To all the millionaires under the age of 30, how did you do it?

Answer by Anonymous:

What is arguably the most "deterministic" approach is to use sound personal financial strategies to maximize value and returns, starting as early as possible.

(1) Generally, always minimize expenses and maximize savings. Favor 'needs' over 'wants'. You may say, "what's the point of not spending $2000 on that new TV?" The answer lies in the magic of compounding. The cost of allocating that $2000 to the purchase of a TV is actually much higher than you think. Say you're 22 when you make the expenditure and at the same moment you had instead invested that and averaged 10% return annually on it (definitely somewhat optimistic). By age 30, it would have compounded to $4287 (more than doubled). Now, consider the sum total of all additional savings you gain by converting disposable income you would have otherwise blown on trivial wants in a given year to savings/investments. Let's say you manage to convert $10000 of your income from waste to investments and let's again assume you average 10% annually on those investments. Now let's say you do this every year from age 22 to age 30. The total? ~$125K. This is 12.5% of your $1M goal and all merely from accepting $10K less in disposable income a year. Play with the numbers and see what you can tolerate, but always be aware of and respect the power of compounding.

(2) Invest strategically (while capping risk at some reasonable level). The value of your investments compound based on the (1) rate of return you achieve and (2) the additional principal you add to your portfolio of investments. Don't let your money sit in a savings account. You can almost always be earning a better return with near-zero risk. The return/risk ratio on a savings account is bloody pitiful and it doesn't keep up with inflation. Don't ever settle for that. If you're smart, careful, and patient, it's not difficult to at least hit about a 6-7% annual return.

(3) Optimize your tax strategy to recoup as much from the government in deductions as possible. Adjust your lifestyle to take advantage of deductions if necessary (e.g. if you run your own business or pay interest on a home mortgage, the tax savings can be enormous). On the note of taxes, strongly consider holding a good portion of your investments in long-term (minimum one-year) positions. Your gains on these investments are taxed at 15% (in the US) and the savings achieved from this are not to be underestimated. The best part is this is not even remotely difficult. At the beginning of the period you choose, perform deep analyses on various companies (this is a fixed overhead repeating at only annual intervals) and allocate some portion of your savings to a sufficiently diversified portfolio of the most promising ones you find. There is a breadth of information available on making the best determinations and it honestly doesn't require much intelligence/effort. The biggest risk you face is getting caught in an economic downturn, in which case you'll have to hold your positions for longer than you anticipated (see (7)).

(4) Get into real estate. You want to stop renting as soon as is financially feasible and start paying a mortgage instead. This relates to everything mentioned above, since your savings rate and rate of return are direct inputs to how speedily you can save up enough for a good down payment. Why convert your investments to real estate as fast as possible? (a) You immediately stop paying rent, which is a massive, worthless sunk cost. (b) Your mortgage payments are themselves an investment. (c) You can, at any time, rent or sell the property. Back when real estate was still a phenomenal investment with guaranteed returns, people would often 'flip' houses (buy/sell while only living in any given home for only a short interval – just long enough to realize a decent profit from the appreciation in the property's value). I'm sure we could have a massive debate about whether or not this is even a workable practice anymore. Your other option is to rent out property and this one is much more reasonable imo. It's actually less difficult to be a landlord than most people believe (the Internet is your friend). If you were smart when initially deciding what real estate to purchase (research is needed here too obviously), then you can get into a situation where the rent you negotiate from your tenant can roughly pay (hell maybe even exceed) the monthly mortgage. This is amazing for two reasons: (1) you retain ownership of the property and can sell it at any time (obvious), (2) you don't need to sell to realize the value: your home equity line of credit continues to build up as long as you're paying. This is the layman's explanation. Please do your research. The key to making this work is to replace a rent rate with a roughly equivalent mortgage rate.

(5) As a corollary to (4), build your credit line/score as soon as possible. This will affect the rates you get offered on mortgages you take and it's crucial that you be able to lock in as low a rate as possible. Interest is ugly. Compounded interest is hell (the magic of compounding working against you). The lower the rate you lock in, the better. Again, there are online resources available explaining how to build your credit score. NEVER get deeper into debt than you can immediately pay off at any given point in time (the exception is a home mortgage and possibly a loan for a car, though the latter is arguable) and ALWAYS pay off debts on time.

(6) Speaking of cars, minimize your transportation cost. An illustration of the ideal situation: you always live within walking distance from your place of employment. You don't need a car or regular use of public transportation in this case. You lose out somewhat on convenience but the savings are massive. Whatever you do, don't underestimate the cost of transportation – it's usually the second or third most prominent budget sink for your typical household.

(7) Watch economic cycles. There are intelligent times to be a bullish investor. There are intelligent times to buy a home. Timing is everything. Always measure (at least qualitatively) the expected value of waiting. You can figure out ideal times to take certain actions by tracking readily published macroeconomic indicators and doing a bit of digging. I should mention that it's pretty much impossible to accurately time the markets with a reasonable degree of certainty – the solution generally employed to counter this is a technique called dollar-cost averaging.

(8) In general, favor appreciating assets over depreciating ones. Cars, appliances, furniture, etc are all much more costly than is immediately apparent because their value depreciates rapidly. Limit your expenses to exactly what you need to get by and screw everything else for as long as you can.

(9) Always push the maximum amount into your 401K possible that is matched by your company. There's absolutely no reason for you to leave money on the table. Just treat it as an additional tax and forget about it.

Now the bad news: The above advice will get you closer to $1M status but, without a strong income or an amazing rate of return on investments to complement it, won't get you there by age 30. What's more important is that it sets you up to benefit from compounding. If you're smart about your personal finances and how you live your life, your net worth won't increase linearly but, rather, exponentially over time and you'll get to $1M way before you would have (if ever) without paying heed to personal finances and investment.

*Disclaimer: Not professional investment advice.

EDIT: Made some adjustments to the answer. In particular: [1] in (1) and (2), the 10% annual ROI was definitely overstated – 6-7% might be a more realistic expectation for most investors. [2] in (1), I changed the example about a Bahamas vacation purchase to one about a TV since that more accurately reflects my personal views on life (i.e. experiences > material wealth). [3] In (3), I added a mention about home mortgage interest deductions, which serve as an added incentive for high-income earners to purchase real estate. [4] In (7), you can't actually time the markets perfectly.

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