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…
I think Dave Ramsey said it best “If you will live like no one else, later you can live like no one else.”
Don’t buy the new cars and fancy houses when you are still figuring out your finances, wait for those things until you’ve secured your financial future.
Don’t assume that family members will be happy for you or supportive when you have the stress of a windfall.
Try to not feel guilty that you have more than people get over a lifetime of working from six years of work. Remember you have been incredibly lucky, but you didn’t mastermind this situation in order to make others feel somehow lesser. It just happened.
Also, remember to enjoy yourself some, and also know that everything could be gone tomorrow too. I have two AOL friends who are both putting houses on the market at the start of 2018 in order to avoid foreclosures. So, everything is a crap shoot at the end of the day.
Start early, save often, follow your instinct.
Make your own luck. I am trying to capitalize on my skills and connections to do my side business.
Keep your eye on the prize. That can mean a lot of things to a lot of people, but eventually you will be too weary to work either physically, mentally, or both.
You can never save too much, but you can save way too little. So you need to have some goals.
Two are better than one, so your marriage is important. As my wife and I age, we realize how blessed we are to have each other as best friends and partners. If your marriage is worth saving, it should be worth fighting for. Financially two are way better than one. But you need to be on the same page in terms of spending and philosophy about money.
As for saving and investing, take advantage of any and all company matching plans. That is free money.
Save as much as you can so that will have a nest egg when you are ready to call it a career.
One of the things I have come to realize over the last several years is that you can’t take it with you so why accumulate it in the first place. I am not talking about money here, but rather material possessions or “stuff.”
Don’t get caught up in the hedonistic treadmill of consumerism. I can’t remember who authored the quote “don’t keep up with the Jones’; they’re broke.” But that is so true. People get wrapped up in the race to buy things they don’t need to impress people that don’t care. If you can get away from that mindset you can free yourself up financially and emotionally. You do not need the latest car, phone, man toy, outfit, jewelry, etc to be happy.
In closing I wanted to write to ESI to participate in this interview, so I could show people out there that I am just an average guy with a pretty average job, and through time and perseverance you, too, can accumulate a tidy sum of wealth.
Nothing earth shattering that hasn’t been repeated in a lot of other places:
Read some of the widely recommended books on how to approach investing and growing your net worth over time and follow through on the advice. If you are reading this blog you’re probably at least interested enough in the topic to do that, and it will can pay massive dividends over your lifetime to be somewhat financially literate. The reality is even dead simple solutions like a Vanguard all in one fund is better than 90% of all the other things you could do with your money.
Don’t waste money on cars. You can get a much more respectable used car than we have and it will save you so much money.
Track your spending, you’re a lot more conscious of it when you have to look at it all the time.
Think about money in terms of the value of experiences you get.
Try to do it all in moderation, I see some really extreme advice on how to save every last penny or people endlessly fretting over withdrawal strategies / rates. Life’s too short and you want to enjoy the journey as well.
I would recommend starting very early to save money and to invest it. I would focus on financial goals and not be swayed by marketers whose job it is to convince you to spend your money. You and your family members are the only ones that should decide what you need and what you really want.
If you have the opportunity to contribute to a 401(k) at your place of employment, jump on it! The best way to become wealthy is to save by never even seeing the money, getting free money from your employer, and having it compound through time. If you automate your saving and allow it to compound through time, you will accumulate wealth.
Plan to increase your sources of income. In my case, I found teaching online to be extremely convenient, as it can be done not only from home, but from pretty much anywhere. It also produced not only the direct income through the years, but it substantially increased my future Social Security income, which I will be receiving very shortly.
Live within your income, only use credit cards for the basic day to day purchases, save something proportional to your change every month and save 50% of every salary increase you received.
Study and learn about personal finance when you are young.
Never outsource your money. No one will manage it as well as you.
Invest in people that are smarter than you early and often.
Index funds are beautiful because they automatically let you invest in the best companies full of the smartest hardest working people alive with very little expense.
Make that your central focus and if you want to dabble in some other areas to make some extra money take a small percentage of your overall net worth (like 5% max) and entertain yourself that way.
Start saving and investing early.
SHUN DEBT! Pay off your credit cards each and every month and don’t buy something you can’t afford.
Hey, if you NEED a new car to replace your old bucket-of-bolts, and you are offered 0% financing, take that deal! That’s the exception. Drive Hondas and Toyotas, not Audi’s!
When it comes to investments, stick with an asset allocation you are comfortable with. One that allows you to sleep well at night. Just because you’re 25, what rule states you have to be 100% “all-in” stocks? Keep some cash on the sidelines for bargain-hunting later on.
Did anyone ever watch the original “Louis Rukeyser’s Wall Street Week?” One of the regular panelists was Martin Zweig, a very successful investor. When he was most bullish he was only 60% invested in stocks. Theater panelist and Lou snickered at him for this ultra-conservative stance, but he called the ’87 crash and his subscribers and managed accounts made money on that Black Monday. The guy was brilliant and he always had liquidity and he did a great job managing risk. He never cried in his soup when markets were falling. He’s an investor I’ve tried emulating all these years and I have no regrets about it.
If you must have a big boy toy (boat, plane, RV, etc.), buy one with one or more friends or trusted acquaintances to share costs. It’s ridiculous to have a money-pit toy with fixed costs just sitting and collecting dust when you can share all costs with co-owners.
Don’t buy new big ticket items. Depreciation is a bad thing especially coupled with investment income and appreciation potential you lose.
Buying new can be a triple threat to your money especially if you don’t pay cash – Depreciation + Interest + Sales Tax = A triple threat to your money.
I am proud to say that we have never paid a penny in credit card interest — a lesson that stuck with me from finance class! We’ve maxed out our opportunities to put money in a flex spending account for daycare in the past, along with healthcare bills, etc. We have a health savings account, but because we don’t qualify for Roth IRA’s, we max out the HSA, but pay our medical bills out of pocket. We are piling up cash in the HSA for future use. If we need it, we have all of our expense receipts to make tax free withdrawals.
Get rid of your payments and start paying yourself! We’ve been mortgage free for 3 years and car payment free for a year or two before that. When you get rid of a payment — start paying those payments to your retirement!
It doesn’t matter how much you have to start with, the most important thing is that you start! Neither of my parents graduated from college, but had a very strong work ethic and are successful entrepreneurs themselves.
The best college course I had was a personal finance class, my first exposure to compound interest and other financial topics. I started investing $50 per month into two mutual funds through an agent. A year or so later, a mentor introduced me to Vanguard and investing and I soon moved to Vanguard. I started investing just $100 per month about 20 years ago. Last year, we added $180,000 in new funds to our taxable, retirement accounts, etc.
I’ve had a goal each year for the amount I wanted to invest and did everything I could to make sure we added more than the year before. In the last 15 years, I’ve only missed beating the previous year’s savings twice — once when we had a large business related investment and the second was when we used a portion of the year’s investment money to pay off our mortgage.
Avoid credit card debt. Pay off mortgage. Read The Millionaire Next Door: The Surprising Secrets of America’s Wealthy.
Buy quality vehicles, pay cash and drive them until the wheels fall off. Put your money in assets that go up in value!
Get rid of your payments and start paying yourself! When you get rid of a payment — start paying those payments to your retirement!
For those of us who are not high wage earners, it is a process. It takes time.
The real fun begins after years of saving and investing when you can see market swings make big gains (and losses).
Invest/save deliberately…every pay check. Look for places to make a few extra dollars and save that too! Small contributions over the year add up!
Does that Starbucks REALLY taste that much better than your $0.50 home brewed? (I’ve had one Starbucks coffee and someone else bought it at a business meeting. It’s just not that important to ME.)
My advice is to take the time to learn about money.
I am a numbers nerd and probably read 2-3 financial blog posts a day. I don’t think you need to be that crazy about it but if you take the time to read a few key books (The Millionaire Next Door, The Simple Path the wealth, and possibly, The Total Money Makeover) you will be leaps and bounds ahead of most people. Once you have the core knowledge you will be able to move down the ESI path.
Start early! We could have been much wealthier if we had.
Stay out of debt, have a zero-based budget, and pay cash for things.
Educate yourselves about money and investing. It is not too difficult, you just need to make the effort.
Teach your children about money so they will understand how it works, and teach them to save early and often. Just imagine if they saved even 10% of every dollar they ever received from the time they were born. They would be wealthy by the time they retired.
Start early, have a plan, and keep learning at sites like ESI Money.
Save till it hurts, then save some more. Do not get caught up in lifestyle inflation or keeping up with the neighbors. Most of our former neighbors are still working 9-5’s up in the cold snowy north. You know the same ones who were driving newer cars, bigger homes, and going on very expensive vacations. Learn to live on far less than you earn. But don’t live so frugally that you miss out on enjoying life.
I also have a pet peeve about couples keeping separate his & her accounts. I know this is controversial, and I understand that what worked for us might not work for everyone, but I firmly believe we stayed on track financially and wasted less money because we were inputting and spending from one pool of money.
We see and hear about too many couples that act as if they only inhabit the same orbit as opposed to being on the same team. In many cases, it requires an “us against the world” mentality to survive the rough patches and to come out ok. Choose your partner carefully and team up as one…it’s a long and bumpy ride.
Pay yourself first, max your 401k, don’t let your lifestyle grow or get too out of hand, and pay off your credit cards every month.
- Be Content
- Get Good Return On Investment
- Get Passive Income
- Use Other People’s Money
- Pursue Your Passions
You have the potential to do whatever you want. Most people are lazy and always full of excuses. That’s the truth.
We live in a world where all the resources are there. If you want to do something, go for it. Set goals and plans for yourself. Think of where you want to be in 1, 3, 5 and 10 years.
Don’t worry if you don’t meet them fully. Imagining what could be will give you something to aim for.
Read all of these PF blogs, you will pick up on so many good ideas.
Wanting to get FI as a goal is half way to getting there, the how will fall into place.
- Getting out of and staying out of debt (other than home mortgage) should be the top priority. Interest payments are a direct subtraction from your net worth.
- Keep a healthy amount of cash investments for emergencies and opportunities. For us that has been $20K – $100K.
- Save consistently every year for retirement and don’t take any early withdrawals. If your job doesn’t provide a 401K, then contribute to an IRA. Always get the company match in your 401K.
- Invest in something that beats inflation. We chose index funds for high historical rate of return, diversification, simplicity, low fees, and the fact that they can be part of our retirement investments.
General advice:
Set a goal for your net worth and keep track of your progress toward it. TMND contains a different metric for wealth that depends on age and income. Using this calculation you can set a reasonable goal for net worth for your age and income:
“Multiply your age times your realized pretax annual household income from all sources except inheritances. Divide by ten. This, less any inherited wealth, is what your net worth should be.”
They call this the net worth that the Average Accumulator of Wealth (AAW) should have given that age and income level. So for a household of age 50 which has income of $50K/year the AAW would have a net worth of 50 x $50K /10 = $250K. An Under Accumulator of Wealth (UAW) would have half of that amount or less. A Prodigious Accumulator of Wealth (PAW) would have double that net worth or more.
Read so much about saving, budgeting and investing it feels like your head will explode. You cannot know too much about this stuff, and do it early.
Follow general rules about living below your means and diversity your portfolio. It really makes a huge difference.
Not too long ago, another contributor here said to pick the right spouse! Touche! Even though my husband and I have had some very fundamental differences about money, parents, volunteering, etc. he knows he married a dominant personality (poor guy). Our marriage is work and worth every minute. I never forget to cherish my spouse because even though in many ways he is my opposite, I learn so much from him. He keeps me in check, and I love him for that.
This is a tough one.
Sure, working hard and making a lot helps but there’s more to it than that. I can say I’ve never really cared that much about material things. Even as a kid I valued my time with my friends way more than any toy. If you’re already wired to not crave “stuff” then chances are you’re already wealthy or well on your way. If you do crave “stuff” and can’t control it then you’ll forever just be expanding to fill your tank, regardless of how much you make.
For me, I wanted the money for the money’s sake, not for what it could buy. When I see a Ferrari drive by it’s enough for me to think “I could buy that if I wanted” and then I’m done. The purpose of accumulating the money has always been to give my wife and I control over our own destiny.
I view our wealth building as:
Frugal Living + Hardcore Savings + Prudent Investing
By keeping our expenses low, we were able to “mind our gap” https://esimoney.com/the-gap-is-the-key-to-wealth/ as our salaries grew. Because we had two 401k plans in addition to our teachers’ pension, we were able to save more than most employees in the private sector. (By using our 403b and 457 accounts we were also able to keep our tax bills low.) Finally, the majority of our savings were eventually invested in low-cost index funds. Those three factors were the keys to growing our wealth.
ESI Money readers need to realize (if they don’t already) that as your net worth grows, you begin to develop a wealth-building mindset. There were times that my wife and I were shocked how much money we were socking away on our “puny” teachers’ salaries. After all, aren’t teachers supposed to be poor until the end of time? (Trust me, that’s the vibe in the teachers’ lounge.) These days, we view teaching as an awesome financial opportunity thanks to all the tax-advantaged accounts available to teachers.
Years ago, I used to bellyache about how unfair life was and how bad teachers had it. I’m so glad I mentally “flipped the script” and took charge of our finances. You’ll never catch me hoping and praying for a 1% pay raise at the behest of a state legislator. The bottomline is that an ESI Money plan can do more for your wealth than any politician or government plan. Your financial solution watches you brush your teeth every day!
Finally, I need to highlight this fact: nothing has been more effective for growing our net worth than our Hardcore Savings approach http://www.millionaireeducator.com/2017/01/how-we-saved-500000-in-4-5-years.html.
Why? First, it’s easier to save 70% of your salary than it is to get 20% return on your investments.
Second, saving 70% or more of your salary is like hitting the fast-forward button on your net worth. Watching your net worth mushroom can be incredibly motivating…I know it was for us!
Third, hardcore savings helps you avoid a very unpleasant reality: if you save nothing, you will have nothing…it is that simple. It’s crazy that I have to even write that, but many people think that a financial Santa Claus is coming to their rescue. If you aggressively save your money, you won’t need to be rescued. Plus, you’ll gain a sense of financial control that is empowering.
- Save 25-40% of your take home pay.
- Invest it in index funds and, if you have the personality, in rental property.
- Maximize your income.
- Plan your life after work starting in your 20’s. Saving enough money is easy but retirement life planning is tricky.
Earn, Save, Invest is great fundamental advice just as this blog states again and again. These are the three legs of a stable long-term financial strategy.
Beyond these fundamentals we would add the following:
KISS: Keep It Simple, Stupid – Your investments do not need to be complex and actually there are great advantages to having a simple, straight forward investment strategy. Do not invest in things that you do not understand well. It is the recipe for disaster.
Think Long-term: Focus on long-term objectives. Learn how to separate the data signals from the background noise. Ignore the short-term drama unless it offers a purchasing opportunity.
Embrace Frugalness: Frugality is your ally. Embrace frugality as often as you can. Spend when truly needed but spend mindfully.
Appreciate Opportunity Cost: Understand the financial benefits of saving a dollar today and what that can mean 20, 30 or 40 years from now.
Perfection is Overrated: You do not need to be perfect with your efforts. Get the major items directionally correct and move forward. Do not get hung up on perfection.
Lots of good stuff, huh?
To read more on this series, check out part 4 here.
Loads of great advice here. Thanks. If you take all these tactics they sort of add up to Naval Ravikant’s strategy: don’t play zero-sum status games. Instead play positive-sum wealth games.
“I have two AOL friends …”
That’s a blast from the past.
I love these condensed bites of advice! Glad to see someone else doing some side income of teaching online, it’s really fulfilling and like they said can be done from home.
I see a lot of themes here, but one I’m wanting to learn more about is Use other people’s money. At what point do you diversify away from single family rentals and how much risk is too much?
Liked, “Don’t assume that family members will be happy for you or supportive when you have the stress of a windfall.” It’s absolutely true that some you love won’t love you once they find out and you won’t do what they want you to do for them.