I am a millionaire, but I don't feel like one. Perhaps the better way of saying it is it does not feel like I thought it would. Let's get back to that a little later.
First a bit about me and the family. I am a forty-one year old white male. Married for 12 years with two kids- a nine year old girl and a seven year old boy. I have an undergraduate degree in finance and went to night school to get an MBA. I have spent my entire career working in information technology (IT). Most of that time has been programming. I have a few stints in management, but it didn't take.
My wife works at home and has done so since our daughter was born. She volunteers at the kid's school quite a bit. I also keep her busy with a lot of the business activity. Our kids attend public school. We were going the private school route for a few years. When both were going to be all-day students, the bill was $18,500 for the year. By the time they are be in 2nd and 4th grade, the bill will be $21,000 and that was if tuition stayed the same. Fat chance on that.
I have started my own company. The dream was to have a big operation where I would have 50+ people working for me and spend my time running the business and helping bring in new clients. Four years into it, we are considered successful, but the big dreams have turned out to be little dreams. I have a few people working for me but the majority of revenue is still billing my own hours.
I come from a middle class home. My father worked for the federal government and never made more than $25,000 a year. I went to public schools. I am smart and my grades always reflected that. I graduated high school in the top 10% (barely). My father passed away when I was in high school. While there was life insurance, it was not much. My mom had to go back to work after staying home to raise the kids for 20 years
My career and savings started when I was 22 and graduated from college. 18 years later I can see several things:
I made some great decisions
I made some bad decisions
I made good decisions with bad results
There has been good luck and bad luck, which came whether intended or not Inaction that should have been action.
Some Good Decisions
Student Loans - I never had any. My undergraduate was paid for by scholarships and out of pocket. My employer paid for the MBA. I did not go to a big school, although I could have. The decision to go where I did, McNeese State University in Lake Charles, LA, was made out of finances. They offered a scholarship that covered tuition, books and a room. I was on my own for food. A little help from mom and some part time work took care of that.
I noticed that many of my friends upon graduation were paying off student loans. Every month they were paying a couple of hundred dollars. For them this went on for years. I was saving my money instead. This provided a good foundation for later.
Avoiding bad debt - I can remember one day talking to a friend who was about to get married. He had $8,000 in student loans, $10,000 in car debt, $3,000 in credit card debt and was about to get a loan to pay for his portion of his $30,000 wedding. He never told me exactly what he wound up paying for the wedding but I bet his portion was half. Here is a guy who is 25 years old and $36,000 in debt and all he has to show for it is a car and a marriage certificate. He was going to be paying that off until he is in his thirties and then start saving. I had a ten year head start for savings on him.
While I have had car notes, they were never huge and never more than three years. I put as big a down payment as I could. I have bought more used cars than new cars.
I pay off the credit card every month. I do charge everything I can. This maximizes the points. The bill has often been higher than what I want it to be. My wife and I have had more than our share of fights when I opened the credit card statement. In the end I made sure the balance never got up and we never paid interest or fines.
I recently had a conversation with a co-worker who told me she had $75,000 in credit card debt. This fascinated me because we had similar jobs with similar pay and are similar ages. How can I have so much and her so little? Her answer was it started small when she was in her 20's. She and her husband would carry a balance this month and go on vacation instead of paying for it. That balance never got paid. The next month they had an $800 car repair, adding to the balance. They had a cycle of accumulating bad debt for 15 years that resulted in $75,000 of debt.
Ground rules with the spouse - Before we got engaged, I wanted to go over finances with my then-girlfriend. I discovered she had $2,800 in credit card debt. I let it be known that we were not going to get engaged until she got it off the credit cards. She applied for and received a debt consolidation loan at a much more reasonable rate. This started the groundwork very early for us about what would be good and bad financial decisions.
My wife is not a money person. She is a spender and consumer. She impulse buys regularly while I seldom do. My saving has often been countered by her spending. I could have been a millionaire many years ago if she viewed money like I do. The things we do for love.
While we have fought, and will fight again, over money and spending, there have always been some ground rules. No credit card debt, do not touch the savings unless for another investment, save every month, try to avoid spending on the big things.
We have taken trips, bought clothes, had nice meals and remodeled kitchens. We temper these things. I try to delay these expenses and question if we really need all of it.
One thing that works for us was we created a separate checking account for her. Every month we transferred money into that account. Birthday gifts, baby gifts, wedding showers, clothes and her pocket money all came from there. These were the items that would get out of hand. More than once she was giving a wedding or baby shower with other people. It always seemed that one of the others would go out and spend an outrageous amount. The $400 dollar cake was my favorite. They would through the receipts in a pile, add them up and divide. Three showers in a month totaling $450 can bite you quickly. When these types of expense would come from our savings, she treated it like there was a bottomless well. When she had to pay from her own account, she started budgeting. The account literally saved our marriage.
Buy a house early - I bought my first house when I was 25. I paid $52,000 for it. It is a 2 bedroom /1 bath with 1100 square feet. I lived in it for 5 years. Four years being single and one after we got married. I still own that house today. It has been a rental property the rest of the time. By the time we moved out, I could rent it to cover the note and then some. As time went by and property values rose so did rents. This house is now paid off and is valued at $210,000. I collect $850 a month in rent. I could get a little more but we have a good tenant who pays on time and doesn't call much.
That single decision is now responsible for nearly 15% of my net worth and provides around $6000 a year positive cash flow (minus taxes and insurance).
Maximize 401K - We have put as much in to our 401Ks as we can. These accounts are now worth over $200,000 and the returns have just been average. I have changed jobs several times. Several of these 401Ks are now in IRAs. This money is taxed-deferred, encourages savings and adds up over time.
Save every month - Shortly after college I opened a mutual fund account. I started putting $100 a month into it. After a while I upped it to $110. I got another fund and started adding $50 a month into it. Over the course of time, those monthly investments became $800 a month. But over the course of time, these mutual funds are now worth $180,000.
Look into making money outside of your job - There are lots of ways to make money on the side. We have gotten in and out of direct-marketing companies. We have bought and sold on Ebay. I have been to dozens of foreclosure auctions. These are only a few of the items I have looked into. I have invested hundreds of hours and thousands of dollars over the course of time. Multiple times I had to make the decision that this was not worth my time or any more of my money and had to cut my losses.
In the end I have found side incomes that bring in an extra $30-$40K a year. There are a ton of get-rich-quick ideas out there. Many of the things you will come across are scams. Some only work for certain types of people, usually not the type of person I am. What I currently do, I stumbled into. I stumbled into it because I was looking into something else that did not work. Every opportunity you see, book you read, seminar you attend will spurn some other thought and idea. The challenge often becomes evaluating what is the best match for your skill, capital and time.
Hobbies - I know guys who play golf every weekend. Others go hunting or fishing. While we all need our hobbies, often these hobbies dominate our lives and finances. Golf is not cheap. Even the cheapest green fees can run up the hundreds of dollars a month for the avid player. Add in balls and clubs and it can really get up there. If you are making $70K a year and have two kids and spending $300 a month on golf, it is time for a financial re-evaluation. If golf is more important than wealth keep it up, but you are not going to make it to the millionaire club that way.
Let's not just pick on the golfers. Hunters, boaters and shoppers have equal if not more outflow. I see hunting leases for $2000 a year. $500 pair of shoes. $17000 boats. If you want to save, you eventually need to decide - hobbies or wealth?
I started my own business - I could have easily just worked for someone else or gotten a job in a big IT shop somewhere. Instead I put myself out there to accept contract gigs. There were times where it was just me. Luck plagues the diligent. I sought out opportunities where I could bring in other people. Since I was incorporated, I could do that. I knew a bunch of programmers and could get them better rates that anywhere else. I kept thin margins, but making $4K a year off of someone is better than making nothing.
Starting your own business enables multiple opportunities outside of the obvious profit centers. There are so many expenses that I used to absorb that I could now deduct from my taxes. Office supplies, mileage driving to client, etc.
Work Hard - whether I was working for myself or someone else, I was always a hard worker. I came in a little earlier and stayed a little later. I did not whine if I had to come in on the weekend. I accepted responsibility and sought allies. I took the blame and shared the credit. I became valuable wherever I was. This set me up for higher pay when I worked for someone. When I went out on my own guess who the first clients were - people who used to work with me. They knew they would get a certain level of productivity out of me.
Things I wish I did
Increase the monthly investment - There were long periods of time (5-6 years) where I left the monthly investment in the mutual funds alone when my income went up. I should have increased the monthly payment into them each time my pay went up.
Buy and move into more houses - I look at the house I bought when I was 25 that is now worth $210K and regret not repeating the process. My wife and I could have moved 2 - 3 times more and bought a house each time. This would have left us with a bigger trail of rental properties all well on their way to being paid off.
The single best beginners way to build a real estate empire is to buy a house, live in it, buy another, move into that and rent out the former. Fixed rate loans for the owner of the house is still the cheapest way to get a loan. It also avoids the extra loan costs of buying investment property.
Things I cannot control
Luck - This goes both ways. The house I bought when I was 25 was in an area that has not suffered from urban decay. I cannot predict how a neighborhood will get that disease. It could have just as easily turned out to be a bad neighborhood. Fortune smiled there.
Just like that was good, I can account for $250,000 I have invested back into my business that I have not received a return on. I have hired several sales people who did not work out. Each one of them drew a salary, submitted expenses, hired outside support and took people away from billable efforts all to help close a sale. While these are things you do to grow a business, you want to them to actually grow the business.
My business has grown more from my efforts than anyone I paid to do it. Was it my bad judgment in evaluating their sales talents or I did not give them the support they needed? I cannot rule it out. Were they not putting their all into it? I cannot rule that out either. When they were hired, everyone thought it was a good idea, the approach was sound and we communicated regularly. I just never got the result I wanted. It was a good decision that had a bad result.
The Dot Bomb era - I had a lot of technology stocks. There was a point in time where my and my wife's IRA was worth $160K. This was in early 1998. A year later they were worth $60K. There is a reason I primarily invest in S&P 500 index funds today.
I used to consider myself a "very aggressive" investor. Not any more. Losing $100K in the market will do that to you.
What it is like to be a millionaire
Having over a million dollars in net worth is a good place to be. It sounds oversimplified but being a millionaire is better than not being one. It is not the penultimate financial goal that I once thought it was. I am not retiring and picking up golf any time soon.
I still worry about cash flow. So much is tied up in real estate, mutual funds and the business that I cannot get to a lot it without tax consequences. I still drive an eleven year old car. We eat at the same places. We still argue about the credit card statement. I still buy the generic pasta at the grocery store because it is 15 cents cheaper. I am not going to "summer" in Europe or buy a Mercedes. That is not how I got here. If I make those types of lifestyle changes, I might not stay here. I have splurged on a few things. I have "invested" in my baseball memorabilia collection and we took a nice vacation.
I do sleep better knowing I have some flexibility and assets working for me. There are people I work with that have a couple of thousand in the bank, even more in credit card debt and live from check to check.
I have over $1.4 million in assets. This includes everything. If I get 5% return on them, that is another $70K added onto the amount in the next year. The same people I just references are years away from saving $70K much less $70K in a single year. That is what a lot of people make in a year. That is my return when I do nothing.
It was not positive linear growth every month. Many months went backwards or stagnant. Remember, I saw my market values drop $100K. There was over $250K invested back into the business. To save a million dollars you to need to be out there and take a chance. Not all of them are going to work. Hopefully a lesson learned pays dividends down the road.
Having the money allows me to look at different investments. Doors that were shut are now open. I just have to be smart. I can consider different options. In the end that is what I am really after - the options to control what I want to do and on my terms.
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