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May 04, 2009


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That just about says it. And if you're still in school, or graduate/professional school, you won't have the high income yet but you can still invest and still get frugal - an interesting challenge, to be even more frugal than you have to be as a student!

Staying out of debt.

I'd be willing to bet that my net worth is higher than most people my age simply because I avoid debt. I went through school on scholarships thus avoiding student loans. I bought my car (used) with cash avoiding a car loan. I treat my credit cards as cash and pay them off every month avoiding credit card debt.

Throughout my entire adult life (including being a student) my net worth has been a positive number. Not always a high number but always a positive one.

As for your list:
1. I'm hoping that my career will start to grow as soon as the job market improves and I have a chance at getting a job that pays something consummate to my education level.
2. I'm working slowly towards developing some alternative income streams. Hopefully they'll work out.
3. I've never been a spendthrift but I'm always on the lookout for frugality tips that I can incorporate into my life. On the other hand, I have no problem ignoring a frugality tip if it takes too much time or effort, has too low a payoff or reeks of unnecessary self-deprivation.
4. I'm just getting started career wise so I've got plenty of time for things to add up.

I have to agree with the previous commenter - staying out of debt is definitely a strong point to improving your net worth. Although this does fall under your comment about frugality its worth mentioning by itself. If you buy an expensive car or too much house you end up paying lots of money in interest which could be going to your networth.

There's no doubt that the single change most important to my radical improvement of my financial situation over the past six or seven years was switching to a much-much-much-better-paid job.

Honestly, I think the idea that someone working a lower-middle-income job can sacrifice and save patiently and then one morning wake up "comfortable" is more a myth than anything else (especially now, with pensions vanishing, skyrocketing health care costs, the rising cost of higher education for your kids, and your parents living longer and incurring more costs for care). I'm not saying it *never* happens, but it doesn't seem particularly likely for most people in the present day. I know a fair number of people who are rich by American standards (though not many who are rich by local standards) and they all got there the same way--they pursued a successful career in a highly-paid industry (or built their own business), and often inherited or married well to boot. Obviously, there's no income too large to squander away, so it's necessary to manage your money intelligently, too (I'm a much more disciplined spender than I used to be, also), but raising your income significantly strikes me as the only thing that is realistically sufficient to radically improve your net worth.

Of course, for many people that goal is simply out of reach, so they have to do the best they can being frugal with what they have, but there are real limits to how far that is likely to take you.

Having a goal, striving to be the best at whatever it is I'm working on at the time (no matter how unimportant it seems to everyone) and my wife. Marry rich to have money for a little while, marry frugal to have money forever.

The planning of it is really pretty simple:

1. Make sure your pluses (money in) exceeds your minuses (money out), by as much as possible
2. Make sure you are taking the surplus and investing it pro-actively in an appopriate manner given your age and circumstances

It's the execution of those two, particularly #1, that trips so many people up.

This is fantastic stuff. I will be looking to have a high net worth henceforth. Very solid details. Frugality allows anybody to live economically.

a. Avoid debt like plague. I recall the only time my net worth was -ve was when I look salary advance (a month's salary before the payday for 0% interest) from my employer to buy a vehicle.
b. Do not invest in what you don't understand. I stayed away from stock markets because I did not have time and expertise to understand them in the past. No regrets - at least I did not pour money in dot-com stocks like my knowledgable friends did.
c. Stock options from a very reputed company. More than half of my net worth is owed to this "lottery".
d. Getting married & having a kid. This really brought me back to my senses & led me to control frivolous expenses. I took a lower paying job, have ample time to spend with family and still manage to save much more than I used to.
e. DIY as much as you can. This allows me to understand what I'm doing, derive satisfaction from a job well done, allows me to buy what I want, not what the salesman (or advisor or distributor) wants to sell.

When I was just out of school I read a business book (maybe the author was Mackey, can't remember) that recommended that the best way to become a CEO and achieve a high net worth is to always take the job with the highest salary. The rationale is that the high salary will justify you taking on more responsibility that you can then leverage into a higher salary. I can say the advice worked because 12 years after I read the book I became a CEO!

The key to a strong net worth (without lottery wins or inheritances) is to take the best paying job and grow your career while being fairly frugal and delay your gratification. Don't go into debt for sure, that is a trap you should avoid. Buy your cars using cash you saved- car financing is a waste with high interest rates. Low interest rates means you overpaid on the price of the car as you could have negotiated instead of taking financing.

Another key to a high net worth is having good negotiation skills. This doesn't mean acting like a used car salesman, but knowing the power and limitations you have whether you are a buyer or a seller. This skill is so important it's accountable to over 50% of my net worth. This was through negotiating job offers, something essential to getting a higher salary and a higher responsibility. Spend the time to learn the art of negotiating. There is nothing inherently cheap or negative about it. It's really about the give and take of the setting of human aspirations.

Once you save up enough money buy your residence for cash. You will find your net worth will continue to climb (no interest payments) as well as having a very strong cash flow. Now you can also start to think about not working.

Last things to build net worth is look at optimizing your tax burden based on incentives in the tax law (dividend vs capital gains, etc). You can also play some riskier investments such as individual stocks as long it's below 20% of your overall net worth.

That said my biggest contributor to NW was savings from salary. Given my reduced expenses today I can save well over $100K per year in my current job, or about 50% of my pretax income.

FMF was one of the first websites I started getting really into in 2005/6 and I appreciate the content that's been put up over the years. Glad to help by sharing my experience.


1. No debt beyond a mortgage.
2. Having a cheapskate wife :)
3. Living relatively cheaply in a very expensive area where I can make full use of my career specialty.
4. Valuing experiences over "stuff". We always go on one "cool" vacation per year, and a couple of little ones. But they rarely cost more than a couple grand, even to really cool places like the trip to Annapurna we're planning for next year. Here, frequent flyer miles, reading blogs from locals and people who've visited, and other "on the ground" research helps hugely to save money and find the good out-of-the-way places and "inside dope" on the best ways to see the "been there and done that" stuff.
5. A bit of luck (buying a condo a couple years out of college just before the long price boom, buying my house in the mid-1990s just before the second boom, etc). But the flip-side of this was I always "under-bought" (ie, bought what I could easily afford and didn't "stretch"), and only refi'd to drastically reduce the interest or years left (often both).

Investing without at least a broad idea about the market will lead to unexpected losses. So at least some basic knowledge is required.

@Mike I like your advice of becoming a CEO. Do you (or FMF) have any advice for how to better negotiate a higher salary? I just started a new job so I am not at a place to do that yet. However, the company is growing very quickly which of course will hopefully give me the opportunity to grow with it. As the company grows, I would of course like to grow my salary as well. Thanks in advance for your suggestions.

For those who are unable to save much and feel like having a substantial net worth is beyond their reach, #3 is even more important. Being frugal and saving just a few percent on your expenses can make the difference between having cash left over or not.


FMF has a number of discussions on this in the career section.

For someone starting out, I'd say focus on delivering a strong multiple of your salary in measurable value to your company. This is so much easier to do in a high growth environment vs one where the industry is shrinking. The key to getting a nice salary increase in my experience is when you have the chance to change jobs. Generally you have the best negotiating power before you join a company so for this reason you should never find yourself desperate to change a job at all costs. If you are in that position you will leave money on the table.

The best strategy is when interviewing, you make sure that the company thinks you are the key person for the job and spend all time doing this before even mentioning salary. Once you know they really would like to have you then you should hold out for a much stronger offer. Hopefully you are valued in your current role and building a career for yourself there as well otherwise you are just bluffing. If you feel comfortable about your situation you won't leave until you get a much higher offer and that is why you will get big salary gains. If there is not a compelling offer, you stay where you are.

Hope that helps.


My challenge has been the career.
I let myself work for too cheap for so many years but I'm finally starting to earn decent money.
Accounting just pays sh*t before you have a designation.
Plus, I live in Vancouver, where there aren't as many corporate jobs, so the pay has tended to be less.
Working on some side-businesses but they haven't paid off yet. Great experiences though!

Rob --

Here's one resource that will help. It's along the lines of what Mike is saying:

Many others can be found in my archives under the career sections:

Here's the path I took to becoming a multi-millionaire - it's all about getting rich slowly.
1) Get the best education you possible can - I ended up with an MS in aeronautical engineering.
2) Be the most conscientious and hard working employee you possibly can - this helps with job security.
3) Make the maximum contribution to your 401K.
4) Have a great compatible marriage - mine has lasted 53 years - avoid divorce, it's a killer financially.
5) As we Brits say - "Take care of the pennies and the pounds will take care of themselves".
6) With everything you buy search for the best possible value - a great used car is better than a new car.
7) Live frugally and make the first check you write every month to yourself for saving and investing.
8) It helps to live through good economic times. The Nineties was a great decade - I increased my portfolio tenfold from 1/1/93 to 3/15/2000 when I sold all of my mutual funds over 4 market days.
9) It helps to live through decades of a rising real estate market.
10) It takes money to make money - money is an invisible slave that works day and night for you.
11) Buy and Hold doesn't work - it's essential to stay out of Bear markets.
12) Don't Lose Money - If you take a 50% loss you then have to double your money just to get even again.

Great article! Hope it's okay if I link to it.

meinmillions --

of course.

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