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…
Father: Firstly, I closely watched and managed my spending. Ensured that I never spent more than I earn and tried to aim for saving at least $30K a year if possible.
In the past I focused more on earning through finding opportunities that could use my skills and then finding the market value for the position and striving to be on the high side of the market range when in the job. To achieve this ‘premium’ you need to deliver more value and consistently be successful on any projects that you take on. If you keep doing that then people recognize your value and then at that point you can charge more for your services.
As a consultant, I charge the number of days for a project based on what the average person would charge for similar services but can do the work much faster. Then I’m able to pocket this difference.
Most of my net worth came from my own work and efforts versus investing.
Initially I read magazines on investing. Years ago I had $60K saved up and could get 4% interest on it at the bank and I thought that if I have a very well developed investing strategy I could make 8-10% per year. But for the number of hours required to research and maintain this, it wasn’t worth the effort as the percentage difference on this level of savings was a small overall number.
However I also realized the persistent effects of inflation on reducing purchasing power so felt compelled to invest. So I put some money into a single stock and barely broke even and I also bought silver on margin and again barely broke even. I then concluded that this game of speculation is difficult to win and stopped investing this way.
Now I use an investor who runs a balanced portfolio and he manages this for me. I am willing to pay the fees to him to manage this for me. I had other advisors who weren’t very good but my current advisor has done well for me.
Son: The majority of my net worth came from earning and saving.
Like my father I grew up being averse to investing (I wish he told me the last part of his answer 20 years ago!) and my experiences were limited to unsuccessful speculation in the stock market and with mutual funds that produced similarly poor results like my father and I stopped investing and kept my savings in the bank earning interest for many years.
After having my daughter my time horizon for investing began to crystallize and I began reading a lot on stock market investing and income investing. Three years ago I started to build up a dividend paying stock investment portfolio and that has been progressing slow and steady.
I never used an advisor as choices are very limited for Americans working overseas (too many compliance regulations so there are few to nil low cost advisors who take American expats as clients) so I became a do-it-yourselfer.
I believe over the long run that this system will be successful and having a sizeable starting portfolio helps this. Obviously it would have been better to start this strategy back in 2009 or 2010 but it’s better to figure this out later than never as I still hopefully have many years in front of me.
The key lesson learned though is that having a high savings rate for the first decade or more of working is far more important than having outsized investment returns.
You will notice that I don’t have a lot spare cash handy as I’ve fully deployed it in the market. Eventually there will be a correction but nobody can predict the shape and pattern of this. If there is a major crash that is sharp and V shaped the risk is that I won’t have much free cash to take advantage of some potentially nice bargains. However I’ll keep plugging at this steadily for a few more years.
If I continue working then it’s no big deal but if my job were to evaporate suddenly together with a major crash in the market at the same time then this will produce some stress. However with the level of cash coming in from passive investments we should be able to survive.
I started investing when I was 14 years old. Seriously.
My father literally had $20 in his pocket and my mother had $28 in her purse when they were married and both came from very humble backgrounds. They were both the first to go to college in their families. They both worked incredibly hard and diligently saved throughout their working careers (Navy Commander and School Teacher).
At a young age, my parents (my father primarily) instilled in me the principles of saving and investing. So when I was 14 years old, he took me to see his financial advisor who sat down and he explained my parents’ financial plan to me and the projections for their net worth over time. By the end of the meeting, I had opened up an IRA and funded it with $2,000 that I had earned working that summer. Seeing a projection with millions of dollars in the future for a little bit of money now was amazing to me. I learned the magic of compounding interest and time.
When it was time to go to college, I was not able to earn any scholarship money because my parents had sacrificed since I was very young and had been investing $75/month in a UGMA account for me for many years. I learned this was considered a child asset for purposes of financial aid. So I was 18, that money became mine, and my parents gave it to me to use to pay for school. (It had grown to roughly $30,000). Because I understood the time value of money, I decided not to use it and let it keep growing.
So, I hustled in college – I worked side jobs and each semester I came up with enough money for tuition and books. My strategy was that I went to a 2 year community college (to save on tuition and lived at home to avoid room & board) and then transferred for my final two years to a very expensive private university who provided me with a partial merit scholarship taking the tuition from $20,000 to $5,000. I continued to live at home and commuted.
I graduated debt-free because I worked HARD during school – I even took a semester off for a crazy cool work opportunity and then had to make up for it by taking 20 hours/semester and summer school so as to graduate “on time” still in 4 years.
Not only did I graduate debt-free which is amazing itself, but because I didn’t use the investment account that my parents had saved for me – I started out with $40,000 in net worth the day I graduated as that account had grown. I used some of that money for a 20% down payment on a small home when my wife and I were married.
Since the day I graduated college and got a “real job”, I have consistently invested a % of my income – thinking back I believe I maxed out my Roth IRA and later my wife’s Roth IRA every year.
I married extremely well! My wife was raised with a very similar family story – her father instilled in her a very similar mindset – no debt, buy what you can afford, save, invest. We married while she was in college, but I had already graduated. I paid for her college tuition and she worked some while in school as well. Together, we paid 100% of her college education and she graduated completely debt-free from a hyper competitive school with a 4.0 GPA. She is wicked smart and a hard worker.
She worked for five years to start out our family, and primarily worked to earn enough to buy her dream car: a brand new SUV for cash. We never let her income be a part of our budget because we knew she would not work long term so we lived exclusively on my base salary; never her money and never any of my bonuses.
When we were ready to have children, she simply stopped working and retired! 🙂 And we didn’t miss a beat financially and didn’t have to downsize.
I started investing in the company 403 b program when I was in mid 20’s.
The past 10 years my salary has been at a sustained high level. The last 7 years I maxed out my 403 b and 457 plan contributions $18,000 per year per plan.
Additionally I have been investing in real estate for 25 years. My first house was a duplex. When most of my friends were buying houses with a mortgage of $1,000 per month, I chose to live in a 1st floor apartment in a building I owned and rent the 2nd floor unit. My part of the mortgage was only $250 per month.
I continue to own investment properties which yield strong positive cash flows and year over year market appreciation. My wife and I have a marginal propensity to save vs spend.
Well as I stated above, I decided I was not going to be in a situation where I was broke like my parents were/are. I’ve always worked and when I would get paid I’d save a significant portion. I can’t say I did this every time but I saved early enough that for some crazy reason it really made a difference. Must have had something to do with that whole compound growth rate thing I hear people talk about. 🙂
I started to read everything I could about finance. I’ve read so much about finance I couldn’t stack all the books in my house, but without question the best thing I came across early was from the guys at “The Motley Fool”. Essentially what I figured out was virtually no one out performs the S&P 500 index over the long time so don’t waste money on fees paying for under-performance via a managed mutual fund or full service brokerage house.
The majority of our net worth was gained on Wall Street. I did, and still do, a lot of home remolding and building so we’ve saved A LOT of money by me doing the work rather than having to hire it out. I can’t explain why but I virtually never hire someone to do work for me that I can do myself. I had a neighbor once tell me that “I was quite a Renaissance Man”. I don’t know what that means but I think it’s a compliment.
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).
We spent the first three years of my career in a small town and nearly broke, with me earning an entry level, rural banker’s salary and my wife in veterinary school.
We got by, I carried all the living expenses and used student loan debt for school. School was tough and we wanted “stuff”, but looking back we had fun.
When we moved and both started working, our lifestyle inflated with a new car, house, but we didn’t stretch ourselves significantly.
I would say to start, we did the basics, didn’t borrow too much, still contributed to get the match in retirement accounts, be reasonable on spending (even though we spent hard on vacations and eating out).
2009 was a real shock to us, my wife’s employer started experiencing money challenges and I worked in banking and saw layoffs of my peers at other banks. We realized this nice slow and steady path could in the words of the great 1980s philosopher Mike Tyson “get punched in the face”. (You know, everyone has a plan until they get punched in the face). We had roughly a $100,000 net worth (made up mostly of a housing gain plus my 401k) earned $120,000 combined, but were spending a bunch of money going into 2009.
The year turned out okay, my wife was able to move employers, got a nice pay increase and shorter commute, then my income really accelerated and we never spent more money. We also started figuring out that neither of us might want to do these jobs into our 50s. We took our first trip to Hawaii and said “it’d be nice really not to have to go back to work”. At that point we were focused on saving and investing, then add finding MMM in 2012 and we realized it was much closer than we thought.
The biggest piece(s) of advice I have is:
- Save $100,000 to $200,000 outside of retirement accounts. Early on I missed on a number of investment options (residential rental real estate) because of my fear of lack of liquidity. There were also no borrowing options really available in 2009. Now I find myself making long-term decisions and it removes the psychology of “I can’t afford this” and moves it to “I choose not to buy this”.
- Utilize all of your tax advantaged options. This is more than just maximize the 401k. Depending on your industry, it’s also worth finding an employer with a deferred compensation/457 plan. Utilize your Roth IRAs early because you’ll probably out-earn them. Fully fund an HSA. Thanks to the pre-tax cushion we now have above, we defer 40%+ of my salary + bonus into pre-tax accounts.
Mostly side hustles with property.
Our main residence was purchased in 2006 has appreciated significantly.
Equity withdrawals and encashing some savings have enabled the purchase of 6 flats that generate rental income and capital appreciation. 100% of most debt has been invested.
Some of my emerging market investments in India and China have done extremely well but as the overall amounts are not as large as property investments, the impact on overall net worth is also less.
My strategy, as it were, is significant capital appreciation of my expanding property portfolio and a few high growth equity investments (ETFs for UK SMB & China & India Equity), the key here being that none of these will be touched over the next 20 years so that they can continue to appreciate (hopefully!). These incremental investments come from capital appreciation.
Other than these “untouchable” investments, once I put in a target amount (say USD 135K for developed world equity ETFs) any appreciation on an annual basis I reinvest in other areas to create a balanced portfolio (so in this example, if there is a 10K annual appreciation, I leave 135K as it is and invest the 10K gain in something else that is a planned part of my diversification, say a bond ETF).
I have been incredibly fortunate and lucky in my career.
Before I sold my other business in July 2014, I had a net worth of approximately $1.6M. Once I sold the business, I was able to net another $2M or so which greatly enhanced our net worth.
My wife and I have always lived below our means, kept our vehicles for at least 10-12 years and saved and invested diligently.
For the past 10 years or so, I was fortunate to earn a salary of over $100K. My wife’s salary was always banked and invested and we have always lived on a portion of my pay.
As I mentioned above, I grew my net worth through investing early (I started in my 20’s).
Although when I was younger I was more of a trader than an investor, I learned more through reading (mainly newspapers and magazines) the importance of investing for the long run and the years in which you have extra money, don’t spend it, save it and the years it is tight keep maxing out your 401k at a minimum.
We accumulated our wealth through diligent saving and investing.
We have always tried to live below our means and save the difference from day one. It is a slow and steady race with a simple formula but it requires discipline and ignoring what others are doing.
Earn, save, invest.
We have always kept our expenses so that we could live off one partner’s income if need be.
We didn’t listen to mortgage advice to borrow as much as possible. We also paid off our first home ($200K) in 7 years.
We have saved in company 401k’s that are invested aggressively because we are many years from retirement.
As I mentioned I was given stock options at my job at AOL.
I worked there six years. The options vested over four years and I was given subsequent tranches over the years working there, so I while I was fully vested for most of the options, I did leave with money on the table.
It had become a bit of a golden handcuffs situation, and I decided I wanted to go to graduate school, do other things.
Making a lot of money, while a wonderful byproduct of my time working there, had never been a driving interest in my life, so I was fine to leave and explore other things.
Given that my situation was rather unique, I’m not sure what principles readers might be able to apply. However, I did try to not spend as if I had a large net worth (and still don’t), so while I had a leased car for a few years while working there (on advice of my stepfather, totally think leases are dumb), I then paid cash for a used, low mileage, Volkswagen Golf which was a 1996 and I finally got rid of that in 2011, to buy a used 2006 Prius, which I currently drive, so the things readers can do is keep your life as small as you can without feeling like you are depriving yourself.
Also, it important to understand the tax implications for the exercising of options and buying out of shares. I think understanding that is very important. I had coworkers who were above me going to no income tax states to set up residence and elaborate things like that. I didn’t get advice like that, so wasn’t that informed.
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Lots of good stuff, huh?
To read more on this series, check out part 5 here.
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