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May 02, 2014

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This would be much more encouraging if they had mostly had salaries in the sub-$100K range. I still believe it can be done without a high income, but it's a long slow haul.

Some made moves that are not generally practicable for the average reader, such as moving overseas. Also most were sort of ignorant re: macroeconomic stuff. Other than that, great series!

I would also say from what I recall a number didn't start out earning extremely high salaries.

Also, I believe many of them moved around a lot, even if they didn't move overseas. I've noticed that if you are willing to be mobile, you have a better chance of increasing your salary. Many folks I know who got large increases in pay did it by moving out of state. I also know a few folks who have managed their careers "in house" and done well for themselves, but even they could have accelerated their careers faster had they been more willing to relocate.

Consider that you have many clear biases in your results set. One bias in the results, is that only people that read your blog are responding. A second bias is, would someone want to talk about how they are a millionaire because they inherited a large chuck of money? A third bias is the self reporting nature of the results. It could be that expenses in print are lower than reality.

I would not want to draw any conclusions about the behaviors of millionaires from these data points.

Erik --

It's not meant to be scientific. You understand that, right?

Jon --

That's why I regularly emphasize the value in growing your career (and income). If you want to become wealthy, earning more is a faster way there.

@FMF - Yes, I understand this isn't meant to be scientific but the following sentence is what prompted by comment:
"summarize what we've learned from this group with very high net worths.

I don't think we learned anything. This survey was a self-fulfilling prophecy from the start. We started with a group of like minded people and then filtered out a subset of those people that were willing to share their successes.

You know I enjoy your website but I found the 'what we learned' phrase a bit too much.

Well since there has been some complaining, I ran a quick analysis of all 22 millionaires. It was a fun exercise to read through all 22 stories again as I had not revisited them in a while.

The average age for each was 49, median of 50 with a stdev of 9. 18 of the 22 were married at the time they wrote the piece. 15 or the 22 had kids.

Average net worth was 2.3M with a stdev of 1.2M. High was 7M with a low of 1.1M.

On average they earned about 236k per year and had expenses of 69k per year. These numbers get murky because some netted their expenses after tax and some left them as "gross" numbers.

The "gap" analysis (income - expenses) was crazy. The average gap was 171k or 66%. That means that these guys are definitely hyper savers. Even if we were to assume that half of that gap went to taxes etc, they have a saving rate on average of 33 - 35%.

The bottom line is what FMF reflected in his analysis: increase your income minus expenses and invest for a long time. At whatever salary level you are at now, what would happen if you saved 35% of your income and invested for a long time? I'm guessing you might be featured in one of these articles at some point.

Assuming these guys saved just 10% of the gap they created yields $1M after 25 years with a tax deferred return of 7%. It can be done.

Thanks FMF and keep up the good work.

I never had a high salary during my entire working life, which was actually 17 until 58. The reason I started work at such a young age was that I started as a Trade Apprentice for DeHavilland Aircraft Company in England. They soon switched me from being a trade apprentice to an engineering apprentice when they received the test results from the municipal college that I was attending. During the 5 years I was there I rotated through all the different departments and leaned a lot about the aircraft industry. I had an interesting experience when I went to see the headmaster of the Grammar school I attended to tell him that I would be leaving to become an engineer. He had no knowledge about what an engineer was and asked my why I wanted to drive locomotives.

Anyway, when my 5 year apprenticeship ended, I married my long time sweetheart and we got on a boat and sailed to Montreal, Canada where I had a job waiting for me as a junior engineer in the Stress office at Avro Aircraft. The job only lasted 2 years because the government cancelled the only project the company had because Boeing had offered to sell Bomarc missiles to the government at a price they couldn't refuse. From there, after a 2 year job in Denver I ended up at Lockheed in what is now Silicon Valley and spent my whole career there. By today's standards my salary was pathetic, it was only $74K when I retired.

I have a very high income these days but it all comes from pensions, social security, and bond investments.
You've guessed we were always Great Savers, and that's what it takes to become a millionaire, no matter what age you start saving. So the secret is to live prudently, don't waste money on extragavant purchases, and save, save, and then save.

Jake --

That info is awesome!!! Thanks!

Old Limey --

Do you mind sharing your income? You were an engineer, correct? With a big-name company, right? I'm sure your salary was at least above average, no?

If you started off middle-class or inherited anything from your parents, you're not "self-made." Which is fine. There's no shame in your parents' having been able to give you advantages. But it's not the same experience as having come up out of a housing project.

FMF
I worked for the Lockheed Missiles & Space Company in Sunnyvale, California.
I was hired in March 1959 as a junior engineer at a starting salary of $9,000/year.
I retired in September 1992 as a senior staff engineer with a salary of $72,500/year.

I have no idea what the salaries are for those positions today but each of the former colleagues I know are also retired millionaires.

To give you an idea of how prices have risen, in March 1959 we rented a really nice, brand new, duplex for $125/month.

We bought our first home in 1963, a brand new 4br 2ba ranch style home for $26,950. Even that home would now sell for over $1M.

A dollar isn't what is used to be!!!!!

Sarah --

I personally started at the bottom -- with a single parent (mom) supporting us on minimum wage.

Old Limey --

That's what I thought/suspected.

Even today, over 20 years later, $72,500 is an above average salary. So it must have been REALLY good back then.

I tried using some time value of money calculators to find today's amount. Not sure I did it right, but I got that $72.5k 22 years ago is equal to $139k today at 3%. At 4% it's $172k. Either way, it's a very good salary.

Engineers are also typically very good at saving/spending. Based on the data I've seen, they are always at the top of the list for smart money habits. It's no wonder you and your colleagues did so well (though I know your big growth was after you retired.)

@Jon, I worked 30 years '83-'13. Didn't break $30K for the first 5 years. Didn't break $100K for the first 20 years. One of the interviews I recall was a single man with a government job earning $92K/yr. It can be done without a huge salary, and the principles ("save more", "spend less") are universal for increasing one's net worth.

@Erik, really? Nothing to learn? This was just a diverting bunch of stories, and none of the information is useful? Whatever. FMF's common points are not just coincidence, and I really enjoyed and learned from each story. It is inspiring to read about the subject of PF, and no self-made millionaire gets there by accident. There Is nothing to learn from somebody who inherited a million, or won the lottery; I'm not sure why you would want to read a story like that unless you wanted to reassure yourself that many years of pursuing education, working long hours, growing your career, taking measured risks, deferring consumption, overcoming setbacks and obstacles, etc. has no value. There are lots of "scientific studies" on high-net worth individuals out there, if that is what you are really looking for. But these anecdotal explanations, with the common data points, are also of value.

@Jake, that is some great analytics, thanks. The age and family status show an interesting trend.

@Sarah, don't be pedantic. You know what the phrase means. Many scientifically valid studies show that if any American finishes high school, gets and keeps a job, gets and stays married, and doesn't have children before having a stable job and a stable partner to raise that child, will vastly decrease the chances of ever living in poverty. And FMF is a great example of somebody who beat those very high odds you laid down.

This series was great for me, because I have never had a conversation with anyone (other than with my father) about the path, other than in theoretical terms. And here were 21 other practical stories. I don't know what my friends and neighbors make, how much they have, or what they do with their money or why. It would be rude to ask, and people who don't have that filter to not ask or tell are looking for a point of comparison; it is weird when somebody tells you what they paid for their house or how much they make, and it is always done by somebody who assumes they are doing better than you. We are all curious, because we want to know where we fall on the spectrum. FMF has provided an excellent forum to find out these things, without having to compare directly to a family or friend. Great series, hopefully there will be more.

FMF, it would be interesting to see the ages of the millionaires you have interviewed.

JN --

See Jake's summary above.

@Jon, I worked 30 years '83-'13. Didn't break $30K for the first 5 years. Didn't break $100K for the first 20 years. One of the interviews I recall was a single man with a government job earning $92K/yr. It can be done without a huge salary, and the principles ("save more", "spend less") are universal for increasing one's net worth.

@Erik, really? Nothing to learn from these interviews? Whatever. FMF's common points (high income, spend less than earn, risk-managed portfolios, no debt, educated professinals, self-made) are not just coincidence, and I really enjoyed and learned from each story. It is inspiring to read about the subject of PF, and no self-made millionaire gets there by accident. There Is nothing to learn from somebody who inherited a million, or won the lottery; I'm not sure why you would want to read a story like that unless you want to reassure yourself that many years of pursuing education, working long hours, growing your career, taking measured risks, deferring consumption, overcoming setbacks and obstacles, etc. has no value. There are lots of "scientific studies" on high-net worth individuals out there, if that is what you are really looking for, and they also show that most millionaires are self-made (not inheritors). The common data points noted above in FMF's post are also common to those academic and institutional studies.

@Jake, that is some great analytics. Especially the commonality of age, career as professionals, and family status.

@Sarah, don't be pedantic. You know what is meant by the term "self-made". By your definition, the people in the housing projects are also "self-made."

This series was great for me, because I have never had a conversation with anyone (other than with my father) about the path, other than in theoretical terms. And here were 21 other practical stories. I don't know what my friends and neighbors make, how much they have, or what they do with their money or why. It would be rude to ask, and people who don't have that filter to not ask or tell are looking for a point of comparison; it is weird when somebody tells you what they paid for their house or how much they make, and it is always done by somebody who assumes they are doing better than you. We are all curious, because we want to know where we fall on the spectrum. FMF has provided an excellent forum to find out these things, without having to compare directly to a family or friend. Great series, hopefully there will be more.

I am one of the millionaires. While I have a high income now, that was not the case for most of my career. I invested very heavily into my career (many moves, long hours, difficult jobs) and it finally paid off. Yes, the high income over the last several years accelerated my savings/ net worth, but I would have still reached millionaire status if I only stayed at my mid-level compensation. We have avoided debt (other than a mortgage that is now paid off) and consistently maxed out our retirement savings.

FMF -

Based on http://www.dollartimes.com/inflation/inflation.php?amount=72500&year=1992 , I get about 122,500 in today's dollars - but as you say, these numbers vary wildly.

I just turned 58 and reached millionaire status several months ago. I have never made more than 57K a year. Even that was when I was doing a little overtime. Last year I earned about 54K. I just have a great life that doesn't require me to spend a lot. I live on about 22k a year. Have owned my home (paid for) for many years. Paid cash for my last 3 new cars. My point is you can be a millionaire without a high income. I don't spend a lot and I invest my savings. I should point out that, I have never had kids that I needed to take care of and my lifestyle does not require a great deal of money. To me a great night out would be jamming ( I play guitar) with friends.

Old Limey's incomes of $9k in 1959 and $72k in 1992 are about similar to making ~$100k in todays dollars.

JimL
Your story makes me feel that I was very lucky to be able to stay with the same company for almost 34 years. I also often worked long hours but was paid for every hour. Most of the jobs that I had were difficult but I liked the challenge, enjoyed my work, and often took work and reading material home with me. The company also had an "Earlybird" program at Santa Clara University to allow me to get my MS degree by going to class from 7am -10am several days/week and making up the hours by staying late. As long as I maintained a B average they also paid the tuition. The working environment was very friendly, as were all of the supervisory personnel, and I got a lot of satisfaction from being a member of a large team that designed & analyzed the Polaris, Poseidon, and Trident series of submarine launched nuclear missiles that kept us safe during the Cold War.

@FMF/OL: At the engineering company I work at, a 'senior staff engineer' would make about $140,000 base. Probably up to about $200,000 all-inclusive.

@OldLimey: Whenever you post, I think of Grandpa Simpson. I mean that in a good way. Interesting stories from before my time. Fun to read.

I am a younger version of billyjobob. I'm 43 (almost 44) and I've never made more than 53K per year from my job and I make less than that now due to pay cuts at my government job. I live in the high cost SF Bay Area.

My net worth is now 320K. (No home equity, I rent).

I sent in my profile a few years ago on FMF. Here it is for those who haven't seen it:

http://www.freemoneyfinance.com/2011/04/26/

I'm not an engineer, but I'm an INTJ (same personality type as most engineers, who are very good at saving).

I think what's instructive of the millionaires profiled is what they haven't done:

--I don't recall reading any posts where any admitted to having a kid out of wedlock--and with good reason, as this is financial suicide. 41% of American children today are born out of wedlock. It does not bode well for America's future on so many levels.

--The second most deadly financial sin is divorce, as Old Limey has also mentioned in his posts. There were a few who had been divorced in those profiles, but a lower percentage than in the population at large.

What often goes unsaid in these posts is that marrying for love alone is generally a horrible idea. I'm not knocking love, but it's not enough to sustain any long term relationship. (I learned this the hard way myself!) All other things being equal, a partner with frugal habits will be much easier to stay married to than a partner without such habits.

I would also say it's easier to get rich if you don't have kids, at least in theory. I know plenty of single, childless, gay men who spent everything they've made and are no better off for it. I know two, in particular. One is 59 and can't maintain stable, but decent paying employment, yet thinks he's going to be able to have a good paying job until 70 (and lives a lifestyle that reflects that unrealistic expectation). The other is 64, has his own business, has major health problems, but keeps chugging along in semi-poverty (living with roommates at 64), because he essentially has no choice to do otherwise. The 59 year old has slightly better prospects than the 64 year old because his health is better, but I don't want to be in either of their positions if I can help it.

I also wanted to piggyback on FMF's comment on investing. I agree that fairly boring, low cost investments are the way to go. Obviously, you can't be too conservative and have everything in cash, CDs, stable value funds, conservative bond funds and the like. But you don't need to get super aggressive either.

I am a big believer in the classic "balanced" mutual fund. The better funds in this category can match or beat the returns of the broader stock market with less volatility. If I had just stuck with a good balanced fund in my 401k plan instead of switching around from fund to fund, I'm pretty sure my net worth would be at least 50K greater than it currently is.

Balanced funds I'm always promoting:

--Vanguard Wellington (expenses almost as cheap as an index fund)

--Oakmark Equity & Income (low minimum, near top notch long term returns)

--T. Rowe Price Capital Appreciation (top notch returns).

--Mairs & Power Balanced (small asset base gives flexibility, also has very low turnover)

--Dodge & Cox Balanced (low expenses, team managed w/ long term managers, so no big deal if one manager leaves)

Other, "runner up" balanced funds that aren't quite as good in performance but are worth a look if you have them in your 401K

--Vanguard Balanced Index (for index die hards who want an all in one fund..Good, but not the best long term performance)

--T. Rowe Price Balanced

--Vanguard STAR (low minimum)

--Fidelity Four-In-One

--Fidelity Balanced

These funds are great if you can avoid paying the front end load/sales charge:

--Invesco Equity & Income

--Janus Balanced

--Amercan Funds Income Fund of America

--American Funds American Balanced Fund

--American Funds Capital Income Builder

--American Funds Global Balanced

Also, the "target date retirement" funds from Vanguard and T. Rowe Price are good choices. Vanguard's are the cheapest, but T. Rowe Price's actually have better returns (and still reasonable costs).

Of my friends who I grew up with, two out of about 8 of us are millionaires.
One is dyslexic, never did well at school and started work laying roads. He now owns a couple of road laying machines, and employs the teams that go with them. He made his money by doing car parks, and driveways - the jobs no one else wanted to do.
My other friend who has become wealthy is a lawyer. Hes worked like a dog for the last 20 years, and its now paid off. (But at the cost of 3 marriages)
I have a few other friends who have accumulated a decent way of life.
None of them have "got rich quick"

Writing on my phone. Please excuse the typos
and auto correct!

I am one of the millionaires. Honestly it boils down
to living below your means. I started out making
$46k out of law school. That's pretty good money
And I lived well. I had a car and a home. That was 25 years ago.

The key- or one of them for me was I never
increased my standard if living much.

I live in the same place and spend about the same
As I did then. I got married and my wife's salary Was added to the pot.
So we spend her salary of about $50k as well.
That helps for sure.

But I saved almost every increase and every
Bonus I ever received. That money adds up over the
years. I now earn about $230k and save the bulk of it.

Do not increase your standard of living every
time you get a raise or a bonus. Do that
And you end up saving a ton.


Mark:
Finding someone to marry seemed to be a lot easier when I was a young guy in England. One of the reasons was that in those days England was not a multi-racial society but it was divided into three major categories which were called "working class", "middle class", and "upper class". I was part of the large "working class" group. My grandfather was a grocery clerk, my father was a fireman, and I had uncles that were in a variety of jobs such as a meter reader, a mechanic, an electrician, a pastry chef etc.

In those days you stayed in your class and it was almost impossible to move up. Likewise you only met girls that were in your same class and generally had a whole lot of things in common.

My wife's father was also a fireman but what set her apart was that she won a scholarship to a very exclusive girl's school and mixed with girls from very wealthy & snobby families. Most of the girls were boarders but my wife was a day student. One of the first things they did was to give her elocution classes so that she lost her working class accent and gained a more middle to upper class one. At school mealtimes there was a teacher at every table that made sure the girls were using the correct manners and the proper implement for each item they were served. If you have ever seen the musical "My Fair Lady" she was like Eliza Dolittle to start with but got transformed into a lady by her teachers. However that didn't carry over because she lived a regular working class style life at home.

However England changed dramatically later on in my life as after WWII it could no longer afford to keep it's colonies, and as they received their independance, many of them came over to England to live, transforming the country into the multi-racial society that it is today, whereas when I was growing up I never saw a person of color.

I am worth 2.5 mil, I am a nurse my husband a police officer, we saved as much as we could since we were married in a tax deferred 401k.We did not come from money!
We just kept spending below our means, no brand new cars and ran them down.We put three kids through college and took vacations each year. We did things not bought things.We always had more then one job at a time and seriously watched where our money went. I hear young people always say its only a hundred dollars to buy this or that, but they are not saving anything! My husband is 62 and I am 58.

@Bernadette....That comment about "it's only $100" really strikes a chord with me. My unrealistic 59 year old friend who I mentioned in the above post used almost those exact same words when I asked him why he wasn't renting a studio apartment instead of a 1BR with a pool. He said "studios are only $100 less". Yet he admits to living payday to payday and complains about how brutal America can be, economically speaking (which is true)....yet he is unwilling to give himeself even the slightest margin for error. I can't tell you how much this drives me nuts!

@Old Limey,

Thanks for sharing. Although I don't think America had as rigid a class structure as Britain did in the early to mid part of the 20th century, I think most people still married within their class.

While more racial integration may be a factor, I don't think that's at the root of our high out of wedlock birth rates and divorce rates. I put most of that on the "love conquers all" theme so common on movies & TV; and also the fact that mainstream media treats these issues as the big deal they really are. I also think the sexual revolution ad easier divorce laws that came about in the mid 1960s weakened the impetus for people to marry and to stay married. There were some benefits, but overall I think the negatives outweighed the positives.

This will sound like a strange thing for a gay male like myself to say, but I sometimes wish we had quasi-arranged marriages. Very few people will choose good mates for themselves in their 20s.

@Mark
That mindless spending also drives me crazy!There is a coworker of mine who complains constantly about not having enough money,but actually spends $1500 on a birthday party for a two year old!I could go on and on with this!
We never deprived ourselves just thought about the best use of our money,plus saved first then spent.

@Bernadette. I wouldn't say my friend is quite that extravagant as to spend $1500 on parties...but he lived in a studio for several years and recently upgraded to a 1BR, even though he really hasn't had the stable employment to be able to comfortably afford it. I'm somewhat sympathetic to people at the moderate to lower income levels, as I don't earn a lot myself....but it really annoys me when they give themselves no margin for error. In most cases, a person can still do a lot in America, even if their income is mediocre.

Sarah's comment above:
"If you started off middle-class or inherited anything from your parents, you're not "self-made." "
irks me.

First, being middle class means what? You didn't have to dodge gangs to get through high school? You didn't have to work after school to help feed the family or deal with a drug addict parent? What, exactly do you believe middle class implies, that they had no worries and just because the parents aren't struggling they shower wealth on their kids?

Wow, tell that to my middle class friend who had the step mom from hell who convinced his dad to kick his butt out his senior year of high school or my buddy who's dad was an alcoholic who liked to whip the belt out after a six pack. How about my pal's wife who's father not only refused to pay for college but because of his income she couldn't qualify for any financial aide to include loans the first year because he refused to share his financial information with FAFSA. She got to move out, work full time, and then after a year go back and prove she was independent. As a matter of fact, most of my friends were hardly coddled, we all worked through college even those who's parents appeared they could have afforded it.

And as far as inheritance, if your parents are living until their 70's or beyond, you pretty much cannot count on getting an inheritance since you're in your 40's or 50's by the time they pass and someone who has worked hard and become a millionaire by that time should definitely be considered to have made it on their own.

Self-made - what does that mean, and what should it mean? I've typically seen it applied to anyone who ended up becoming far more wealthy than their parents. I don't have a problem with that definition, though it likely means I will never be "self-made" as my wife's family is quite wealthy. However, our own wealth is our own - the result of our work, our investment risks, and our saving. We've had great examples, mentoring, and opportunities that many don't have, but does that count against what we have achieved?

Personally I try hard not to worry, care, or compare. There's always people smarter, harder-working, more accomplished, and wealthier in any case.

@Sarah
I found your comment a bit insulting and sad to an extent. Just because my family was considered lower middle-class ($38000 for a family of 4), I had nothing handed to me. My parents knew nothing about college, nothing about what I should study, spent all their money, provided little to no guidance, and left me to deal with everything. They agreed to help with a loan, but then defaulted on it leaving me to deal with a $14,000 bill. The school told me I was not going to be allowed to finish my degree until I paid. I could have whined and complained but in the end I had to work 3 jobs and negotiate with the college to get loans. When the money the school loaned me was not enough to pay for everything, I ate food from a local Christian food bank and lived in a single room in a basement. Worked through college delivering boxes, lowered my rent by cleaning the basement area and helping out the owner. In the end, I made it through just to not find a job due to a downturn in the market. I owed $40,000 and $12,000 in credit cards and was working for or at near minimum wage or not working at all. When I finally got my first job in my field, everything I made went out the door to pay loans and the normal costs of living.

I think everything is about your attitude. The old saying that God helps those who help themselves is true. I didn't give up, but kept fighting. In the end, people noticed this and I was very blessed to have had people in my life that helped me when I needed it the most. When professors told me I wouldn't succeed I proved them wrong. When jobs dried up, I found something else to keep income coming in.

Fast forward 20 plus years and my lovely bride and I have been very blessed. This year is our 20th anniversary. We roughly live on 25% of our income, pay 25% in taxes and save the rest. It is again our attitude, our choices and great blessings from above that have lead to our success. We chose to pursue the careers we are in and sacrificed in the beginning to reap the rewards we now get. Nothing has been handed to us. It was the choices we made and our attitude to stick to it that made us able to contribute to the millionaires series.

Jonathan:
My interpretation of self-made is that your station in life is a function of the combined effort of you and your wife. These days I would tend to exclude help given towards a child's college tution since with the large increases in tuition it has become such a common occurence.

Our 3 children ages, 50, 53, & 55 have each received help from us on a few occasions but they are good savers and although I manage their investments for them the contributions are all their own. I have also given them loans at various times which they have always repaid.

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