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:
How did you accumulate your net worth?
Here are their responses…
My income from my job has driven my net worth. I have focused on growing my career.
The income has jumped in the last few years after our company was bought out and I joined a much larger company.
As I mentioned earlier, I’ve never been a high wage earner and had to get creative to grow my balance sheet since I had a negative net worth at age 30.
Once I bought my first property at age 34 with $5,000 down, I moved in and started working on it to increase the value. This is called forced appreciation.
The next property was purchased with a low down FHA loan. It was a duplex and I convinced my wife that we should continue to live in small multi’s to build our cash flow and balance sheet.
Eventually, she put a stop to this madness and I ended up buying into the “American Dream.” This was a big house with a fenced yard in a fancy part of town.
Big mistake.
2 years later, she got the house and I got the rentals.
At the time, it was the worst experience of my life. Later, I discovered it was the best thing that ever happened to me.
I must admit, it was a humbling experience to go from the white collar part of town to the blue collar part of town as I moved into one of my rentals and recovered from the financial hit of the divorce.
Worse, I had a new major expense-child support.
Thereafter, I continued to live in 2 family rentals as I built my portfolio one property at a time. My kids didn’t care and they grew up thinking it was perfectly normal to have a tenant next door.
In some years I was able to purchase 2 to 4 properties. Other years, there were no deals and I would simply wait for a better deal.
All my properties were purchased by stripping equity from prior properties or reinvesting all my cash flow into the next deal. On some deals, the seller offered owner financing and I was able to buy these with 5 to 10% down. I’ve never had partners and had to hustle to raise capital.
Looking back, it was definitely not easy. I worked my ass off with these two jobs. Many times, I was working 7 days a week for a month straight. After the divorce, I’d work hard on my off week and less on my kid week.
When the markets collapsed in 2008, I was able to weather the storm by battening down the hatches on expenses and making sure all my units remained full. In some cases, I had to lower rents to maintain cash flow to service mortgages.
Fortunately, I never got over-extended on real estate loans and never had to sell since the cash flow after all expenses covered my bills. This is the beauty of buy and hold real estate. As long as it cash flows, you can survive market cycles.
My financial advisory business got crushed from 2007 to 2009. Revenues dropped 50% and the real estate portfolio kept me alive. A lot of financial advisors went under back then due to their extravagant lifestyles. Thank God I had a second source of income and never suffered from lifestyle creep.
Today, I continue to live below my means while reinvesting into my real estate portfolio to increase the cash flow. I don’t have to work as hard and can sleep in or simply take a weekday off just for fun.
Pretty much your exact principles at ESI. We’ve been playing boring baseball, but we’ve been playing it with discipline and consistency for years now. When the housing market tanked in 2009, it didn’t bother me, I didn’t panic and sell the house, I could still afford the payments and liked my company and our area of the country. I also didn’t panic and sell stocks, in fact, I took it as an opportunity to up my retirement contributions to the max, which I have held every year since then.
We’ve always had a budget and while we haven’t always stuck to it, it at least gives us a conscience about our spending, and also lets us track where money is going and make tough decisions together if/when we need to. And our budget has always had at least $500 or so of “gap” in it to either allow for unexpected items, or to have some cash savings to stash away each month.
My goal has always been to live off half of our base salary and invest the rest and any other extra income like bonuses and stock grants. I have to say that I have never achieved the half goal, but I’ve gotten close. Our annual savings rate has always been over 40%. We also bought a house with a 20% down payment (with the money coming from a grandparent and a signing bonus at work and the money we saved in graduate school) and a 15 year mortgage that we refinanced later to a 12 year mortgage. Then we paid it off within 9 years and we still live in the same house.
The biggest contribution to our net worth is my income and our diligent savings every month. We continue to invest every month regardless of what the market does. We start by maxing our 401Ks and IRAs and then investing in taxable accounts. We started by putting in $100 a month 20 years ago in a taxable account and it is up to $5000 a month now. If I get a pay raise, most of the after tax increase goes to the investment account. With my increasing salary, our lifestyle has not crept up. I have been doing a back door Roth since they became available. Monthly diligent investing over 16 years allows you to build a nice nest egg, especially with market tailwinds. Compounding is a beautiful thing, when you are an investor.
Early in my investing days, I put money into some balanced funds and target retirement funds. They have too much turnover, too much capital gains, and they keep too much cash. I really should have stuck to index funds. I also didn’t pay much attention to keeping my dividend earning funds in tax sheltered accounts and others in taxable. I should have paid a little bit more attention to tax strategies, but, I was too focused on building the nest egg.
Always was a hyper saver, just did not spend money frivolously, even when everyone around me did. I avoid almost ALL financial temptations.. I love gadgets and other cool stuff too… does not mean I need to have every one of them, or have them immediately at highest price… My kids all have iPhones now. My parents and friends passed to them as they upgraded to knew ones. We don’t ask for hand me downs and don’t act poor, but we often take things that folks just don’t want and it is nice to us… simple folks.
Another thing that helps a lot, my wife does all the cooking at home. She does not work now, she stopped working after our 2nd child was born. She was never a big earner, so this made sense. Prior to her leaving work we were living off her income alone though I was making significantly more.
EARN: Worked really, really hard for 30 years to increase my salary as described above. 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.
Around 10 years ago, a friend gave us The Automatic Millionaire
book, and that book was the first of several financial books that we devoured. We followed a lot of the recommendations in those books.
But the foundation of it all really is owed to my wife. She knows how to stretch a buck.
She worked for many years and was the top earner in the house. During those years, we never touched her salary. We only lived from mine. To this day, we try not to touch my salary until we have depleted the passive income money.
We still use coupons, we do not drive fancy cars as daily drivers, we never fell into the trap of buying a bigger house. We live in a nice enough neighborhood and I love mowing the lawn with a cheap push mower.
We use craigslist quite a bit. Especially in recent years for baby items and toys. I do not think we have spent more than $50 on toys for the little one as most toys have been free or close to free using craigslist or similar sites. Small kids can’t tell the difference if something is new or not. They just love to play.
A large part of our net worth is tied to the 401k. It’s incredible how that money has grown. I am just sad I don’t have access to it right now, because I would be fully retired if I could access it.
Father: Following common-sense tenets of PF, and a bit of luck. I don’t want to talk about mistakes. 🙂 Some of it was timing (inflation, S. Cal housing market increases, taking calculated risks, making the right choices when decisions had to be made). A GI loan at low-interest rate financed our first home.
Son: My father taught me to read stock tables, back when there were stock tables. He helped my brothers and I set up savings accounts. I remember my first piggy-bank, the kind you would insert coins and they would roll into the correct respective columns. The concept of saving, and spending less than I earned even at my first minimum wage jobs, was always practiced. I had a full-time job, and at least one part-time job, into my mid-30s. I invested in CDs until my late 20s, and then began saving and investing in equity mutual funds. The advantages of Index funds led to them as my core holding. One advantage my parents conferred upon me, was allowing me to live at home after college for several years while saving for a house. No way would I have been able to supercharge my savings start without their generosity. My spouse got on board with the FI/RE goals, and for quite a few years our incomes went to 40% savings, 30% taxes, 30% living expenses.
My wife and I stumbled onto home flipping. We built the core of our nest egg buying ugly homes and remodeling them while we lived in them (live-in flip). The beautiful thing about a live-in flip is that we never paid any taxes on our significant profits because of the IRS 2 out of 5 year rule.
I highly recommend this strategy for anyone who isn’t afraid to put in a little elbow grease on nights and weekends. Just do it before you have kids.
I have been actively investing since I graduated. I maxed my 401k, when my income allowed for an IRA I contributed, when a deductible IRA was disallowed because of income limits I saved in my taxable account and in the kids 529’s. I believe I have invested well, I am a buy and hold investor making about 5 trades a year. I took advantage of harvesting capital losses in 2008 and making sure to abide by wash sale rules, bought back many of the stocks I sold. I still have capital losses from that time/event I use to shield gains today.
When I got raises I “paid myself first”. When we made less we drove older cars, had a much smaller mortgage (did not pay more than $2,000 a month until a few years ago) and took cheaper vacations. The secret for me was to always pay myself first and to “bank the bonus” — through deferral if available. Early on I invested more on buzz than fundamentals and investing in things you understand and as a result I made some bad decisions. I have never owned a bond or an income stock and I invest in growth segments and do my own research. About 5 hours a week.
When we got married we were broke. We started with the basic principle of pay ourselves first because we knew if we didn’t, we would spend all of the money and there would be nothing to save. So we started our 401k off at 6% to get the tax deferred company match and set it up to increase 1% each year at raise time. This way it increased without us even feeling the pain. We were 100% invested in the stock market as we wanted to be aggressive until we made the money that we needed to retire. We figured we had time on our side and any crash would be a buying opportunity.
As our earning increased, we started to save and invest money on our own. Initially I tried picking stocks, but I learned the hard way that the best way for a normal guy to invest is to use index funds and dollar cost average. So that is what we did after a couple of investments in single companies went south. That was the best decision we’ve made! Now as we have gotten older and are being a little more conservative, we shoot for 75% in equities and the rest in cash, bonds, and our home. We rebalance once per month so if the market is up, we sell some stocks and buy bonds, and if the market is down, we sell some bonds and buy stock at lower prices. Typical stuff. We do this in our 401k so we avoid taxes.
We have always maxed out our 401Ks and IRAs when we were eligible and invested extra money at Vanguard in cheap ETFs and never stopped investing even in 2008-2009. I probably put an extra $75K-$80K into the market during the down time to buy stocks on sale. I would say that paid off well, but in general, we save a ton of money so we can retire early. We are saving over $200K a year between 401Ks and Brokerage. We will both have a pension, but mine will be relatively small since I will only be with the County for 8 years. I am out the day after I am vested.
My wife hates shopping. She isn’t into clothing, purses or jewelry. I don’t golf or own a boat. My most expensive hobby is snow skiing and Scotch. We are way more into travel and experiences. For her 40th birthday, we were in Italy and we went to a 3-star restaurant for her birthday. I spent $750 on dinner, but we stayed at a five star hotel on points and saved $2,400. We are always trying to find good travel deals, but will spend the money when we find the value.
My net worth was achieved by simple ESI. I worked hard and that paid off in gradual increases in my compensation. But the big factors were:
1) We always saved from day 1 and this forced us to get used to living below our means.
2) Whenever I got a raise, it was allocated to increased savings whenever possible vs. simply increasing our lifestyle and spending.
3) Bonuses and any tax refunds were almost always treated as windfalls to savings and not spent.
4) Since my mid-30’s I’ve always maxed out my 401K. (wish that I started earlier).
5) My MBA focus was in finance and I became a student of the markets at an early age. I also had some great professors that taught the futility of trying to beat the markets and the benefits of indexing (this was in the early 90’s so well ahead of the curve here). So when I refer above to “savings”, I really mean investing in the stock market via mutual funds. While early on I did dabble quite heavily in actively managed funds, over the years I’ve gradually weaned my portfolio to be heavily indexed. My investments have always been 100% stocks with zero bonds. I have only recently been building up some cash and short term bonds to restructure my portfolio for retirement and to provide a buffer against any sequence of returns risk. Except for very early on, I never buy stocks directly.
6) We avoided debt whenever possible. Besides a mortgage and some car loans early on we never financed anything or accumulated credit card debt. We always bought slightly used cars and either financed and paid it off early or paid cash. And we always drive them until the wheels fall off.
7) Have a plan! In my mid 30’s, my company was going through a merger and many people were being laid off. During this very stressful time, an older guy in his 50’s (that used to be old) collapsed in his cube and had a heart attack. He had kids in college and needed his job badly. Well he survived but that made a huge impact on me. I then built a spreadsheet to track my investments and net worth and established the goal to reach $1MM by age 55 and to retire. I did not want to be that guy. Well I reached this goal several years ago and I’m only still working because I enjoy it and I choose to. You cannot reach your goals without a plan! It’s critical to have a plan and track your progress.
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Lots of good stuff, huh?
To read more on this series, check out part 3 here.
Always enjoy a good refresh.