Everyone I know has wondered what it would be like to be a millionaire. Many people think it's nearly impossible to become a millionaire without winning the lottery or making six-figures. I have learned it's quite possible to grow up with limited means and build a million dollar net worth. After breaking the money taboo among my family and friends (and around the country), many people have openly shared their financial highs and lows. And in one particular moment out in a Biergarten a friend shared he was a millionaire.
“I've been aggressive about making and saving money,” my friend blurted out after taking a chug of beer.
In fact, my friend shared he's been accumulating wealth since he was 16 years old. He saved every penny of his birthday and graduation gifts of money. He also saved the cash he made mowing lawns and shoveling snow. And then, he started investing.
When he got his first “real” job with a “real salary”, he set aside half his income to savings and investing. He contributed to his 401(k) and took advantage of stock purchase plans. At 26 during the Great Recession, he bought his first home as an investment.
Having money saved and invested prepared my millionaire friend for opportunities. When the housing market took a nose dive, he had the funds to buy a multi-family for half the price prior to the recession.
During that conversation, my head began to hurt. I wasn't quite sure if it was the third beer. But, alas, it was the realization that I've been mindlessly spending and living. Here I was driving a $38,000 BMW with a huge monthly payment and a $4,000 annual insurance policy.
As I was struggling to make my monthly car payment, my friend became a millionaire before the age of 30. My millionaire friend prioritized savings over spending and investing over the appearance of wealth.
I needed to understand money better – the dos and don't. My friend's approach to $1 million net worth dumbfounded me because of its simplicity. If I knew earlier, I would have been more cautious of spending on credit. I would have limited the amount of student loan debt I carried. And I would have certainly opted for a less expensive car too.
Surely, one can argue, his investment in buying a multifamily home in a down market contributed largely to his wealth. But he was prepared when many others had zero balances in their savings accounts to take advantage of the real estate market.
My friend had money smarts. He started early. He was consistent and focused.
Could I have been a millionaire before the age of 30? If I was asked this questions years ago, I would say impossible. But, now, after speaking with many under 30 who have a net worth of a million dollars, I can say without hesitation I would have at least tried.
The starting point
I needed to acknowledge where I was with my finances: how much money was I making? what did my expenses look like? what was the cost of my debt? was I taking advantage of all my benefits at work?
I started to envision the life I wanted to live making sure I didn't focus too much on material wealth. I'd ask myself why a big house or a luxury car was important. At the time, I was associating wealth with how much I can spend and what I can buy. And I was valuing my worth based on the brand name clothing I wore.
However, I've come to learn that wealthy people have a different relationship with money. They value time over money. A key differentiator is how they look for ways to make more in less time and always seeking ways to make money with money.
I also learned my friend isn't against credit use either. He sees credit as a tool and if used properly can help create wealth. “Use other people's money to build your empire,” he said as he took another chug of beer.
I was intrigued. I needed to make this mindset shift to go from being debt-ridden into wealth building.
A millionaire isn't flashy with his money
My millionaire friend looks and acts like any of my other non-millionaire friends. Maybe he smiles more and always seem to be at ease.
He owns 2 houses, has a car, works at a job, takes on side gigs to earn extra cash, and vacations a few times a year. He does, however, splurge on good wine. Living below his means contributed to his millionaire status. He learned to start saving and investing as soon as possible. A dollar today saved and invested today will be worth more in the future.
His advice, “Spend on what you can afford and be realistic because you probably can't afford 90% of what you think you can.”
The non-millionaire friend has many reasons to spend
A non-millionaire friend shared his money story. He believes enjoying life right now is far more important. He equates enjoying life with spending money.
“You never know when you're going,” he said jokingly.
My non-millionaire friend is living paycheck-to-paycheck and using his weekends as an escape for the workweek. He drives a luxury car and rents a room in a two bedroom apartment. He wines and dines most of the week to unwind from the stressful job.
My non-millionaire friend is miserable at work and directionless. But losing the miserable job would cause a great deal of stress. To make sense of these conflicting issues, he spends money and often more than he earns using credit to feel a sense of control.
“I might have to move back in with my parents and let the bank take the car,” he said as he tried keeping a smile.
Between my millionaire and non-millionaire friend, I saw firsthand the gaps in money beliefs and behaviors.
Do the math to unlock the millionaire doorway
My millionaire friend saves on average $18,000 a year with his $85,000 salary. My non-millionaire friend doesn't save a dime on his $70,000 income. One contributes 10% of his salary to his 401(k) plan and the other is afraid a 1% contribution would impact his ability to pay his monthly bills.
One friend drives a 5-year-old car which he owns and pays very little for auto insurance. The other friend was 30 days behind on a $600 car payment and because of financing is required to pay for a comprehensive auto insurance policy.
The millionaire goes on a two-week vacation once a year. The non-millionaire friend has repeatedly stated he hasn't been on “a real vacation in over four years.” But, my non-millionaire friend easily spends $100 on drinks each weekend.
The friend I most want to emulate pays a $1,800 mortgage for his home and the other pays $800 a month to rent a room.
The secret to being the millionaire friend
There is no secret. You've heard these money tips before: spend less, save more, invest money, build assets, don't carry debt, and follow a plan. I do want to add that having a clear vision for your life is part of your roadmap to financial wellness.
Which life do you want to live? Do you think you can be a millionaire by 30? 40? 50? or 25?
After writing the original post, a friend suggested I read a book called Millionaire Next Door by Thomas J. Stanley, originally published in 1996. I found many of my millionaire friend's traits shared in the book. It's a good read for those looking for a deeper understanding of the habits and characteristics of the wealthy.