Is The Millionaire Next Door Dead?

If you watch the news these days, you may notice that a whole lot of people seem to believe that the American dream is dead. No one can get ahead and the notion of “the millionaire next door” is no longer attainable. Well, fortunately for everyone, you can still become a millionaire. The American dream is still alive and you can achieve anything you set out to achieve.  But you have to WORK hard!  No one said it was easy to be successful.  No one said you can become financially free without sacrifice.  And you sure as hell can’t rely on the government to help you out.  It’s all on you to achieve what it is you want and I wouldn’t have it any other way.

So How Do Rich People Handle Money?

millionaire lifestyle
The majority of millionaires do not live like this.

There has been study after study done on how millionaires handle money and one of the most extensive studies I’ve seen, was done by Dr. Thomas Stanley.

As Dr. Thomas Stanley, author of “The Millionaire Next Door” points out, one of the most popular chapters in his book (among millionaires) is Chapter 2, Frugal, Frugal, Frugal. This chapter details the frugal lifestyle of millionaires in terms of the modest prices paid for clothing, shoes, watches, motor vehicles, etc.  Check out the book, it’s one of my personal favorites.

Chapter 2, is essentially the most important takeaway of the entire book and it says that millionaires budget, avoid debt at all costs, and invest a lot of money.  But, they are frugal because they are content with what they have.


So How Can You Do It?

Obviously, becoming a millionaire or being financially free is not an easy feat. It takes a lot of work! It takes a lot of discipline! But it is still a possibility…look at all of my fellow personal finance bloggers, they know it can be done and they’re documenting exactly how they’re doing it! So, why not find a person you may look up to, who is successful with money and find out how they handle their money? If you handle money the same way they do, I can probably come to a conclusion that you will also be successful with money.

You can also find a financial plan that works for you and stick to it.  It doesn’t have to be difficult.  I actually prefer that it’s simple to understand because that means that it’ll be simple to follow.  My recommendations are:

  1. Create a Budget
  2. Pay off all Debt (except for your mortgage)
  3. Build up an emergency fund worth 6 months of expenses
  4. Invest in Retirement
  5. Pay Off Your House
  6. Build wealth and achieve Financial FREEDOM!!!

Why Aren’t More People Free?

Are you happy with what you have?  The answer to this question is important in knowing if you will become rich or not.  Most millionaires are content with their $20-$30 pair of jeans, used car, and modest homes.  They dont feel the need to try to impress anyone and they don’t care about what a stranger at a stoplight thinks about their car.

So, maybe the reason that people feel like getting ahead financially is a pipe dream is because they spend their days finding ways to buy convenience and focus on how they can keep up with the Jones’ instead of focusing on building wealth and increasing their net worth.  The size of your income doesn’t matter if you’re making more money AND spending more money.

90% of millionaires are first generation rich, meaning that they are self-made millionaires.  They didn’t receive inheritances.  They worked their butts off, had a plan, were disciplined with their money, avoided debt, and invested month after month, year after year.

They did it, and you can too!


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How much house can you truly afford?

If you’re like me and you’re on a mission to retire early, you need to know that the choices you make always affect your timeframe for when you’ll reach early retirement.  It can shorten how long it is until you reach your goal or it can push it back further and further into the future.  How much of a house you buy will be one of the most crucial financial decisions you’ll make.

extravagant home
Why have a home like this if you have to worry about paying the mortgage for the next 30 years?

Like everything in the world, there are many different opinions when it comes to how much you should spend on housing.  There are many people who think that their house is an investment and it’s ok if they have a ridiculous mortgage payment on an extravagant home.  On the opposite end of the spectrum, there’s a large movement of individuals who lean towards keeping there expenses down to nothing which has in turn created a housing market for “tiny” houses.  Personally, I pretty much stand right in the middle.  I like to keep my expenses low but with a wife, 2 kids, and 2 dogs I can’t really force them to spend the rest of their lives in 300 square foot house.

I’ve never really liked to think of my house as an investment but I can acknowledge the fact that houses do appreciate over time.  At 3% appreciation over 30 years, a $235,000 house becomes worth $485,000.  Not too shabby, but it isn’t guaranteed and shouldn’t be relied on.


How Much Should I Spend On A House?

When figuring out how much you want to spend on a house, you want to avoid any advice from the banks.  Banks will allow you buy a house where the mortgage will be around 50% of your take home pay (and they wonder why there was a housing crisis).  If you’re spending 50% of your monthly take home pay on a house, you’re house poor ladies and gentlemen.  Personally, I’d like to see everyone keep their house payment around 25% of their take home pay when financed with a fixed rate 15 year mortgage.  At 25%, you have the ability to buy a decent house, pay off that house earlyinvest a lot of money, and have a little bit of a life.

House-PoorWouldn’t it be great if you owned a home that you could afford AND pay off early?  Doing it this way will allow you to not only invest more money in retirement but you’ll also have a possible appreciating asset ready to sell if you desire.  If it doesn’t appreciate?  You won’t have to worry about it because you don’t owe a dime on it.  I’ve never seen a bank foreclose on a house that doesn’t have a mortgage!

Most of house poor America is barely able to pay their mortgage because they received terrible advice from somewhere and significantly overpaid.  They invest less than 5% of their income, drive cars with car payments, eat out constantly, and spend every dime they receive.  Please don’t be like everyone else!  Don’t mess up the biggest financial decision you’ll make by over paying for a house.  It’s easy to get house fever while you’re walking around with a real estate agent.  Be patient, be disciplined, and remember to sleep on any decision you’re thinking about.  Your financial freedom is depending on it!

Remember, 25% of your take home pay on a fixed rate, 15 year mortgage!

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Escape The Rat Race With Early Retirement

Why is it that whenever I talk to anyone about retiring early, they look at me a little cross eyed and either shrug it off by not really responding because they don’t believe it can be done, or they ask me, “Wouldn’t you get bored?  What would you do if you retire?”

I can understand when people look at me like I’m crazy for thinking I can shorten my working years down to 15 years.  It’s extremely difficult to pull off and it’s hard enough to even get people to behave with their money, budget, and stay out of debt, let alone start an early retirement movement.  But I don’t understand why people would ask, “wouldn’t you get bored?”  Would you really stay in the rat race because “you might get bored?”  Do you know how bored I am working in the same office everyday?  I also have the same commute, same desk, and same type of work…EVERYDAY!!!  Early retirement seems like heaven when you look at it this way.  I don’t know about you, but I have a lot of things I want to accomplish in this life, and I feel like work just get’s in the way of that.  Sit down and think about what you would do if you didn’t have to work for money.  Dreaming is the first step in making it a reality!

day dreaming
Day Dreaming Just Let’s You Know Where You Really Want To Be. Early Retirement Will Help You Get There Faster!

The general perception of a normal retirement is that you’re now 65 or older and you’re just trying to organize the remaining years of your life so that you can be comfortable and have a little fun with the time you have left on earth (harsh but true).  But what if you could “retire” in your 30’s, 40’s or 50’s?  You could potentially have 50, 60, or maybe even 70 years to live life however you want!

As you can see, early retirement means that you have enough money to choose how you want to live your life and spend  your days!  If you just wanted to be lazy, sleep in and sit on the couch all day?  I guess you could do that, but I don’t recommend it.  If you wanted to pursue your passions and do something that is productive but excites you?  Do it, you have that freedom.

My hope is that I can reach millions of people and make them understand that early retirement isn’t impossible and that it isn’t about living a boring life.  Early retirement sets you free from being chained to your job! Early retirement IS financial freedom.  I really can’t imagine a better scenario for anyone than being able to choose how they want to live their lives!

Action-Changes-Things-AcronymIf you’re now like me, and convinced that the 65 and older “retirement” sucks, you have to TAKE ACTION NOW!  You have to pay off your debt, save money, invest, and not spend every cent of your working wages that you bring home.  The less you spend and the more you save/invest, the earlier you will be able to retire.

No one says that you need to listen to all of the conventional retirement advice and wait another 20, 30, 40 years until you retire.  Nerdwallet.com says that the average savings rate for families in America is just under 5%.  At 5%, you probably won’t even be able to retire at 65!  And, for the younger generations (millennials), what if you don’t even get social security?  You’ll be working until it’s not physically possible anymore.

If you’re ok with that type of life, I understand.  It’s easy and doesn’t require any kind of thoughtful planning or sacrifice.  But I can’t live that way.  I have a hard enough time going to work every morning and I can’t imagine doing it for more than a few years.  I’d rather save the most money I can and live the rest of my life writing a blog, trying to become a professional golfer, hunting, or working a job that I’m passionate about even if it doesn’t pay a lot of money.  I just want to be in charge of my future!

And that’s simply what I want you to takeaway from this post.  You can take control of your life!  Take control RIGHT NOW and don’t let anyone get in your way!

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Build Wealth and Gain Financial Freedom!

Congratulations!  If you’ve reached this step, you’re now living the good life!  You have zero debt and no payments of any sort.  Can you imagine what you can do with your life now?  Anything you want!  You’ve been investing 15% of your income into retirement and threw everything else at the house to pay it off as quickly as possible.  Well guess what?  It’s paid off!  You’ve been dedicated, disciplined, and intentional with your money so that you could be so close to accomplishing your goals of financial freedom and retirement.  Now what!?!

3 Steps to Building Wealth

You’re going to watch your net worth begin to skyrocket.  Now that you’re in this final step you’ll continue contributing the 15% you have already been saving towards your retirement but you’ll also begin to add your house payment and the extra money you were throwing at the house to your retirement and other investments.  Here’s how you want to go about investing:

  1. MAX OUT YOUR 401K– You’re allowed to contribute $18,000 in 2016.  If you have the money, DO IT!
  2. MAX OUT YOUR ROTH IRAIf you qualify for a Roth IRA, you should max out the $5,500 allowable contribution after you max out your 401K.
  3. INVEST IN STOCK INDEX FUNDS– I’ll go into this in depth in a future post but an index fund is a type of mutual fund who’s portfolio of stocks is built to mirror a component of a market index, like the Standard and Poor’s 500 Index (S&P 500).  You’ll want to invest any money you have left over after investing in your retirement accounts in stock index funds.  Look for index funds that mirror the entire market (or at least the S&P 500) while I write a more thorough review of index funds and recommendations for you.

If you can come up with enough money out of your budget to follow these 3 steps, you will become wealthy extremely fast.  If you can’t do all 3, it’s not a problem.  Work your way down the list and do the best you can!  Can’t max out your 401K?  That’s o.k., contribute as much as you can and work on building up your income so that you can invest more money.  The same goes for all of the steps!  Even if you’re on step 3, you want to increase your income so you can invest more money.

Gaining Financial Freedom

financial-freedom-beach-sea-sky-sand

So how much do you need to save to consider yourself financially independent?  25 times your annual expenses.  If you can save 25x your expenses and only withdrawal 4% of your money every year, you will be able to live off of this money forever.  This is the reason you need to keep your expenses as low as you can.  The higher your annual expenses are, the more money you need to save.  For example, if I spend $40,000 per year and wish to continue spending $40,000 per year during my retirement years, I will need to save $1 million ($40,000 x 25=$1,000,000).  Now you can withdrawal 4% every year.  You’ll have $40,000 to spend and the rest of your money will continue to grow.  Don’t worry about the details right now, just start to invest and continue to read these articles.  This blog is mainly about lifestyle transformation and attitude adjustments in how people think about finances.  You’ll learn common sense for your personal financing and investing over time and see that you will change as you save and grow financially.

Remember, you need to know that you’ll never become financially independent if you don’t keep your expenses low.  If you made $5 million per year and spent $4.9 million of it you would never achieve financial freedom.  Keep your expenses low and save as much as you can.  This will make you rich!

*Leave a comment to let us know how your investing is going!  Do you have ideas other than what is listed here that’s working well for you?

**If you like talking about Money, Paying Off Debt, Building Your Net Worth and Retiring Early…This is the place for you!  Subscribe to receive emails of new blog posts!!!

How Much Should You Invest In Your 401K?

You’ve figured out how to budget, destroyed all of your debt, and built up a solid emergency fund with up to 6 months’ worth of expenses.  You’ve arrived, and now comes the fun part!  It’s time to finally start building some serious momentum and investing in retirement.

According to a recent survey conducted by the Employee Benefit Research Institute, 57% of working Americans have less than $25,000 saved for retirement.  This includes 28% of the individuals who had less than $1,000 and 17% who had between $1,000 and $9,999.  But guess what?  You’re already ahead of the majority of Americans, and you haven’t even started saving for retirement yet.  You’ve set a solid foundation for your financial house and now you can finally begin growing your net worth.

Not many people can embrace the idea of cutting back their lifestyles and becoming disciplined enough to sprint through the first 3 steps of our plan with a focus on the future.  Give yourself a huge pat on the back!  You’ve settled for the basics and lived frugally to accomplish a goal…you want to get rich.  Anytime you want to accomplish something big in your life, you need a plan to make it happen.  You have OUR plan; let’s get started!

Simple is Effective!

Right now, you want to invest 15% of your overall income into your 401K sponsored by your employer and if your employer doesn’t have a 401k you should invest in a Roth IRA.  I want you to invest in your 401K first because it is important to take advantage of every tax advantaged account the U.S. Government gives you (This will help lower your taxable income and hopefully get you into a lower tax bracket).  You’re allowed to invest a MAXIMUM of $18,000 in your 401K during 2016.  *This DOES NOT include your employer match!* Your employer match is gravy on top of your $18,000.  If 15% of your income happens to be more than $18,000 you can look into contributing the rest into a Roth IRA.  The maximum contribution for a Roth is $5,500.  Contribute until you hit 15%.

Many of you may be asking, “We just paid off all of our debt and we’re only investing 15%?  And the answer is yes, we are only investing 15% of your income because we want to make sure that you have money left over to pay off your house QUICKLY!  Once that house is paid off you’ll be able to invest A LOT of money and build some serious wealth.  We’ll talk about this in Step 6.

Time + Compound Interest= FREEDOM!

Now you just have to be patient.  Continue making your contributions whether the stock market is up or down and let time work its magic.

I also want you to understand that no matter what, do not take your money out until you’re retired.  If you do, you lose the power of compound interest.

Anyone Can Retire Rich

Hypothetically, if you start investing at 30 years old and you have a household income equivalent to the national average of approximately $50,000, you can retire a millionaire.  Here’s how:

  • You start with $0 in savings but contribute 15% of your income for 35 years.  15% is $625 a month.
  • Assuming an average compounding interest rate of 8% per year you’ll have $1.396 million dollars at the end of 35 years.
  • If you happen to average a 10% interest rate over the course of 35 years you will end up with $2.236 million
  • What if you only have 25 years to invest?  No problem, you’ll be fine.  You’ll still have over $800,000 and that doesn’t include what your house is worth.

Do you think 10% is impossible to achieve?  It’s not.  The stock market has averaged a growth rate of just about 12%.  There are plenty of mutual funds that can be found with a track record of 12% average growth.  Sure they have down years but they have more positive years.  The down years are an example of why you shouldn’t sell.  When stocks are dropping in value you want to buy MORE!  Realistically, I like to plan on an 8% return. If it’s more? I’ll be surprised and happy.  If it’s less?  I won’t be too far off.

P.S. Have any questions?  Leave a comment/reply below and I’ll get back to you as soon as possible.

*If you like talking about Money, Paying Off Debt, Building Your Net Worth and Retiring Early…This is the place for you!  Subscribe to receive emails of new blog posts!!!

Now That You Know Your Net Worth…

You’ve taken the time to write down, in detail, everything related to your finances and you’ve calculated your net worth.  Now you have this number staring you in the face and you’re probably having different reactions depending on your situation.  If you happened to have a positive net worth you’re probably thinking, “Well, at least I’m better off than the guy at Net Worth Explosion!”  But, if you’re like me and you saw a large sub-zero number punching you in the gut, you probably said something like, “Shit….I suck!”

I’m going to be honest, if you’re like the overwhelming majority of people in the world, it doesn’t matter if you have a positive or negative net worth.  You suck either way.  Remember the numbers I presented on my about page that referenced the net worth’s of individuals over the age of 65 in the United States?  It’s not pretty, but don’t worry, every starting number requires the same process for growing your net worth and becoming financially independent.

Pie chart on a stock chart with a budget
Budgeting is the first/most important  step to building wealth!
  1. Make a budget.
  2. Pay off Debt.
  3. Build an emergency fund big enough to fund 6 months worth of expenses.
  4. Invest in Retirement.
  5. Pay off your house.
  6. Build Wealth.

The process needs to be conceptually simple so that anyone can follow it with confidence.  Unfortunately, the majority of people have a hard time digging out of the financial basement and moving on to greener pastures due to the fact that they have to modify their behaviors and the way they think about money.  This is incredibly difficult.  Most people don’t even pay attention to their money.  They lead a life where they buy whatever they want, whenever they want it.  This is INSANITY!  A lifestyle like this leads to debt and a lot of it.  Debt keeps you in the rat race.  It prevents you from being able to save money!  It keeps you working a job you hate, making a commute you hate, and answering to bosses you hate.  In What Is Your Net Worth I explained how I accumulated $34,000 worth of credit card debt and following these 6 simple steps can help you avoid my mistakes.

Your goal, now that you know your net worth, is to work through these 6 steps and get out of the rat race so that you can do anything you want.  Want to take long vacations every month?  Done.  Want to work shorter hours so you can attend your children’s school events?  You can do it.  Want to stop working at all?  It can be done!  You can spend your day any way you want because you’ll have Financial Freedom.  All you need is a plan and I will be your guide as we work our way towards Early Retirement together!  It will not be easy, but this blog is here to offer support and motivation.

*What are your thoughts on Early Retirement?  What would you do if you could spend your day doing anything you want?  Leave a comment and don’t forget to subscribe to receive email notifications of new posts!