay or nay.
Go into STEM. If you are young enough to still think about it, go into STEM, particularly the computer engineering side which has so many flexible opportunities.
College is not a requirement, but if you choose to go, make sure you get your education for as cheap as possible, or get someone else to pay for it.
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Lots of good stuff, huh?
To read more on this series, check out part 16 here.
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