When you picture a millionaire’s lifestyle, does townhouse living or budgeting only $40,000 a year come to mind?
Probably not. But it’s that type of frugal living that helped four
everyday people to amass their seven-figure net worth and, along with
it, financial security.
More than 10 million U.S. households have
a net worth of $1 million or more, a record high representing nearly 9 percent of all households in the country.
While that seems like a small percentage, it’s still one in 11
households, which means a millionaire could be tucked away in your
neighborhood rather than leading an extravagant life peppered with
luxuries and indulgences.
TFT interviewed four “everyday millionaires,” including Darrow
Kirkpatrick, 55, of Santa Fe, New Mexico; Julie Rains, 55, of
Winston-Salem, North Carolina; Jeremy Jacobson, 37, world resident; and
Jeff Johnson, 41, of Somerset County, New Jersey. Through disciplined
saving and savvy, yet simple investing, they grew their wealth enough to
travel the world, retire years earlier than the norm and enjoy peace of
mind.
“These
millionaires next door don’t have lavish lifestyles,” says Farnoosh
Torabi a personal finance expert who also interviewed these everyday
millionaires on her daily
“So Money” podcast. “But they enjoy their lives. They are very conscious how they want to design their lives to get a lot of financial security.”
So how did they do it? Some of the commonalities among the four
include hyper-saving, smart and consistent investing and thoughtful
spending when it comes to homes, cars, vacations and small treats. They
also benefited from earning higher salaries during their working years
versus the median income along with other blessings when it came to
covering education expenses and health care costs.
Here are their secrets.
Save…and Then Save Some More
Americans on average save 5.5 percent of their after-tax income, according to
the latest data available,
while conventional wisdom is to put 10 percent away. But these everyday
millionaires are socking away a whole lot more. “They are super
savers,” says Torabi. “They cut it out of their budget and live with
what they have left.”
Jeff Johnson, who works in pharma marketing and sales, says that he
and his family live on less than half of his take-home pay and save the
rest. That may not seem like a lot to live on, but it’s enough to allow
his wife to stay home to care for their three-year-old son. “Whenever we
had an opportunity like a bonus or promotion, we never increased our
lifestyle,” says Johnson, who estimates his net worth at $2.5 million,
not including his home.
Jeremy Jacobson and his wife, Winnie—whose net worth is well north of
$1 million—put away more than 70 percent of their income for over 10
years before retiring more than three years ago to travel the world with
their baby son. Jacobson said when he first met his wife in Beijing on a
business trip, she was already saving half of her income. They worked
up to the 70 percent—it didn’t happen all at once—by making small
changes in their lifestyle along the way.
“If
you’re looking at after-tax income and you’re saving 10 percent, after
about nine years, you roughly have enough money to take one year off,”
Jacobson says. “But if you’re saving 90 percent of income, you can take
nine years off after saving nine years.”
Invest Wisely
A large part of these everyday millionaires’ success was investing
their savings for the long term. That meant first maxing out
contributions to 401(k)s, IRAs and ROTH retirement plans and getting the
full company match on employer-sponsored plans, if one existed.
After that, the majority of these millionaires kept their investing
strategy simple. Darrow Kirkpatrick, who has a net worth between $1
million and $2 million, has only seven holdings for his money. “They are
mostly mutual funds, index or very low-cost managed fund with about
50/50 stock and bond,” he says. “That’s pretty much how it’s been since
the early 2000s.”
Flickr/_e.tA 401(k) tip jar.
Jacobsen and Johnson also use mostly index funds. Interestingly, all three swear by Vanguard’s funds, which are low cost.
Julie Rains, who said her net worth is in the millions but didn’t
disclose an amount, prefers mutual funds, exchange-traded funds and
individual stocks. “It does take some time to pick those stocks, but I
do like that the best,” she says. “What I like to look for is a solid
performer that is well-priced.”
Reduce Large Expenses
Kirkpatrick says one of the keys to his success was not overspending
on real estate. He and his family owned one modest home in Tennessee for
17 years and only renovated before selling it. “We weren’t
house-swapping. We also didn’t dump a lot of money into the house,” says
Kirkpatrick, who retired in 2011. “It’s clear that people put huge
amounts into their homes and that has huge costs for their financial
freedom.” Now, he and his wife rent their two-bedroom condo in Santa Fe
for $1,500 a month.
Similarly,
Rains has lived in the same home for decades and when she bought it,
she didn’t stretch. Both Kirkpatrick and Rains don’t borrow to buy
cars—Kirkpatrick and his wife share only one. They buy recent, used
models and keep them for as long as they can.
“If you’re making a car loan payment, you’re not investing that money,” says Rains.
Jacobson and his wife didn’t buy a home and don’t have a car. They
chose rentals in Seattle that were located in a walkable neighborhood,
close to the bus line and as cheap as they could find. Jacobson also
biked to work to save on commuting costs.
Marjan Lazarevski on Flickr One millionaire said he saved money by eating at home for 90% of his meals.Cut Out Frivolous Line Items
Even when Jacobson and his wife went on vacation—which weren’t
lavish—they did it with saving in mind. “We would sign up for a credit
card reward program to get free flights and hotel,” he says. “Our
honeymoon was 10 days hiking around Mt. Rainier in Seattle. It basically
cost us nothing.”
Johnson—who lives with his family in the townhouse he bought in
2004—carefully monitors their spending. It’s a practice he started as a
senior in high school, which made him realize how much money he spent
simply buying lunch.
“I still bring my lunch to work,” he says. “Is it worth spending $2,000 a year on lunch?”
To get around the urge to eat out, Jacobson’s wife spent a lot of
time becoming a serious cook. “Ninety percent of our food comes out of
our kitchen, and her cooking is better than most any restaurant we could
go to,” he says.
The sacrifices paid off. They now are globetrotting around the world,
spending a few months in different countries—now in Malaysia, Europe in
the spring—with a $40,000-a-year budget. They have found they can live
like kings on that budget in many low-cost countries.
Possibility Starts With a Good-Paying Job
To be sure, these everyday millionaires were blessed with a few
advantages that helped catapult their net worth. For starters, each had
jobs that on average make more than the median income. Johnson works in
pharma sales and marketing and, his wife, before staying home to care
for their child, worked at a university as a department psychologist.
Jacobson was an engineer at Microsoft and his wife was a project manager
at Dell.
Kirkpatrick was a software engineer. He also has affordable health
insurance in retirement because his wife, who was a public school
teacher, was allowed to buy into her health insurance.
Rains’ husband still works as a logistics manager, working toward a
full pension, and provides medical insurance through his work. Before,
they profited from his company’s stock program “that did very well,”
says Rains, who previously worked for a regional bank and now is a
part-time freelance writer.
As for college expenses, Rains had one son go to in-state university
with affordable tuition that was covered by savings. Kirkpatrick’s son
ended up getting a full scholarship to a public university, while
Johnson himself got a scholarship for his schooling. (His wife, though,
ended up with undergraduate and graduate school debt. Both Jacobson and
his wife were saddled with huge student loans they paid off.)
The journey toward a seven-figure net worth wasn’t always smooth.
“I
did some dumb things in the beginning, fortunately with small sums of
money,” says Kirkpatrick. One of his most memorable mistakes was getting
involved in the dot-com mania. “I invested a few thousand dollars,
quadrupled my money and then watched it go back down to the price I
bought it at,” he recalls.
Jacobson tried and failed at real estate investing and picking
individual stocks. He ended up settling on index investing. “It’s easy,
even if at first it feels like you aren’t getting any traction,” he
says.
Rains found that she hadn’t saved enough for her youngest son’s
college education. He went to an out-of-state school, which cost more.
“I definitely would have set aside money in a 529 more quickly when they
got popular,” she says. “I would have also taken my child to visit more
in-state schools during high school.”
Johnson fell for his weakness for cars, but not too hard. He bought a
BMW five years ago with all cash. “If I take a step back, I could have
saved $5,000 or $10,000 buying another car. Was it the smartest thing?”
he says. “You got to live, too, and enjoy life. You can’t always save. I
still enjoy driving that car.”
Goal-setting is one of those things that seems like it should be very
simple, but can often cause anguish and aggravation. Even worse, if
it’s not done productively it can convince us that we’re doomed to
failure and prompt us to give up on our dreams forever.
Focus on the sense of accomplishment you get from every step you take.
Rather than pinning your satisfaction only on the big goal you have in
mind, allow yourself to feel good about the progress you’re making
toward that goal. Feel proud about the great job you’re doing and really
allow yourself to enjoy the journey.
Washington (AFP) - Legal marijuana is becoming more
and more entrenched in the United States each year, and 2016 looks to be
no exception. 
