Lots of books and articles recently on how to become a millionaire. On social media this is a huge topic. I’m currently following several amusing people on snapchat who are teaching us how to become millionaires (Shawn Thomas, Tai Lopez).
To sell their classes and mentorship programs, they’re posting examples of their millionaire lifestyle from garages full of Lamborghinis to first class travel to mansion living along with celebrity friends. As I watch this display of wealth, all I see is OVERHEAD!! And, indeed, the WSJ just ran a piece on how bankruptcy asset hunters are finding that most of the wealth shown on social media is LIES from boats to jewelry to stacks of FAKE cash (50 cent, really?).
So I am going to share my down-home truths about how to become a millionaire. My way is based on everything my working class parents instilled in me. And note, even though my parents did not graduate high school and moved to a country where they didn’t speak the language, they managed to build up wealth the uncomplicated way – by living within their means, having zero debt and saving every penny they could – and I am following in their footsteps.
Read on below for 5 key rules I learned from my parents on how to become a millionaire. Not that they ever talked about it but their approach to money is steeped in my DNA.
1. Live within your means/ make frugality a priority
It takes more creativity and planning but it is definitely do-able to live within your means. I have a budget and I stick to it. I go out to eat a lot but it is always within my budget. If I am in danger of going over, I will forego something.
It also helps to let your friends know your financial goals so that even if they make fun of you at first, they know you have a plan. You’ll find your friends will start to make accommodations for you e.g. instead of hitting up an expensive new spot that is out of your budget, they’ll elect to meet at a more budget-friendly place. It also helps if you manage to become the expert on best cheap eats in your neighborhood. Over the years, I have found more of my friends, starting to talk about sticking to budgets which is fantastic and will never be held against you by true friends.
2. Think long term
I heard a quote a long time ago about women and money that resonated and stayed with me to this day. I don’t have the exact quote – or who said it – but it went something like this:
For young women, it helps to be pretty, for middle aged women, it’s good to be smart, for older women, it’s excellent to be wealthy.
I’ve always had it in the back of my mind that I would not want to be worried about how to make ends meet as I got older. It was a driving force for me. Perhaps I should also thank my mother for greeting every entrepreneurial endeavor of mine with a grim warning on how I was on my way to becoming a homeless person! Whatever the reason, I was determined that I would be a self-made, financially secure person who would not need to worry about money in my older years.
So lesson to my younger friends: the next time you think about blowing $500 on a pair of shoes, think about whether you’ll still love those shoes in 20 years or whether you’d rather have that now $760 dollars (at just a lowly 2% interest rate). You add up all those purchases you make along the way for things that are nice but non-essential, you’ll change your shopping priorities.
3. Buy the home you can afford – and live in it long term
And buy it early on. I bought my Rivington Street loft when I was in my mid-30’s – and mortgage rates were over 9%!! I had checked out Soho, Tribeca, Nolita but everything was above my budget. The Lower East Side was a sketchy neighborhood full of crackheads but I felt it had promise and the loft was perfect. It turned out to be the best buy of my life. I bought it for $220K and paid it off within 10 years. It has a very reasonable monthly maintenance and is an excellent, self-managed small co-op. I will never be priced out.
My recommendation to all my younger friends: don’t waste your money on rent in a “cool” neighborhood. Suss out what will be cool in 10 years and buy there – but make sure that what you buy has a maintenance and tax situation that you will be able to afford as you get older. And make sure the amenities you need e.g. transportation are close by. I will also add that Rivington was the first place I ever bought by myself and I was a nervous wreck but as it turned out, I could easily afford it and every year, I used my bonus to pay down the principle so each year my payments were less than the year before. I know paying down your mortgage early, is a no-no for many people who consider having tax-deductible debt the holy grail of financial planning – not according to my dad, which brings us to rule 4.
4. Live Debt-Free
Living debt-free means absolutely that – never buy anything you can’t afford to pay off at the end of the month. And that again is where having a budget is crucial.
The only time I ever had debt was the 10 years that I had a mortgage at Rivington. When I bought Arris Loft in 2007, I paid cash and I am so happy I did because when the great financial meltdown of 2008 came along so many people who were neck-deep in debt ended up in foreclosure. I had plenty of other worries at that time but I did not have to worry about meeting that mortgage and I was able to rent my apartment and make a healthy profit. However, I did learn that being a landlady was not my thing – makes me too nervous, even with a great tenant.
5. Have a budget and a savings plan and stick to it
I do a comprehensive budget for myself every year and know within a penny what I have spent and what I need to save. When I do need to make an adjustment to my spending, I can easily see what will be the least painful thing to eliminate. Conversely, when I want to have a major indulgence e.g. my National Geo Around the World Trips, I can plan for that spending well in advance.
My budget breaks out everything: groceries, wine, home goods, medical, hairdresser, clothing, repairs, taxes, memberships etc. I know what are going to be my big ticket items every year and also which expenses need to be adjusted e.g. Time Warner Cable bill or Verizon Wireless. I’ve been able to lower costs for both services. I also opt to belong to the YMCA Gym vs. a nearby Equinox because it is so much cheaper – and it’s great!
I sell all of my gadgets as soon as I replace them e.g. iPhones, iPads etc all get sold on gazelle – for surprising amounts of money and it’s easy to do. I recently read about a guy who saves all of his dollar bills each day and is using that money as a down payment for a house (he currently has $9000 saved in a safe in his house).
Finally, and this is a huge no-no to the financial gurus of the world. I have not invested in the market since 1998. I have only done long-term CDs since then – highest have been 7%, lowest 2%. I work too hard for my cash and am too much of a nervous nellie to worry about the gyrations of the market. I also do not trust financial advisors so I do it myself. Giving over control of your money to somebody else because you think it’s too complicated is CRAZY!!