Millionaires are what I expected
Before we get too far, I have to acknowledge that the findings from these interviews don’t surprise me much.
This is because these are my people. I’m one of the group (now over $4 million!) so I knew what to expect. How else do you think I came up with E, S, and I?
That said, there are some nuances that did surprise me a bit.
So I’ll break this post into two major parts — findings I expected and the ones that were at least partial revelations to me. I’ll also compare and contrast what the millionaires have done to the actions we’ve taken in our lives.
Let’s get started. First, here are the findings I was pretty sure of:
1. Millionaires earn high income
Not a shocker as we all know it’s easier to accumulate a high net worth if you make more.
As we’ll see below, millionaires didn’t always earn a ton (they didn’t come out of the womb pulling down $300k per year), but most built their incomes over two or three decades by focusing on and growing their careers.
This is exactly what I did during my 28-year career which had major positive impacts on our net worth.
This is why I talk about careers so much on the site. Growing you career is a HUGE part of the E in E-S-I.
Some people seem to avoid career-related posts but they do so at their own financial peril. For the vast majority, their career is their biggest asset and deserves a good amount of attention and care.
2. Millionaires save a good amount of their incomes
Saving is listed as my No. 1 money move anyone can make, and millionaires certainly use it to their advantage.
Back in the day, saving 10% was considered good. If you saved that amount for 45 years, you could have a decent retirement at 65.
These days people in the FIRE community are saving 50%, 75%, or even more of their incomes. So that 10% looks kinda weak.
Millionaires are in the middle of these two. My estimate is they save 20% to 25% of their gross incomes. I don’t yet have a great handle on the absolute savings since some measure by gross income, some by net, and some offer contradictory savings rate information (i.e. two separate questions seem to reveal different answers).
In the end, I think 20% to 25% is a pretty good estimate. It’s also a decent level of savings, especially given their high salaries. When you couple solid savings with strong earnings, you get a great one-two financial punch.
We were a bit higher than average millionaires, saving 36% of our gross income during my 28-year working career.
3. Millionaires focus on simple investments
When I was younger I used to think that millionaires had complicated investment strategies that were simply not understandable by the common man.
Then as my wealth grew I learned that investments didn’t have to be complicated to work.
Millionaires have found the same thing. While they have tried a wide variety of investments, they come back to the blocking and tackling of investing — index funds and real estate.
This is exactly what I experienced. I started thinking I had to be an awesome stock picker. That didn’t go well. Thankfully it was short-lived and I quickly found index funds as a replacement.
Then, once I had a much larger net worth and had built up my courage, I got into real estate. Doing so has been a very solid investment and we’re experiencing one of our best years yet in 2019.
4. Millionaires became wealthy by covering the money basics and avoiding huge mistakes
I don’t think I’ve interviewed a millionaire yet who has become wealthy from one single event over a short period of time (like the lottery, inheritance, etc.).
They grow their net worths the old fashioned way — they earn, save, and invest, covering the basics. Then, over time, they become wealthy.
It’s pretty boring stuff if you compare it to the get-rich-quick stories often in the media. But it works. The process is tried and true. Slow and steady wins the race.
This is what has worked for us too.
We had some mini growth spurts like stock market surges, buying real estate, and big bonuses from work, but none of these were life-changing. We did it like everyone else, over a long period of time with the basics.
5. Work-life balance is often an issue
As you might imagine, working yourself up the corporate ladder isn’t a 9-to-5 job. Many millionaires work long hours and have since a young age. As a result, their family life often suffers.
That said, one of the first things people do when they accumulate some wealth is begin to dial back on the hours and have more family time.
Millionaire after millionaire has told me that work-life balance “was an issue when I was younger, but is much better now.”
I will be posting on this issue in an upcoming post, but for now let me say this was pretty much my experience as well. Thankfully I was able to find a job mid-career which helped balance work and life while also paying me a great salary.
It was a true blessing to our family and something most don’t have the luxury of.
6. They have multiple sources of income
In addition to their incomes, many millionaires have other income streams as well.
The most common are dividends, real estate, and side hustles.
Our multiple streams of income have built over the years as well.
We first added side hustles which helped us pay off our mortgage.
As our net worth grew, we generated more dividend income, which we always reinvested.
Then we got into real estate as I moved closer to retirement.
These days we have this site, our real estate, loans to another real estate investor (earning 10%), interest on cash held, and my wife’s part-time job. All that adds up to much more than we spend, so our net worth keeps growing.
7. Healthcare is their largest retirement concern
No surprise here as the US health system is designed for employees — with insurance tied to employers in most cases.
So what happens in retirement? People are left to figure that out on their own. There’s no really great solutions and hence millionaires are as concerned about retirement healthcare as everyone else.
We struggled with this as well, though it didn’t take too long for us to find Samaritan Ministries. They have been great for us through three rounds of skin cancer/mole removal and I can’t imagine not using either them or Medi-Share.
8. Travel is their favorite splurge
Who doesn’t like a good trip? Millionaires sure do!
And the ingredients are right for them to make travel their top splurge — they have both the time and money to make it happen.
For us, Grand Cayman in January is a staple. It is an awesome place in so many ways, relatively easy to get to (now that there’s a direct flight from Denver), and really breaks up the winter with a nice warm spell.
This year I’ve convinced my wife to go for an entire two weeks, so I’m slowly inching her up to a month.
We also have Florida (October 2019) and Hawaii (2020) trips planned so I think we’re doing well this fall/winter.
But while there was a lot I knew about millionaires, there were some surprises. Here are the findings I didn’t expect:
1. Millionaires started out with low incomes
As I said earlier, millionaires weren’t born making the big bucks.
Many started with very minimal paying jobs out of college and through hard work and talent grew that into a very sizeable income.
People will often comment something like, “I’d be rich too if I made that income.”
First of all, they probably wouldn’t since income is only part of the equation. The averages show that most would spend whatever income they’d make, even a high one.
Second, it’s not like the millionaires have been making $300k for 30 years. Most began with minimum wage jobs (or close) and worked up from there. What we see are the results two to three decades later after a lot of hard work and dedication.
I had a similar experience but did take a bit of a short cut. In my senior year of college, after I realized I didn’t want to be a lawyer (an internship my junior year confirmed that), I discovered my employment options with a degree from a no-name college were quite limited. So I went to grad school to get an MBA. Two years later my income options had more than doubled and the rest was history.
2. Millionaires save less than I would have guessed
If someone had asked me prior to the interviews how much I thought millionaires had saved of their incomes, I would have guessed 30% to 40%.
I am biased a bit towards savings and thus would have expected other millionaires to be as well. But the truth is they save far less than I imagined.
That said, I wouldn’t have thought their incomes were as high as they were either (I would have guessed $100k to $150k), so in the end the absolute amount saved is probably the same.
3. Millionaires have made common investing mistakes
You would think that millionaires had it all figured out, right?
Most people believe that millionaires don’t make money mistakes. But they do (and have). Turns out they make the same mistakes most other people make.
And the No. 1 millionaire money mistake is in the area of investing.
Just like many Americans, millionaires thought they were smarter than most others and thus made a lot of investing stumbles (mostly in the area of picking individual stocks).
I know how they feel as I did the same thing. I was a know-it-all investor until I found out I knew much less than “it all.”
Thankfully we all came around to our senses fairly quickly, jumped on the index fund train, and the ride has been great.
4. Few have budgets
This was a big surprise for me…and it kinda wasn’t.
The vast majority of millionaires don’t have budgets.
Many sort of track spending and saving, but they don’t estimate and pre-determine spending in a budget.
The reason? They don’t need to.
They make good incomes, save a decent amount, and have plenty left over. They are naturally self-controlled and don’t let costs get out of hand. So why would they need a budget?
I get it. We didn’t have a budget for many years. We did start out with one early in our marriage and it was a key reason we got off on the right track.
But once we got into a rhythm and developed our spending self control (plus our income rose), there really wasn’t a need to have a budget. That’s why we didn’t have one for many years. Then when we retired, I wanted a bit more insight into where our money was going, so we have one again that I update monthly.
That said I always did track spending in Quicken, so we had a good handle on cash flow if we wanted to dig into it.
For these reasons I recommend people have budgets at the beginning and end of their careers, but don’t necessarily need them as they get settled — which is what we see with millionaires.
5. Few have wills
Again, you’d think that millionaires would be on top of things and have estate plans — especially given their level of wealth.
But they appear to be right there with the averages (almost 60% of Americans don’t have wills) — most millionaires don’t have wills.
I’m right there with them. Or at least I was. We had a will done 20 years ago. It had been so outdated for so long that it was probably useless.
But we remedied that recently and updated all our estate plans. I’ll give details in an upcoming post.
That said, for many years we were one of the majority who didn’t have a will.
6. Charitable giving is low
This is one I really don’t get.
Millionaires are in the position to give substantially, even doing so while they accumulate wealth.
And yet most don’t.
I’m really not sure why. Perhaps some of you will have an explanation or two.
I will be discussing the issue in an upcoming post, offering reasons people should give on their way to financial independence.
We chose to help others while we worked our way towards FI, giving away 26% of our gross income.
These days we contribute assets using our donor-advised fund, also an upcoming post.
7. Most check their portfolios daily
Experts will tell you that one key to investing success is to not watch the markets that closely (or else most people tend to make moves detrimental to their results).
Millionaires buck this trend with many checking their portfolios daily or at least weekly.
And somehow they keep on the right path.
I hardly pay attention to the market and only hear about it from others when something really good or bad happens. I’ll hear comments at the gym, on the pickleball courts, or at church. Otherwise, I don’t notice much.
I do update my net worth once a week via Quicken, downloading my index fund values automatically, but I don’t look at individual funds, I simply check the total.
Looking at values for each fund would be too much work/stress for someone trying to relax in retirement.
General thoughts on becoming a millionaire
Based on the findings above, I have some conclusions that could help those who aren’t yet millionaires become one.
But before we get to those, let’s quickly review the roles E-S_I play in becoming a millionaire.
Generally, here’s the pattern of things with millionaires (at the time they are interviewed):
- Earning is more important than I thought.
- Saving is less important than I thought.
- Investing is more important than I thought.
The data show that millionaires focus more on earning, which means they need to save a lower percentage of income to still be socking away a ton.
They then invest the savings to grow their net worths.
However, that’s more of the long-term results. On the way up/early in their lives, the focus is as follows:
- Earning is less important.
- Saving is more important.
- Investing is equally important.
In the beginning, they earn little, so there’s more focus on savings, which they then put into investments.
Those investments earn and grow for two or three decades after which time compounding makes them worth a healthy amount.
Given all this, here are some suggestions for those wanting to become millionaires:
1. Focus early on getting your earning ability ramped up
It takes time and effort to make the big bucks, so the sooner you get started, the sooner you’ll reap the benefits.
This means considering both growing your career as well as developing a side hustle.
Over time they will both increase and be what fuels strong net worth growth.
2. Control spending using a budget from the get go
Developing a spending self control is vital to becoming wealthy and a budget is the best tool for doing so.
Even if it’s just for the first few years of your financial journey, develop and live on a budget at least until you know you can manage your spending impulses.
Over time you can do without one if you like. And if things ever begin to slip spending-wise, you can always come back and create a new budget.
3. Invest early and often
If you do No. 1 and No. 2, you will create a good amount to invest.
Before you dive in completely, learn about investing in index funds by reading “The Simple Path to Wealth.” Then read “How to Invest in Real Estate” since one day you may want to get involved in real estate (and the sooner you begin learning, the better.)
Sock away as much money as you can as early and as often as you can to get compounding working for you.
Over time you can keep at it or look to expanding into real estate depending on your goals and interests.
After that, it’s simply time. Give it long enough and one day you wake up wealthy.
Those are my thoughts from the first 150 millionaire interviews. Thanks to those who have completed the questions and all of you who read and comment on them.
Here’s to the next 150!
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15 things I’ve learned about millionaires after interviewing 150 over 3 years