
Practical, unsexy steps to become a millionaire - known
https://qz.com/913249/the-practical-steps-it-takes-to-actually-become-a-millionaire/
======
ideonexus
Overall, I think this is great article, but I have two quibbles:

1\. Start a business if you want to get rich: you can also start a business if
you want to lose a lot of money. I lost nearly $100k that would have otherwise
gone into my retirement trying to start a business. Most businesses fail. So
think starting a business should be seen as a high-risk investment.

2\. You can't get rich on a salary: My wife and I have never made six-figure
salaries. We are in our mid-40s and we will be breaking $1 million in
retirement savings this year if the economy stays stable. We did this by
maxing out our 401k contributions since our 20s.

Becoming a millionaire is a lot of hard work, but if the recommendations in
this article are too extreme I've always appreciated Elizabeth Warren's advice
of 50/30/20: 50% of spending on necessities, 30% on fun, and 20% on savings.
Using this a guide, I've been able to tell when I need to downsize my spending
and I've been able to spend on fun without feeling guilty.

~~~
ben_jones
One size fits all rules don't apply here. If you're pulling six figures in the
bay area you could easily be spending 50% of your take home on rent. Another
20% on other necessities.

Toss in an individual with college debt, or medical issues, or financial
family obligations, and you might not even have the option of accruing any
wealth at all.

~~~
Veelox
>If you're pulling six figures in the bay area you could easily be spending
50% of your take home on rent.

You also put up with a longer commute, less house, or a less nice neighborhood
and keep your rent under 30% of take home pay.

Edit: Per [0] if you make $100k you end up with $5752 a month in take home
pay. At 30% that would give us $1725.60 a month for rent. Checking craigslist
[1] there are 55 places available for less than that if you are willing to
rent just a room.

[0] [https://smartasset.com/taxes/california-paycheck-
calculator#...](https://smartasset.com/taxes/california-paycheck-
calculator#BbzEXowAAD) [1]
[https://sfbay.craigslist.org/search/pen/roo?nh=81&max_price=...](https://sfbay.craigslist.org/search/pen/roo?nh=81&max_price=1725&availabilityMode=0)

~~~
tomkarlo
That's easy, if you're single. But "renting just a room" isn't really an
option for couples, or families.

That said, if you're moving to the Bay Area for a job, you need to take into
account that six figures here is not the same as six figures anywhere else.

~~~
Veelox
When my wife and I first moved out here, we rented a master bath/master bed
starting in January, we hard our son in July, and moved out in January. So it
is an option, just not one a lot of people want to take. Then again, my wife
and I want to be retired in <15 years so we are making decisions others would
not.

~~~
tomkarlo
It's one thing to do it for 6 months with a newborn that can't leave their
crib (although even that's challenging). It's another to do it with one or two
kids that have learned to walk.

~~~
ben_jones
How did the roomates handle the newborn? Or was the noise dampened/not an
issue?

~~~
Veelox
They were okay with it. One was a heavy sleeper the others were far enough
away that it was dampened.

------
tabeth
My steps:

1\. Buy a house in a place where it's normal for people for rent rooms or have
roommates.

2\. Rent out all of the rooms other than the one you live in.

3\. Renovate the house, depreciating all expenses.

4\. Make all necessary repairs, deducting all expenses.

5\. Buy things like solar panels, which also can be depreciated (5 years) and
improve the cost basis of your home.

6\. When the house is paid off from rental income + what you had to pay in
mortgage anyway (this will take between 5 to 10 years. This means if you're
mortgage is $3000 and your rental income is $3500, don't pocket the cash. Put
most of the rental income towards the principal and save some for
repairs/improvements.) Buy another house and do a 1031 exchange.

7\. Repeat step (1) with a nicer house, ideally with a duplex/triplex/four-
plex. Stop repeating when you're seeing diminishing returns on the cash flow
of your home (this will likely be at the multi-family level).

Eventually all of your housing related expenses will be 0. Take the money you
would've had to spend and put it into an index fund.

Unlike most advice, the above steps are guaranteed to work as long as you buy
a house you're capable and willing to pay the mortgage of without renting it
out. Finally, because you're an _owner occupant_ you have the ultimate
leverage and it's effectively zero risk, since costs are spread across your
tenants and benefits go to the property you own.

What's the catch you're thinking? Why doesn't everyone do this if it's
guaranteed?

Turns out people don't like being a landlord or living with others. Swallow
that pill and financial success is _inevitable_ as long as you don't try to
become an investor (that's an entirely different set of problems). You also
have to be willing to do this even if you have a family -- however if you
started this early enough (up to late 30s) you should be able to transition
over to a multi-family in most markets and still have some privacy for you and
your family.

\---

Unlike a lot of other advice, you don't even have to make a lot of money to do
the above.

~~~
notheguyouthink
How viable is this if you're not a handyman? I've always thought something
similar to what you're referring, but avoid it because I don't deal with
anything construction related.

~~~
jfaucett
Not at all. I've done this with my family, friends have done this, and it is
definitely not for everyone - especially if you dont like doing all the
repairs and renovations yourself all the time.

I hated it, and sure after 10-20 years you are sure to succeed, and those who
do this do well, but for me it is not worth it. I'd rather spend my free time
doing just about anything except having to deal with all the headaches you
have as a landlord and handyman.

------
outsidetheparty
This section is angry-making:

> a lot of millionaires live on something like 10% of their income. Everything
> they own, their house, their cars, even boat, doesn’t surpass 10%. You can
> apply this thinking too!

Something tells me the people able to live on 10% of their income have at
least one "multi-" prepended to their "millionaire" label.

In SF, doing this while living in a 1BR apartment would require a yearly
income over $430,000. San Jose, over $300,000. In NYC, DC, Boston, Miami or
LA, you'll need at least $240,000 a year. National median rent ($1234/mo)
still needs above $150K/year. And that's just rent, no frivolities like
"eating food" or "wearing clothes".

(Rent data from [http://time.com/money/4359971/average-apartment-cost-us-
citi...](http://time.com/money/4359971/average-apartment-cost-us-cities/)
2016; current numbers likely worse)

It's easy to save money when you already have much more than you could
possibly need. Otherwise, less so.

~~~
bloaf
That section is confuse-making.

Presumably their house, car, and boats DO cost more than 10% of their income.
Their _payments_ on those items might not exceed 10%.

~~~
gowld
That's still patently absurd for anyone making <$500K/yr (OK, less if they
don't have a family)

------
lev99
Thoughts on "thinking long term".

I always translate monthly expenses as 2055 dollars, because that is my target
retirement date.

If something in 2018 costs $100/month that means it costs $1,200/yr. You can
expect to see about 8% returns in the stock market over the long term. By
saving $100/month for a year instead of spending it I will have ~$20,000 in
2055 money. If I continue to save the $100/month instead of spend it I will
have ~$275,000 in 2055 money.

Edit: Translating to your target retirement date dollars also works for one
time purchases.

~~~
gfodor
Have you accounted for inflation and the fact that your assumption about stock
market returns may very well be completely false since past results do not
imply future returns?

The best way to get rich is to generate a large amount of value for a lot of
people as fast as possible in a way that you will directly benefit on the
upside (imho.) Not pinch pennies and put your fate in the hands of returns on
a specific asset class.

~~~
tomkarlo
You have to account for the expected value of those two approaches.

The payout on your strategy (generate a lot of value for a lot of people) is
high, but the probability of success is very low. (And the payout is usually
tied to the stock market, if you're talking about generating corporate equity
value, private or public.)

Conversely, a dollar saved is just a dollar plus it's return over time, but
the probability of saving that dollar is essentially 100%.

~~~
andrewjl
The probability may be low but the number of attempts allowed is unlimited
(barring time / energy / other obligations). So one can keep trying until
something sticks. The important part is to keep trying.

~~~
tomkarlo
Even over a lifetime of trying, the probability remains pretty low. This is
why articles like this emphasize that the more realistic was is via savings;
lots of folks fail to save because they believe they're going to "hit it big"
on the next deal / job / inheritance / lottery ticket, but it's usually just
going to result in failing to save enough because you've over-estimated your
future income.

It's also a convenient way to justify not saving enough.

I've watched fairly successful business owners make this mistake many times -
they were making 400K or 500K (in some cases, millions) a year off a business,
but not saving anything because they still expected it to grow a lot larger.
If it fails to grow, then end up either broke or in debt.

It's inherent to entrepreneurs that they believe in the big future payoff more
than average, but that's also a big blind spot for financial planning.

~~~
andrewjl
Probability of making onto the Forbes 400, very low for sure. Probability of
building an income or capital base whose returns can match a typical salary,
over a lifetime of attempts is very high.

Your examples showcase the pitfalls of bad planning and not the probability of
business success. Success doesn't absolve one of the responsibility to plan,
but being someone who did succeed can open up additional doors and options for
the said plan.

~~~
tomkarlo
I'd love to see your stats you're using to set that outcome's likelihood at
"very high", relative to the probability of being able to save enough for
retirement based on simply being a saver.

The entire problem is that most folks grossly overestimate their probability
of future success, even over a lifetime.

(Not to mention likely done a lot of damage to your health and relationships,
if you spend a career trying to finally achieve a big outcome... there are
non-financial costs to taking bigger risks that we often fail to assess.)

~~~
andrewjl
Bigger risk wrt what exactly? Time? Working 60-80 hour weeks on
entrepreneurial pursuits may boost your chances, but isn't required, except on
a rare, brief inflection point occasions, IMO.

As for probabilities, spending 10 hours per week, thinking, and iterating on
side projects, over the course of 10-15 years can bring a sustainable $10-15k
monthly pre-tax income if done well. (I define well to be build stuff people
want, focus on your customer, etc) If one's time horizon is smaller or income
needs are larger, then there are other leverage points that can be used.

------
defen
The real answer: save $20,000 a year at 3% growth for 30 years. If you want to
do it in 20 years you need 8% growth, which is probably not sustainable; or
you can save $35,000 per year at 3%.

~~~
everdev
8% annual average return is not unrealistic for the US stock market.

I did it using this method. I worked hard and lived within my means for 5
years. You'll quickly realize that after taxes a million isn't close to
retirement money in the Bay area.

~~~
defen
Cumulative return for the S&P 500 over the past 9 years (conveniently leaving
out the 2008 crash), with dividend reinvestment, is equivalent to a YoY gain
of 16.25%, which gets you to a million on $46,000 per year for those 9 years.
However I think it would be foolish to presume that the stock market will
continue to post those kind of gains forever.

Edit: adjusted ambiguous wording about S&P gains

~~~
yakitori
> Cumulative return for the S&P 500 over the past 9 years (conveniently
> leaving out the 2008 crash), with dividend reinvestment, is equivalent to a
> YoY gain of 16.25%

That's a bit disingenuous to use the generational market lows of 2009 as your
starting point. It would be like using the all-time highs of 2000 and the 2009
lows as your range. Then the cumulative returns would be negative ( including
dividends ).

> However I think it would be foolish to presume that the stock market will
> continue to post those kind of gains forever.

It's impossible for any economy/market/whatever to maintain a 16% return every
year.

~~~
defen
> That's a bit disingenuous to use the generational market lows of 2009 as
> your starting point. It would be like using the all-time highs of 2000 and
> the 2009 lows as your range. Then the cumulative returns would be negative (
> including dividends ).

Right, I did that on purpose, just as a way of showing that luck (in terms of
accidental market timing) has a huge impact on returns. As I said in top
comment, even 8% is not sustainable, let alone 16.

------
awjr
One of the pieces of advice I did not heed from my Dad was to try and
save/invest 30% of your salary. This one is hard to understand until you are
in your 40s and realise you are probably going to continue to work well into
your 50s.

I love my job, but I'm now involved a lot more in the political arena, knowing
I can make a difference there, but being held back. 'Having' to hold down a
job is getting in the way.

I'm at peace with the choices I made but I also recognise I could not be
working now if I'd been a bit more prudent.

~~~
aphextron
>One of the pieces of advice I did not heed from my Dad was to try and
save/invest 30% of your salary. This one is hard to understand until you are
in your 40s and realise you are probably going to continue to work well into
your 50s.

A single, healthy, 20 something SWE can easily save 60-70% and retire before
age 40 if you really try. I’m right around 50% now. The key is getting over
that mental hurdle to where you start enjoying saving more than spending. I
feel infinitely more fulfilled seeing $1,000 in my bank account than anything
an iPhone X could ever do for me.

~~~
nunez
You totally can do that if you hate fun

~~~
qu4z-2
Or if you know how to have fun without just throwing money at the problem :P

------
1337biz
Suprised to see a generic post like this becoming so popular.

It is like somebody watched a Warren Buffet documentary and used his
personality traits as universally appliable rules.

I bet if someone took the time to collect anecdotes of some flashy yachting
billionairs, one would draw just the opposite take aways.

~~~
rhizome
Flag it and move on.

~~~
1337biz
No, I don't want to flag posts that I probably just didn't understand. That's
why I am trying to participate in the discussion.

~~~
rhizome
There's a question in your mind about whether or not you understood this
article?

------
frgtpsswrdlame
Oh come on, this is just survivorship bias, self-help crap. Millionaires are
just normal people with lots of money, there's nothing particularly unique
about them.

~~~
TehCorwiz
The millionaires down-voting you would beg to differ. But the main conceit
isn't that they're normal people, it's that success is most often a
combination of luck and the resources (financial, social, etc.) to take
advantage of advantageous situations. That's not to say that wealthy don't
work hard, but we as people often discount the influence that our
uncontrollable circumstances have on where we end up, and almost no-one wants
to admit they are where they are because of dumb luck.

~~~
DaiPlusPlus
It’s entirely predicated on luck, but rephrase luck as “opportunity” and see
you then need to also have the skills and perseverence to capitalise on that
opportunity. Of course, the problem is there is having the luck to be born
into a situation where you could develop those skills and attitude, either
through genetics or an encouraging family environment.

~~~
frgtpsswrdlame
Yes, a good way I've seen of phrasing it is that your opportunity depends on
'luck' and in those lucky situations it also (sometimes) requires the skill to
capitalize on it. But your skill to capitalize is highly dependent on your
'lot' which is what you were born into (really just another form of luck.)

------
cryoshon
have to disagree on the following grounds:

1\. most people aren't even exposed to the opportunity to gain any appreciable
wealth. step one is getting out of salaryman slavery existence and getting
into companymaking, rent extraction, financial swindling/legal tax evasion,
etc. the author mentions the last point, but it's too far down the line. step
one is to start playing the game to win, and start trying to make real money
rather than subsistence...

2\. luck is probably more influential than what people suspect. see: zuck,
bitcoin millionaires

3\. compound interest is real, but most people in the US are living hand to
mouth so reaping the benefits takes far longer than they are willing to wait--
this isn't a failure of patience but a pragmatic choice to survive until
tomorrow. you ask them to stash thousands of bucks today for twenty years down
the line, and they'll tell you they're already running on empty. you ask them
to stash $20 today for 50 years down the line, and they'll say they'd rather
have it in their pocket to pay for medicine. and they are not wrong; they
can't risk even temporarily losing some of their wealth because they have so
very little to gamble on investments.

4\. being frugal is real, but the opportunities don't exist in places where
being frugal is very effective. the more expensive the place, the more
opportunities flow through it. cities have more expensive food, very expensive
rent, and 100% of the opportunities that someone will need to get rich.

5\. oh yeah, and it's impossible to be frugal when you have student loans
bleeding you right out of the gate. 6.5% interest loans does a great job of
snuffing out potential millionaires everywhere through no fault of their own.

6\. learning and writing stuff down is great. but becoming rich isn't a matter
of knowing the path. it's necessary to know stuff, but you need to actually
walk the path to wealth without stumbling-- different skills entirely.

disclaimer: i'm not a millionaire yet so YMMV

~~~
paulsutter
> it's impossible to be frugal when you have student loans bleeding
> you...through no fault of their own.

I had a little trouble parsing your logic there, student loans get forced on
people?

~~~
cryoshon
de facto, yes. imagine if you knew nothing, and then the people you trust said
you need X to succeed.

you go and get X with the means you have. most people only have the means of
borrowing.

~~~
paulsutter
I went to a state school and worked to pay my expenses so there’s always that.
I just checked and in-state tuition is still low enough to be paid from part
time employment, so no the world hasn’t suddenly become unfair to young
people.

------
nunez
Many of the wealthy folks I've met didn't get there by saving and scrimping.
They either founded a business and won (usually after a few losses), landed
the right job or inherited it.

Spending your prime years focussing on nothing but retirement seems foolish to
me.

~~~
TheAdamAndChe
It takes capital and the capacity to take on risk to start your own business.
Many younger people nowadays start their careers with tens or hundreds of
thousands of dollars of debt. It's suspected that this is what is causing the
declining startup rates[1].

[1] [https://www.washingtonpost.com/news/on-small-
business/wp/201...](https://www.washingtonpost.com/news/on-small-
business/wp/2015/02/12/the-decline-of-american-entrepreneurship-in-five-
charts/?utm_term=.3038c1e98663)

------
croshan
Sounds like humility is a common personal trait, from the article. And among
the people I know, patience with others seems to be a common personal trait.

I feel like the cocky entrepreneur stereotype only has the slightest success
because of their persistence.

------
matte_black
Invest on margin, at least 2 to 1 leverage, though more does exist. Do it
right and you supercharge your gains.

Also a good way to go flat broke and get wiped out, but most ways of becoming
a millionaire quickly come with that risk.

------
JeanMarcS
I don't get something : how 520 weeks (10 years, on a false base of 52 weeks
per years) result in multiplying by 752 a weekly expense for the equivalent f
10 years.

Is it because of inflation ?

~~~
LyndsySimon
I'm guessing it's opportunity cost. The money you are spending on Starbucks
could be earning ~4% in a low-risk investment.

------
kelukelugames
Can you please remove the word unsexy from the title? That would make it sound
less click baity.

------
monsieurgaufre
The real answer is: have old money or kbow people who havenit and want to lend
it / give it to you.

The rest is survivor bias that doesn't take into account all that it should.

