10 Habits to Become a Millionaire

Anton is a 27 year old dollar millionaire – at least in net wealth terms.  While he seems to have made about two thirds of that wealth through the US equivalent of leveraged Buy to Let property investment it’s still a pretty impressive feat.  Building that type of wealth in such a short time is not a lot different to what I’m trying to achieve, that is financial independence giving the option of early retirement in less than 10 years.  His 10 Habits That Made me a Millionaire post this week therefore intrigued me.  Let’s look at these 10 habits in turn and compare notes.

1. Setting Detailed and Actionable Goals

I have a proverbial shopping list of financial goals that I've set and then track myself against.  They cover everything from weekly targets for fuel economy on my monster commute and grocery shopping spend targets through to longer term goals including the amount of wealth I require for financial independence including timescales to get there.  I even go one step further and publically score myself against some of these goals at regular intervals.

2. Religiously Tracking My Net Worth

If you’re chasing financial independence then the buck stops at Net Worth.  I have recorded the values of every one of my investments which I then sum to give net worth every week since 2007.  I've never missed a week.  From that history I can then build charts like that below which track my progress to Financial Independence.  It also enables me to easily measure progress against my goals.

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3. Having the Discipline to Save 60% of My Income

He doesn't say whether this is Gross or Net Income but for a long time I was saving 60% of the more difficult Gross.  I've had to recently relax that to 55% only because a recent healthy pay rise has pushed me well into Higher Rate Tax where including National Insurance I'm losing 42% which makes it impossible to save 60% of Gross.  With that in mind I'm declaring a pass against this habit.

2 Years to Go

Only three weeks ago I was writing about my 75% of the wealth required to retire milestone and now as I sit writing this post, drinking a tasty homemade coffee which is helping me save hard ( ), it’s time to write about yet another.

Today my top level asset allocation looks like this:

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The detail behind this is still very much in line with my strategy that I first published in 2009.  Between the 04 January and 02 August 2014 (funny dates as I record my financial position weekly) this investing wisely portfolio returned 3.9%.  Move forward to today and that year to date return has morphed into 7.0% in around a month.  Should long run history repeat to average this portfolio should return about 4% per annum in real inflation adjusted terms over the long term (it’s returned exactly that since I started this journey in 2007) going forwards.

On top of that I continue to work on methods to save hard:

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A Significant Milestone

Noel Whittaker in his book Making Money Made Simple states that in a country such as the UK (he actually cites Australia as an example) “the average person needs only two things to become wealthy – the knowledge of what to do, and the discipline to practise the things that need to be done.”  When put that way it sounds so simple (and of course it is) however reality is of course a different story all together particularly when I look back at my own potted history.

I graduated and started work in 1995.  Almost instantaneously I took on plenty of debt in the form of a car loan and was quick to ramp my standard of living by spending nearly everything I earned (I did save a small amount into an employer pension but it was nothing more than the default fund).  It actually took me until 2002 to make a small purchase into my first investment fund which was not part of any overall strategy but simply a random purchase.  I can’t even remember what prompted the purchase but it certainly wasn’t the “knowledge of what to do”.   It was a great selection [sic] with annual expenses of 1.78% along with a 4% contribution fee.  Hardly the road to wealth.

It actually took me until 2007 to wake up and start to figure out what the game was all about which is when my wealth building journey to financial independence really started.  It was in this same year I bought my first tracker - a FTSE All Share Tracker Fund.  That is 12 years from when I started earning a full time salary to even begin to have the personal finance “knowledge of what to do”.

How to Become a Millionaire

Two thoughts:

• In life we all behave differently and have different aspirations.  As long as harm is not being done to others then this is ok and is what keeps the place interesting.  This means that there will be people who have opted out of consumerism and are practising limited frugality such as myself (and many readers) and people who are consuming either through choice or because they are just not aware of the alternatives.  That’s ok.  There will also be people like myself (and many readers) who have personal finance as a hobby and others who either have no interest in the subject or struggle with too much mathematical complexity.  That’s ok also.  I sometimes wonder what those of the opposite persuasion must think when they stumble across Retirement Investing Today via Google or other website link.  I can’t help but wonder if we might be perceived as a little extreme and also guilty of making personal finance topics unnecessarily complicated.  For this post I therefore want to take a step back and not be either extreme or complex to hopefully help many.
• A Million Pounds is a lot of wealth to all but a very few.  It is also a very emotive value.  Could anybody who was prepared to apply themselves in life, but not be as extreme (maybe they gain happiness from things or want more work/life balance or...) and analytical as we are on this blog ever accrue a million pounds?  Let’s try and develop a simple model to demonstrate if an Average Joe could become a Millionaire.

Let’s define our Average Joe.  I’m going to assume our Joe is not an “Average Earner” but instead intends to pursue a “profession” which will start on a salary of £20,000 at age 21 and finish on a salary of £40,000 at age 68 (State Pension Age for today’s young), for an average lifetime earnings of £30,000.  I can think of many arts, sciences or technical university/apprenticeship routes that would enable this level of attainment through persistence.  Our Average Joe also doesn’t aspire to the 60% savings rates that I do but does realise its important and so religiously saves 20% of earnings every month leaving plenty of cash for consumption today.

Use Technology for Early Retirement and Not to Extend Wage Slavery

Looking back over my short 40 and a bit years, technology and access to it really has exploded.  Thinking about technology a little deeper though and I start to wonder whether the majority of people really are using it or whether it’s actually using them.  Let’s look at a few examples.

Credit cards may not be a technology in the strictest sense of the word but technology advancement sure has helped make them an everyday item.  It’s debatable as to who or what was the first credit card, but roll the year to 1951 when 200 pre-approved persons were able to present a Diner’s Club card at 27 New York restaurants and you have something that sounds pretty close to what we have today.  Except even in my “early” years, some 30 years or so post 1951, I remember my parents not even possessing a credit card but instead choosing the debt free alternative, layaway or lay-by.  Fast forward to today and it’s rare to find somebody who doesn't possess a credit card.  Unfortunately this great convenience seems to have been used by the majority to bring forward consumption by piling on debt at the expense of either larger consumption later or earlier retirement.  Instead let me demonstrate how I use my credit card (yes I have a credit card and also save 60% of gross earnings).  I buy everything I need (of course my definition of need is very different to that of many) on credit card knowing that I have the money in the bank.  I get the item now but depending on when in the month I make the purchase I don’t have to stump up the cash, which automatically happens via direct debit, for between 1 and 2 months.  Over that period that money is earning interest for me, adding to my wealth and bringing retirement that little bit closer.

I remember my first computer, which also came in the 1980’s.  It was an IBM XT clone desktop with a processor capable of 4.33MHz and a ‘turbo’ button which pushed that to something like 10MHz.  It had a 20MB hard drive, a CGA monitor and two 5 ¼” (remember those?) floppy disk drives.  It certainly didn’t have a microphone or a camera and in hindsight it did very little to better my life.  Today we have Smartphone’s, Tablet’s and Laptop’s with multiple GHz processors, 100’s of GB (if not TB) hard drives and high definition screens.  Combine that with the internet which was still in its infancy in the late 1980’s and the opportunities to create extra wealth are today nearly endless.  The majority of people just don’t see or don’t want to see the opportunities. Let’s look at a few.