Everyone seems to want to hit that mark – 7 figures. It’s like the end all be all…Most people never hit it though, but can you really become a millionaire by saving?
I found this article on Forbes and thought it was an awesome way to show how your finances can blossom! No matter where you’re at now if you can manage to pile away any money and start letting it compound now, you will see amazing benefits later on. Compound interest whether it be in the stock market, high yield savings accounts, CD’s, Bonds etc. The earlier you start the better, as always having more to invest is better too. Just by doing the right things now and investing a few hundred a month you’re money will start working for you very fast, and over a decade or two it can easily be job replacing money all on its own.
He’d sometimes only stock away $20 or $50 a month, but every bit helped!
One of the first things FrugalTrader will tell you is that he started investing in mutual funds at age 16, at the direction of his father, who was obsessed with the stock market and used to have buddies over to the house all the time to talk shop.
He’d sometimes only sock away $20 or $50 a month, but every bit helped. That was typically with money from his part-time jobs, which he started holding down in junior high. In college, he did a work-study program that helped him graduate in the green, without any student debt. (His wife was the one with loans.) It was also during college that he started to learn more about investing. Over the years he has read some 80 personal finance and investing books that line his book shelf.
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The summer after graduation, the couple raided their savings account to put down a down payment on a reasonably priced home with two apartments. The idea was they would live upstairs, and rent the basement apartment out. They picked up another rental property a couple years later, too.
The rentals were meant to provide easy, passive income. One of FrugalTrader’s rules was that the rent checks should at least cover the mortgage payment. They did for a while and helped keep the couple’s total housing costs low. But after several years they made the decision to sell when it became apparent that the income wasn’t as passive as they would’ve liked. ”Over four years, we had four sets of tenants. I figured out quite early being a landlord wasn’t quite for me. It’s a second job if you have bad tenants,” says FrugalTrader.
Plus, they had a new baby, and the house was a little too small and the neighborhood wasn’t quite right.
They sold the properties and built another house nearby in a kid-friendly area with good schools where they still live today. They paid off that mortgage in less than three years. How? By putting down a large down payment, keeping their mortgage payments low compared to their incomes, and aggressively lobbing payments at it twice a month and even in annual lump sums.
Since renting out properties didn’t work for them over the long run, FrugalTrader began looking to dividend stocks for passive income. ”My hope is to grow the dividend income enough to pay recurring expenses,” says FrugalTrader, who owns some 40 dividend growth stocks. Johnson & Johnson is one, which has increased its dividend for the last 52 years. Coca-Cola is another.
He complements the dividend stocks with index funds, which he likes because they are cheap, easy, and beat active funds after fees. His tolerance for risk is high, though: Some 95% of his entire portfolio is in stocks, with just 5% in bonds.
“I believe in the long-term growth of the market,” he says of his asset allocation. “I ran the numbers myself. If you bought just the S&P 500 index over the entire history of the stock market, you never lost money over any 20- or 30-year period.”
Armed with this knowledge, he stayed calm during the 2008 financial crisis and held onto his stocks. In fact, he even looked at the downturn as a buying opportunity. “I did buy a little bit, but I regret not backing up the truck. I regret not buying more.”
Another regret: Not always buying index funds. One of the first individual stocks he bought was Nortel (“at one point it was Canada’s Apple,” he says) on a friend’s suggestion during college. The stock had dropped from $120 to $60, and seemed like a bargain, so he scooped up $3,000 worth. ”I held and I held and I held. Then it went bankrupt and I wrote it off.” Now he does his own due diligence before making an investment.
In addition to experimenting with rental income and investing in the stock market, the couple looked to their jobs to bring in extra income.
By both working full time, the couple was bringing in a combined $105,000 a few years after they graduated, up from an initial $85,000. They also worked overtime and took on extra side gigs. For instance, FrugalTrader began running a few websites (including MillionDollarJourney.com, where he documented his financial journey) and did some consulting work. At his busiest, he was working between 70 and 80 hours a week, he estimates. Eventually, after the couple was debt-free, he scaled back to spend more time with his family.
The couple also leveraged government perks. For instance, Canada provides (partially) paid one-year maternity leave.
The other crucial element to the million dollar journey: Aggressive saving.
After college, the couple continued to live like students. “I think the most effective way we saved money was to keep our lifestyle inflation in check,” says FrugalTrader, who estimates that they’ve aimed to sock away 15-20% of their income, and more whenever possible. Any raises, bonuses and tax refunds went toward paying down debt or into savings. “We banked our raises, not like a lot of our friends,” he says.
For retirement savings, they’ve always taken full advantage of workplace matches and contributed the maximum amount allowed in tax-advantaged accounts.
To keep spending in check they created a budget. Frugal habits — like brown bagging lunches and getting books for free at the library — have also helped, although the couple allows for certain indulgences (like eating out) in their budget.
They’ve thought carefully about big recurring expenses, like insurance, too. For instance, whole life insurance is too expensive for what you get. Instead, they have a term life insurance policy, which they say costs less, protects what’s important, and allows you to invest in products that maybe don’t have as high of fees as what an insurance company would choose.
At the end of 2014, the couple hit the million dollar mark they had been shooting for, several months ahead of schedule.
Write out all of your expenses for a month and see what you can save! As always like and share!!