Growing up in a middle class household made me strong. My parents always drove beaters and frowned upon ordering anything other than water when we went out to eat. I knew my parents were not rich because their incomes were in the public domain as foreign service officers. As a result, I made a conscience choice in high school not to attend one of the two private colleges that had accepted me in order to save us money.
We were by no means poor. We just pulled up to parties in a paintless 1976 Nissan Datsun alongside Audis, Mercedes, and BMWs for the four years we lived in Kuala Lumpur, Malaysia between 1986-1990. I was quite mortified as a kid I’ve got to admit. I knew nothing of expensive shoes because I had none except for my wealthier friend’s hand-me-down Jordans that were two sizes too large. I couldn’t even afford a camera or a Nintendo game system. We led comfortable lives, but didn’t have more than we needed.
I was always curious about my wealthier friends. Many of their parents were business owners so one day I told my father, I too wanted to be a businessman. By the time I was 13 I was hooked on every single episode of “The Lifestyles Of The Rich & Famous,” narrated by Robin Leech. A million dollar house and a $40,000 sports car. What a life! I thought to myself in the 8th grade. Might as well give it a go. That’s when I started really hitting the books.
THERE IS MONEY EVERYWHERE YOU JUST HAVE TO GO FIND IT
Becoming a millionaire is becoming more common rather than the exception thanks to inflation. If you work for 40 years and save and invest just 20% of your after-tax paycheck a year, there is no doubt in my mind you will amass at least one million dollars in net worth thanks to historical compounding returns. Maxing out your 401K for 30+ years will also most likely lead to over $1 million dollars as well due to market returns and company matching as well. We’ve got financial planners, personal finance blogs, television, books and even free online wealth management companies like Personal Capital to help you build wealth. Much of the tools and information are free thanks to the internet. So many resources make building wealth much easier now than in the past.
Three Reasons Why The First Million Could Be The Easiest
1) Tremendous energy. When we first graduate from high school or college, we have a tremendous amount of energy to show what we can do after all our education. We’re hungry, motivated, and need to prove to others and to ourselves our worth. Unfortunately, so many of us piss away our youth by buying new cars, getting into credit card debt, not listening to our elders, and thinking the world owes us something. Forget it folks. Nobody owes us anything. But we owe it to ourselves and to our parents who sacrificed all that time and money raising us to give life everything we’ve got.
2) Less dependents. Most of us won’t have children by the time we graduate from college. As a result, we can focus 100% of our efforts on generating wealth by developing our careers or our businesses. Compare ourselves to middle aged adults with two children, a mortgage, and aging parents to take care of. We are like finicky Ferraris on a starting line ready to blow away our older model competitors.
3) Nothing to lose. When we graduate with nothing, we have nothing to lose. Compare that with people with property, stocks, and other investments during economic downturns, and they have everything to lose. With very little assets, we should be taking more risks. Now is the time to start a company, invest in that growth stock, take a new job opportunity, or move half way across the world on a hunch that good things might happen. If we don’t take risks while we are young, we certainly aren’t going to take them when we are old.
WOKE UP ONE DAY
I had no idea I became a millionaire at age 28 until two years later at the age of 30 when I did my first detailed net worth spreadsheet in 2007. It’s easier to achieve something when we don’t even realize what we’re doing. I was too busy saving, investing, working, and trying not to blow my money on things that I didn’t need. I was one of those “Super Motivated Boyfriends” (SMBs) who were impossible to lock down.
Like most people believe, 30 is a big milestone. Ever since college I told myself I was either going to make it, know that I was going to make it, or be an absolute failure by 30. The fear of being a failure at 30 with no job, no woman, no savings, no investments, and no world experiences made me so motivated to not mess things up. A painful two years of working 70+ hour weeks right out of college with difficult bosses also got me into overdrive to figure out a way not to work forever!
There was no fanfare when I discovered the seven figure milestone had been achieved, just the realization that time passes more quickly as we age. I had to make the most of my opportunities since nothing lasts forever. Years later, I’ve continued to grow my net worth with a variety of passive and alternative active incomes to keep me motivated to grow them into self-sustaining income sources on their own.
If you’ve been reading my posts from how to save for retirement if you don’t make much to people make much more than you think, there’s no magic behind wealth accumulation. Amassing wealth is about savings, discipline, perseverance, luck, the occasional X Factor, and the belief that you too deserve to be wealthy. Eventually you have more than enough so that you’ll either retire or keep on playing for fun.
THE ROAD TO ONE MILLION DOLLARS
To the best of my memory here’s how I was able to amass a million dollars by age 28.
Age 22. Year 1999. Place Your Balls On The Chopping Block. When I graduated college the total amount of cash I had was roughly $4,000. I had saved some money from summer jobs temping and flipping burgers at McDonald’s for $3.25-$4 an hour. I just started a dream job in New York City at Goldman Sachs and was feeling confident I wasn’t going to get fired the very next month. As a result, I invested $3,000 in a dotcom stock called Vertical Integration Systems (VCSY) that turned into $200,000 within several months. Yes it was incredibly lucky, but it also took some analysis and guts. I just wish I had more money to invest! The stock pulled back by around 25%, at which time I sold everything for around $155,000 and stayed out of the bubbliscious stock market for the next year and a half due to a job change in 2001. The stock ended up being worthless a couple years later. $155,000 equals about $120,000 in after tax proceeds. The trade is detailed in the post, Don’t Stop Fortune Hunting. Net worth: ~$160,000.
Age 24. Year 2001. Taking An Employment Chance. After two years in NYC, I was recruited to join another firm in San Francisco. I only knew a couple people in San Francisco, but felt the promotion and 100%+ guaranteed raise was attractive enough to take a chance. I was coming from a top firm and had established some solid client relationships over the past two years. The economy was still dicey due to the dotcom implosion and there was a big chance I would not make Associate after my third year at GS.
It turns out my firm in NYC did indeed let go of many colleagues, and only about 25% of the people I knew from my entering class were still there two years after I left. It was a little scary moving all the way cross country, but it wasn’t like I was moving to the middle of nowhere. This was San Francisco, one of the most beautiful cities in the world. Besides, San Francisco is six hours closer to Hawaii, one of my favorite places on Earth, so I figured what the hell. I saved 100% of each bonus, maxed out my 401(k), and saved a little more for my E*TRADE account. Net worth: ~$260,000.
Age 25. Year 2002. Continued To Live Like A Student. The first two years in NYC, I lived in a studio with another guy. We put up one of those Chinese Paper Walls to add more privacy. I didn’t care. I was living in New York City, the most alive city in America. I’d rather spend money going out and partying rather than on an extra bedroom. When I moved to San Francisco, I spent even less on housing since NYC is about 30% more expensive. I found a two bedroom, one bathroom apartment at the edge of downtown for only $850 a person. I finally had my own room, yeah baby! When you now make double what you were making a year ago, yet pay 25% less in rent, saving becomes very easy. I increased my after tax, after 401K maximum contribution savings rate from 50% to 65%. Net worth: ~$400,000.
Age 26. Year 2003. Conservative Investments Before & During The Recession. 60% of every paycheck and 100% of every year end bonus after 401(k) contributions went into long-term CDs that yielded 5-6% at the time. The reason why I invested in CDs was due to a job change and not having time to manage my portfolio in 2001, 2002, and 2003. Furthermore, I was scared of another market implosion that would not only take down my investments, but also my bonus, and potentially my job. My 401(k) was already 100% exposed to the stock market already.
A day after my 26th birthday, I decided that it was time to grow up and buy my own place. I was renting a $1,600/month one bedroom apartment in San Francisco and wanted a nicer apartment. At the same time, I didn’t want to spend more than $2,000 a month on rent because the return on rent is always zero. I became very disillusioned with having a large chunk of money in the bank and started wondering what is the point of working more since I had more than I could ever have imagined. At age 26, I was already thinking of “retiring” in Hawaii. In retrospect, if I had started this site then, Financial Samurai would have been a beast in the blogosphere. Given my waning motivation to work as hard anymore, I decided to buy a two bedroom, two bathroom condo in a nice area of SF and live it up a little! The combination of 5-6% compounded returns in savings over four years, a growing 401(k), and another year of saving a growing bonus resulted in a net worth of roughly $550,000.
Age 26-27. Year 2004. Renewed Motivation To Work. After putting down a 25% downpayment (~$140,000) for a $580,000 condo, my motivation to work skyrocketed because of a drained cash account. I prayed the housing market wouldn’t implode like the stock market did years earlier. A year before my condo purchase I did a silly thing and bought a $78,000 Mercedes G Wagon (G500). The truck was sweet and I thought it was a great deal since it was selling for $150,000+ the year before since this small dealership in Sante Fe, New Mexico quizically owned the US import rights. I drove the truck for a year and had to sell it for a $20,000 loss because it wouldn’t fit in my condo garage due to the height! What an idiot, but I felt buying the condo was the responsible thing to do. I traded way down to a seven year hold Honda Civic worth $8,000 instead. I was growing up but still had the thirst for nice cars.
The $435,000 mortgage put a fire under my ass to work harder and be the best performer I could be. At the age of 27 I was promoted to “Vice President,” a title that is normally bestowed on business school graduates three to four years out of school at the age of 32-33. From there, my income took another large jump up due to a higher base and higher bonus range. I became one of the youngest VP promotes in my office. Debt provided an unexpected side benefit for my career. From 2003 to 2005 my condo also appreciated to around $815,000, a 40% jump. Unfortunately, this increase was unsustainable as we all know. Net worth: ~$800,000.
Age 28. Year 2005. A New Landlord. At 28, I decided to finally buy a house in San Francisco. I was sick of having neighbors above and below me. I wanted a yard, a deck, reprieve from the HOA meetings, and to be king of my own castle. I already started looking every Sunday a year earlier because I was fascinated with real estate just like so many others at the time. I turned my condo into a rental, and it has been this way for the past eight years. My rental property equity was around ~$350,000 plus around $750,000 worth of CDs and stock investments for a total net worth of around $1.1 million. I knew I was doing OK, but I had no idea I was worth over $1 million at the time. I was too busy building a business at work, managing a rental, remodeling a new home, and figuring out how to keep things going.
Note On 401k Investments: I put away the max 401K pre-tax contribution since my first full year of employment. At the time, the maximum contribution amount was $10,000 a year. The maximum amount is now $17,500 a year for 2014. If I take six years times the average $15,000 = $90,000. The average company match was around $15,000 a year since we had match + profit sharing, so add on another $80,000 = $170,000 in my 401K by the age of 28. But actually, I had over $200,000 given it did return more than 5% on average for six years. One of my 401K options was a hedge fund, where I put a 60% of my allocation during the downturn between 2000-2002. The fund actually did well given they had a net short position, so my overall 401(k) was able to take the hits. Here’s my recommended 401(k) by age chart.
|Financial Samurai Net Worth Growth Chart to $1,000,000|
|Age||Net Worth After Taxes||Notes|
|22||$4,000||Fresh out of college.|
|23||$160,000||Big stock gains by taking risk.|
|24||$260,000||Changed firms for promotion & raise.|
|25||$400,000||Saving 60%+ of after tax income.|
|26||$550,000||Bought first property, entered business school PT, Go Bears!|
|27||$800,000||Promotion to VP. Purchased vacation property that turns sour years later.|
|28||~$1,100,000||Savings, stocks and rental property appreciation. Bought 3rd property.|
THOUGHTS ON BUILDING A $1 MILLION NEST EGG BEFORE 30
What I’ve written is to the best of my recollection. Remember, I didn’t start calculating my net worth until I was 30 and I’ve only just now recounted the wealth building years up to age 28. I strongly believe everybody can accumulate a million dollars if they have the motivation, a good amount of planning, and the right amount of guidance. I’m sure some of you will have your own doubts, while others will scoff at how little $1 million is. You’ve got to figure out for yourself what amount makes you happy.
1) Don’t mess around in high school and college or else you will have a hard time landing a good job that pays well. Give yourself optionality please. There are thousands of straight-A, top 25 university graduates every single year. I was one of the thousands, and it’s hard to compete if you are not one of them because employers can’t respond or meet with everyone. Many firms such as Goldman, Mckinsey, Bain etc have GPA cutoffs of 3.5 out of 4.0, with some at 3.7. If you don’t have connections then you just aren’t going to make the cut when there are thousands of applicants for only 60 spots. You can rage against the machine and believe grades don’t matter, but you are going to be wrong like donkey kong and most likely regret your immaturity.
Getting a job at Goldman Sachs WHQ was like winning the lottery for a kid coming out of a non-target public school. I went through seven rounds and 55 interviews over a course of eight months before getting the offer. I would not have been able to even get an interview if I didn’t get good grades or show initiative. Your job income is the #1 main source of wealth for most people. Might as well focus on the highest paying industries that you think you’ll enjoy if money is what you want to make. It’s important to note that no way is a large income a guarantee for lasting wealth as many millionaire bankruptcies have proven.
2) It’s important to save aggressively. When you’re a college student, you’re poor. Hence, even if you graduate and only make $30,000 a year, I’m willing to bet that’s more than you’ve ever made in your life! Try to continue living like a student for years after you’ve found your first full-time job and save! Stop making excuses why you need to buy a nice car and nice clothes. You’re a 22 year old recent college graduate for crying out loud. Build your foundation in your 20s and stop thinking you have a decade to explore, because you don’t. 10 years maxing out your 401(k) will likely result in a $200,000 portfolio in your early 30s.
The base you build in your 20s will provide tremendous returns for later on in life. If you stay consistent over the years, you will get there. Aim to save at least 20% of your after tax income every year, no matter what.
Please read “How Much Savings Should I Have Accumulated By Age” for some great tables to make sure you’re on track.
3) Work hard and know your place. Working hard takes NO skill. If you’re not coming in first and leaving last, you aren’t putting in your time. I promise you that if you wake up by 5am every morning, work one to two hours before the rest of your peers and work another one hour after your peers have left, you will get ahead! Please read A List Of Career Limiting Moves To Blow Up Your Future.
The reason why I was promoted to Vice President at 27, when the average VP promote is 33 is because I put in my dues. I generated millions of dollars in revenue, built a solid network of internal supporters, and was a workhorse by coming in by 5:30am everyday for my first two years and leaving at 7:30pm-8pm on average. Sometimes I even left work at 10pm. Did I sacrifice some of my social life? Of course I did. But, I also partied hard many weekends goodness knows! Working hard doesn’t mean you can’t play hard and travel. You’re young remember? You’re energy is limitless!
4) Stop making lame excuses. You can spend time crying why the world isn’t fair, or you can do something about your life. If you are reading this post, chances are you have clean water to drink, shelter, internet and a legal system that protects your rights. There are millions of people in the world who are starving every single day. There are those who live in fear of dictators confiscating everything they own. There are people who immigrate to America for a better life, don’t even speak the language and crush it. What is your excuse?
Spend 30 minutes every day by yourself in meditation coming up with a better business model for your company or for own business. Spend four hours every weekend in the office studying up on new things that will help improve your standings with your clients. You can even start a blog and work an extra 30 hours a week online before you have a family and generate some healthy revenue if you wish. Let’s take advantage of the freedom our respective countries provide.
5) Diversify your revenue and consider both aggressive and conservative strategies (dumbbell approach). When I was 22, I only had about $4,000 to my name. Regardless, I invested 80% of my money and it turned into a 50 bagger. Was I lucky? Hell yes! But, I did my research and was I willing to put my balls on the line to try and make some money. I think it is very important to take more risks when you are young which is why I’m biased towards growth stocks over dividend stocks. With the proceeds from my VCSY trade, I transferred my wins into long-term CDs and then ultimately into property.
When you are ahead, it’s very hard to walk away. As a poker player I know this feeling all too well. But it’s tantamount to invest a portion of your winnings in a safe haven. Lock it up. Protect yourself from yourself! I didn’t take on the reckless mentality of betting the farm with my windfall since I was now playing with the “house’s money.” This was my money now damnit, and I wasn’t about to piss it away on some B2B stocks. Continuously diversify your income streams. Create buffer after buffer. Please read, “Achieving Financial Freedom One Income Slice At A Time.”
6) Property truly is your best friend over the long term. If you put 20% down on a property and it goes up 3% a year, that’s a 15% return on your cash thanks to leverage. Sure, you can get your face ripped off if you bite off more than you can chew. But trust me when I tell you that thanks to inflation, your debt payments will seem insignificant five years afterward. Five years later, you will be happy every month when you get to charge a rent that is much higher than the interest portion of your mortgage.
I sometimes feel guilty raising the rent, but remind myself, I was the one who took the risk, put down the downpayment, and nobody forces anybody to rent my place. Real estate is my favorite investment asset class to build wealth. You can also learn how to raise the rent without feeling guilty.
7) Pretend you are poor and show few signs of wealth. Stay humble despite amassing a fortune. Don’t show off or waste money on things you don’t need. Make people believe you are younger and poorer than you really are. I drive a 13 year old car and wear t-shirts, jeans, and a baseball cap most of the time. They think I’m 5-7 younger than I am, and give me little respect. That is exactly the way I want to be viewed so the car salesmen don’t bother me. Always be the underdog to get ahead. I would say at least 70% of the millionaires I know are very low key. You can’t tell they have a lot of money except for when you get to their house.
8) Believe there are more ways than one to rub a furry koala. You can make big bucks through a day job or on your own. Better yet, you can do both! There is no right or wrong way to rub the furry koala. Just the fact that you can pet one is what counts. You need to make a choice if you want to increase your wealth or not. If you do, you should logically research the industries that pay well and join one that fits your personality and skill-set. I grew up overseas and loved the stock market so I knew international equities was a perfect fit. I also like to write so blogging became a natural extension. Keep searching for other ways while counting each blessing because luck counts a great deal.
9) Office politics counts. In order to get ahead, you’ve got to play the game by building as many company allies as possible. I don’t know many people who like to sell themselves internally to their colleagues and bosses. People think that all it takes is good work to get recognized, paid, and promoted. This is absolutely false! You must sell yourself internally as much as you sell yourself externally. Once you have someone with significant power on your side, your entire career gets that much easier. Online, you can write great content, but you might very well never get on the map if someone bigger doesn’t recognize your work and give you a nod. After the lift, it’s what you do with it that matters.
10) Invest in yourself. Your greatest money making asset is you. Don’t cheap out on education or consulting. Education is worth more than any material thing you can buy. My studies in college and grad school taught me how to market, negotiate, communicate, analyze investments, and influence. Working with financial advisors who are experts in their fields have allowed me to save a ton on taxes, optimizes my investments, and let me focus on what I really want to do. It’s hard to recognize value when you can’t touch it. However, I promise you that knowledge and education is worth more than everything else.
PLEASE ALIGN YOUR BELIEFS WITH REALITY
One cannot downplay the importance of luck in building wealth. I have been fortunate to have two loving parents and a brain that works most of the time. If you’re born in America, please take full advantage of all your opportunities. Despite having a deficiency in higher level math, uninspiring SAT scores, and a run in with the law as a teenager, I made up for my weaknesses with plain old work ethic. It also helps to be an undying optimist as well.
You can’t complain about not having wealth if you decide not to pursue wealth. That’s a mental misalignment. The desire for wealth shouldn’t be viewed as evil. It should be viewed as natural for anybody who wants to live a better life, take care of his or her family and parents, and have the opportunity to give back to the community.
As soon as we align our realities with our beliefs and desires, we become congruent. We are happier with ourselves and our outlook. Once you’ve accumulated your $1 million nest egg, you’ve now got to figure out how to maximize its return as you battle age, other responsibilities, and fatigue. That’s when the real challenge begins!
RECOMMENDATION TO HELP BUILD YOUR NET WORTH
Track Your Finances In One Place: After manually tracking my net worth via Excel spreadsheet since 2007, I decided in 2012 to track my net worth with a free tool called Personal Capital. Once you link all your financial accounts onto their dashboard, Personal Capital will track your net worth for you and send you weekly updates via e-mail. Before Personal Capital, I had to log into eight different systems to track 25+ different accounts (brokerages, 401(k), multiple CDs from multiple banks, mortgage accounts etc) to manage my finances. Now, I can just log into Personal Capital to get a snapshot of how everything is going. I can also see how much I’m spending every month.
The best free tool they have is their 401k Fee Analyzer which is saving me over $1,700 in annual portfolio fees I had no idea I was paying. You can run any investment portfolio in their tool to see how much in fees you’re paying. They also have this great Investment Checkup tool which assesses your investments for risk based on sector weighting, style weighting, and size weightings. Portfolios can grow unbalanced in a bull or bear market if not properly checked. The best part about Personal Capital is that everything is free and easy to use on your desktop, tablet, or mobile app. I believe in their product so much that I decided to consult with them part-time in San Francisco starting in 2014 to help build out their online content.
Updated on 5/1/2015
Photo: Balandra Bay, Mexico