Millionaires in the Making: Cash Only Please

Here's the latest article in Money Magazine's Millionaire's in the Making series. It's the story of Christopher Ortega and his long time girlfriend Alicia McDonald who have used a cash-based strategy to get rid of a load of debt. Their story:

The 28-year old independent financial planner and 27-year old McDonald, a title officer, are just a few payments away from wiping out nearly $35,000 in commercial debt. At that point they plan on socking away an additional $800 a month on top of the $900 a month they are currently saving. Combine that with the $420,000 the couple has in home equity and they'll be millionaires by the time they're 45.

"All of a sudden we're talking about saving $1,700 a month,' said Ortega. "The benefits of being on a cash system really pay off."

Pretty good results. Yes, they have a decent income, but they've been disciplined and have steadily paid off their debt. (and as we know, it's the ability to save, not to earn, that makes you wealthy) Here's where they stand now:

Before taxes the couple makes about $82,000 a year, or $6,800 a month. Their monthly budget looks like this:

• $1,700 in taxes
• $500 for insurance (health, car, mortgage, life)
• $1,700 for the mortgage, a second mortgage and the remaining consumer debt
• $2,000 spending money
• $900 for saving

The extra $800 in savings, which will bring the couple up to $1,700 a month, will come when the remaining consumer debt is paid off in the next few months and from diverting some tax money to invest now and relying on a mortgage tax refund to make up the difference later.

Ortega plans on adding the extra money to a simplified employee pension (SEP), a kind of 401(k) for the self employed. That will complement the $500 a month they are already stashing into their IRA and $400 a month they put into an emergency savings fund.

Granted, much of their wealth is based on the paper value of their home, which they purchased in 1998 for $114,000. The three bedroom house, to which they recently added a 700 square foot addition to for Ortega's parents, is now worth around $520,000.

Ortega says his main motivation for saving is to avert any financial troubles further down the road. He said his parents had a hard time making ends meet and he wants to make sure he and Alicia, who have been sweethearts since high school, don't end up in similar circumstances. "It's very important for me to know that she won't have to struggle with money," he said.

They are a couple to be imitated. They've paid off debt and are excellent savers. As such, they are on their way to becoming millionaires. Good for them!

Comments

[zillionaire in the making]

Does anyone else find these Millionaire in the Making profiles to be a joke? The majority are people from California, Florida and other communities where property values have skyrocketed, and whose net worths are typically due to - you guessed it - home equity. Based on my math, this "millionaires by age 45" couple currently have $42,000 in actual liquid assets.

[PT]

@Zillionaire in the making - These people actually come from all walks of life (states, ages, types of wealth). I've compiled the entire list of Millionaires in the Making and will publish the stats soon.