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…
Do know yourself and how to overcome anything holding you back.
Do care about your career and make as much money as you can while you can.
Do buy the house that you need to live comfortably.
Don’t buy as much house as you can afford (or the bank says you can afford).
Do buy a nice car, but don’t spend too much.
Do reduce the amount of interest you pay for anything (pay cash when you can).
Do use credit cards with cash back and pay them off EVERY month without fail. This is one thing I didn’t do in my younger days but did learn that lesson pretty early. I got to the point where I had $0 balance on my credit cards but married a woman with significant credit card debt and I did finance the engagement ring. — Hey! Give me a break I was in love! Once paid off, I never went back there again.
Do enjoy life! I may not have saved as much as I could have, but I did enjoy nice things and experiences.
Here is where I’m wondering what I could have done if I’d have had a passion for my chosen field. Don’t get me wrong, I’ve had passion for work missions, goals, etc. but I realized at a point that I didn’t love it. I thought about switching careers and doing something that earned less money (I wanted to be a teacher). My leadership positions did afford me many opportunities to teach and I value that, but what if?
Choose your partner in life carefully, just start saving whatever you can, and become content with what you have (to live below your means).
Trust me, having been in third world countries and in combat, we Americans have a pretty sweet gig even if you aren’t a millionaire.
Spend less than you earn.
Avoid debt.
Save money and then find an opportunity to deploy capital, buy a business or some investment that will take off. We live in a great country for opportunity, but a lot of people are so negative and won’t open their eyes to anything.
This is where I get a lot of inspiration from immigrants, who often come here wide-eyed seeing opportunity. I know some Persian families who were wealthy in Iran, but then had to escape the Iranian revolution with basically just the clothes on their backs, but then became wealthy here. It is really a mindset and works the other way too as we have all sorts of examples of people winning the lottery and then becoming broke again in a few years.
Live below your means! Become the millionaire next door!
If you ever saw me outside of work you would never guess I was a doctor or a millionaire. I typically wear jeans and a t-shirt and am frequently muddy or greasy from working on my cars or gardening and would have it no other way.
I do all of our car repairs as well as house and lawn maintenance because I can and I want to. I drive a 10 year old Toyota and never flash my wealth.
Our neighbors (all of whom drive fancy foreign imports) probably think we are barely making our mortgage payments and living paycheck to paycheck while the opposite is true. I know for a fact most of them are tapped into home equity, carry heavy credit card debt, lease their fancy cars, and only have the appearance of wealth.
While we live frugally, we certainly are still living a great life averaging 3-4 vacations per year and spending lots of time at our cottage. As a famous blogger has said, “We can have anything we want but not everything we want.”
Once you obtain significant wealth, it is also essential to protect your wealth. Be sure to have adequate disability insurance from the start as well as a large umbrella policy to cover any possible issue that may arise.
There are many different ways to become wealthy, but the real trick is to have the discipline to stick to whatever game plan you’ve put together.
If you’re not allergic to corporate work, try to become a better team player. The individuals most likely to get put on big programs and projects are great with people and have a track record for getting shit done. Pretty easy equation, right?
Beyond that, be sure to diversify. Having a business is a huge way to mitigate your tax bill. Real estate is especially lucrative, if you couple good properties with a savvy accountant.
Keep that snowball rolling. Your 401K may look small at less than $100K in your 20s, but compounding will pick up speed over time and before you know it, your $100K has turned into $500K then a million and so on. Just be sure you study your 401K offerings, and choose the lowest fee index funds (those that track the S&P 500) if they’re available.
Start with buying your first house as soon as you can afford it while building your 401k to put you in a position to invest and build wealth.
Owning a home offers stability and one of the best tax advantages available with no tax on the equity earned from your primary residence after two years living in it.
Buy a good enough home and recognize it for what it is, an investment and likely not your dream home. Live in it while gradually fixing it up, sell it after two years then buy a nicer home again with equity you can build on…rinse and repeat until you have the home of your dreams and investment money in your pocket!
In general be patient with your investment choices, especially real estate. There is nothing wrong with slow-growing your wealth by investing in your retirement accounts and index funds month in month out and compound that over time.
When you see the right opportunity having that money in your index funds or equity in your house to leverage will allow you to take advantage as we did in the Portland real estate market from 2013 to present. Take your time, build that base and be ready for the next real estate or market swing.
I can’t emphasize enough how important patience and due diligence are in making good investment moves. Your net worth will go up more by saving money on the bad investments you didn’t make vs the good ones you did move forward with.
Read The Millionaire Next Door
.
Everything in this great book is true. Very simple advice provided by this book works: make as much as you can, spend as little as you can, invest continuously, don’t fall victim to trying to keep up with the spending of others.
We could certainly spend more than we do and give a much greater appearance of wealth to the outside world, but it would not be wise. We have a modest house, older used cars, live in a middle income neighborhood with happy kids, but we are looking at an option to retire in the next few years – it’s a very nice feeling.
It is so much easier to deal with work knowing we don’t really have to do it anymore. An expensive house, expensive new cars, flashy stuff are all tempting, but would all wipe this out quickly and put as back onto a mandatory 20 year trip on the work treadmill.
Choose a spouse wisely that will help you along the financial journey rather than fight you (assuming it’s not too late already).
Delay gratification, if you need to finance or borrow for it, you can’t afford it. Even if you have enough money to buy something, always ask yourself, do you really need it?
Avoid debt above all. Only exception is a home and maybe an education, and even then only if the education will provide a return on the investment in the form of increased earnings. I see lot of people getting into huge debt for nearly worthless college degrees. If you are going to get a degree, get one that results in enough pay to cover the cost of the education and a lot more.
Track your spending. Track your savings. Know where your money goes. Make sure you are always saving. If you are not saving change something ASAP to get yourself back on track.
I love Quicken, it’s great for doing this. I can tell you exactly how much we spend on just about anything. If you can’t do this, setup direct deposits and payments in a single account. This way, with all your money going in and out of one spot you at least you know the overall big picture – are you gaining or losing ground?
There is such a lot of good and consistent advice on this website from the other interviewees, I am not sure what I can say to add to it. I look at myself as someone who has done a decent job earning, not such a great job saving and a below average job investing. I have already given my advice above about earning. As far as saving is concerned I do believe you need to save at least 15 – 30% of your gross earnings every year. More if you possibly can.
One of the reasons I have loved doing this interview is it gives me some time to reflect on the past and what I have learned.
In 1993, when I had been working for almost 5 years, I moved to the city my then girlfriend-now-wife lived in. Absolutely everything I possessed fit into my car (which I had bought for about $1500).
I did not realize it then, but I was a hyper saver, and a devotee of Marie Kondo (“The Life Changing Magic of Tidying Up”) 20 years before she wrote the book. I only bought things that I absolutely needed or which brought me great joy. Of course, that all changed with marriage, kids and a house – I would now need three bloody semi-trucks to hold all my stuff…
The entire capitalist system is designed to (a) give you as little money as possible and (b) separate you from it as quickly and as regularly as possible. You need to work very hard every day to ensure that you earn as much as you possibly can and that you keep as much of it as you possibly can.
However, don’t be frugal to the point of pain – enjoy the fruits of your labors, and treat yourself now and again – enjoy yourself and live every day to the fullest, (once you have saved 15 – 30+%).
Think long and hard about what it is you want to spend your money on – what is it that gives you joy? Where we differ from a lot of other ESI Interviewees is the % of our net worth in our home has always been very high. That will probably change as we move into retirement.
Another area where we probably differ from a lot of other interviewees is with individual stocks – we probably hold around 20% of our net worth in individual stocks and they have all done pretty well.
Around Christmas 1992, when I had saved $7,500, I read an article in the paper recommending 5 stocks for 1993. I bought about $1500 of each stock. I had to find a stock broker in the yellow pages. That year one of those 5 companies went bust – Ferranti – a 110 year old electronic and defense company – and one of them lost 50% in value.
However, the other three did really well and after 1 year I cashed out about $11K. I felt like I had dodged a bullet and it would be another 5 years before I bought another stock. But occasionally I will look at a number of Kiplinger or Bloomberg recommendations and buy them in groups of 3 – 5, so there is at least some diversification.
As I was completing this interview I asked myself what actual advice have I already given to my kids – so I asked them this past weekend as we were going out to lunch. Their responses:
Kid #1: “Yeah yeah Dad – you never shut up about it – we’re supposed to work as hard as we possibly can and save 30% of our income – I get it. Now can we go to Chipotle?”
Kid #2: “Yeah yeah – get into a growth industry, work hard, focus on relationships and a bunch of other stuff I can’t remember.”
I hope it sinks in with them!
I remember reading a book about the 5 big decisions you will make over the course of your lifetime:
- Where / how to get educated
- Where to work / what to do
- Who to marry
- How to raise your children
- How to live a healthy / positive life
If you look across all the ESI interviews most of them have done an excellent job in all of these areas.
I got lucky with numbers 1, 2 and especially 3. I am still working hard on numbers 4 and 5 – and making plenty of mistakes along the way.
I’m ultra-passionate (as you can probably tell) about this topic and may even do this in my next phase, even though I’m not “certified”.
All of my answers to these questions are woven with my own personal tenets for wealth creation. I consider myself to be lucky with where we are at even though our sum could be considered modest. A few tweaks, a different decision or two, earlier realizations and more patience would have yielded many times what we have amassed thus far.
The best advice I could give would be to:
- Start as early as possible
- Be very mindful about each dollar placed
- Don’t be afraid to take calculated risks
- Be consistent
- Take advantage of all tax advantaged opportunities
- Regardless of what/where you save, increase that amount every year, even if it is 1% or less.
But most of all:
PAY YOURSELF FIRST
Set up a Goal and have a Plan. When you are young doing this may not be sexy or exciting. Having said this, I did not practice what I am preaching.
I cannot say that we had a goal in mind or a plan written down. What we did have was a pay ourselves first and live within our means mentality. It is a blessing to hear your financial advisor tell you that you can spend a little more on fun things and still be fine in the end.
Don’t worry about the Jones’. You know the saying “Keeping up with the Jones’.” Well, you are not the Jones’ nor should you want to be them. Be yourself.
We have been thrifty. We did not buy the latest new thing just because friends or neighbors had them. We did buy cars new and then we drove them into the ground for 8-10 years. Recently though we had to buy two cars at one time as a result of a natural disaster, so I bought them used and paid in cash.
By the way, it’s ok to be a Jones as long as you know what all that flashy stuff is costing you and how it impacts your ability to achieve FI!
Don’t just blindly listen to anyone. Especially around what your expenses will be after you retire. The old rule about needing 70% (or more) does not apply to everyone.
Start looking at your own finances and then look out to spending AFTER you retire – with no kids, hopefully no mortgage/auto loans, moving to a lower tax State, etc….
Know, or find someone who does, about social security, medicare, etc….For young people I know this seems like it is way far out on your timeline. I started really reading and asking about age 45 to make sure I got my head around these topics.
A challenge is that the rules of today will (notice I did not say might) change in the future. I had to find experts on these topics since attempting to read federal rules is mind numbing.
Live within your means and just because you can, does not mean that you should.
Mindset is key. I know that many people are brought up in an environment that is the complete opposite of wealthy. So it’s important to expose yourself to something different as you get older. With technology, it is very easy to do that now.
Education, information and ideas are available online and accessible to everyone. Most personal finance concepts are pretty simple to grasp with just a little reading or listening and it will be one of the best investments you make.
Once your mind is open to the fact that wealth is achievable, you will find the simple formula for becoming wealthy: live off less than you earn, and invest the difference. You can accelerate your wealth building by earning more, investing more, cutting expenses (including taxes), and staying away from debt. None of this will happen overnight but you can make one step at a time in the right direction.
I have learned that there are three primary ways to become wealthy and those are through: 1) Real Estate, 2) Entrepreneurship, and 3) The Stock Market…choose the one that excites you the most.
Don’t let your past dictate your future. We all have challenges to overcome and you can’t let those keep you down. We all have a unique set of circumstances, so find the best way to use yours in order to propel you forward personally, professionally, and financially.
Haha. Can I say, “Earn, save, and invest?” 🙂
Pay yourself first.
Being married (or in a long term relationship) helps as living costs get spread.
When my wife and I got serious and moved in together and eventually married we had a joint net worth of approx. $300K which we had accumulated working about 20+ years.
15 years later its $1.74m.
Interestingly since we relocated 10 years ago for better work life balance (our income dropped by a third) our net worth has increased by approx. 80%. So we are proof you don’t have to grow your income to keep increasing your net worth.
When it comes to starting a business (and there are so many opportunities these days), be really good at what you do, charge a fair price, and live well below your means.
Oh, and, invest sooner than later.
It’s a marathon not a sprint.
Start young and max any employer 401k match.
Establish a budget and stick to it – live within your means while gradually increasing your 401k contribution until you max it out.
For younger investors, Roth is a no brainer (for me I have not been able to decide on a conversion).
If you never miss the money in your paycheck, you will not feel deprived from a former standard of living – so a typical strategy is to bump your 401k contribution by half of your annual raise. That way you feel an impact from the raise, but also advance your FIRE goal.
Evaluate the real estate market once you can afford a down payment (negotiate this in your job offer – a hiring bonus, or a lump sum relocation package). For me buy versus rent was always simple – we wanted to own our house, but it is not always the best decision in any given real estate market.
Don’t worry about what everyone else is doing.
Resist the urge to always drive a new car (we currently drive a 2005 and a 2013) or buy a new house (we have lived in our house for 18 years and are admittedly ready to move) – in general “keeping up with the Joneses” is a real thing and, in my opinion, should be avoided.
My view of most material things is function, not flash (automobiles is a good example – to me they are transportation).
I have made my money solely on stocks.
I am not a savant stock picker. For me it was:
- Make sure to invest monthly.
- Make sure I invested in good companies that I understand.
- Make sure that I keep up weekly on my investments.
I did not try to make money quickly or invest in penny stocks or the next best get rich quick scheme.
I am not a day trader.
I know if I waited to save until later in my life I would not be writing this article.
No matter how little (or how much) you make – save, save and then save some more every paycheck. Cash is king.
Create a job/life you want now so you’re not waiting to change it.
I finally stumbled into a life I actually like, and now striving for early retirement isn’t a pressing concern. It’s a huge mind shift. With that I’m on track to build real wealth that can change my kids or other family members lives forever, or really impact my community.
Aiming to accumulate just enough to sustain me for the length of my natural life and then retiring in my prime years to begin decumulation strikes me as a key example of thinking small.
Automate your retirement investments.
Read lots of books (and blogs).
Just get started. I made lots of mistakes in the early years ñ trading individual stocks too frequently, buying real estate (and maintaining it) at retail price, mistaking gambling for investing, violating wash sale rules. But the earlier you try things and learn from those activities, the sooner you figure out what works for you and set about building wealth that works for you.
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Lots of good stuff, huh?
To read more on this series, check out part 6 here.
I like, “Mindset is key.” Romans 12:2 says be not conformed to this world, but be transformed by the renewing of your mind to prove what is the good, acceptable, and perfect will of the Lord.” Our mindset (beliefs and driver of our activities) is likely the single most important key to becoming financially independent and wealthy versus living in continual lack and poverty.
I grew up extremely poor, but the Lord showed by through His word that He didn’t create me to be broke, busted, and disgusted throughout my life. Following Bible principles and obeying His instruction has greatly prospered us.
Agree, lots of good stuff and consistency too. Pay yourself first, live below your means, slow and steady wins the race. A couple I’d love them to expand on are making money loving what you do, and some say start a business. How did you know what business to start, what pushed you over the edge to dive in, what did you learn, etc. I know a few people who have businesses and seemingly do ok but they never take vacations!