Profiles by Kara Brandeisky, Amanda Gengler, Elaine Pofeldt, and Ian Salisbury.
SPONSORED FINANCIAL CONTENT
The Strategy: Make Saving Painless by Making it Automatic
Jeffrey and Rachel Carr, 28 and 27
Certified public accountant and pharmacist
The approach: Last year the Carrs saved $93,000 of their $198,000 combined salaries, funneling money into their 401(k)s, Roth IRAs, mortgage, and other taxable investment accounts. “The great thing about our savings rate so far is that we don’t feel deprived at all,” Jeffrey says. “We don’t pinch pennies. We don’t have a budget.”
How do they do it? First, a low-cost lifestyle helps: no state income taxes, reasonable housing costs, and inexpensive hobbies, such as hiking near their Nevada home. Second, they bank the money automatically by maxing out their 401(k)s early in the year. They also put an extra $30,000 toward their mortgage, enabling them to cancel the private mortgage insurance. And they move $5,500 each into Roth IRAs, with the rest going into to taxable investments. “If you’re taking it out on the front end, you won’t have the money burning a hole in your pocket once it hits your account,” says Jeffrey.
How you can do it: You don’t need to match that ambitious savings rate. A 15% rate is what a 40-year-old who earns $90,000 a year, starting from scratch, would need to get to $1 million by retirement. To make it more painless, take full advantage of automatic savings, including your company’s 401(k) plan. That way the money goes into savings before it even hits your paycheck. Read more about saving strategies here.
The Strategy: Keep Investment Expenses Low
John and Melody Ulin, 54 and 48
Senior systems engineer and college enrollment assistant
The approach: John has been a lifelong personal finance aficionado. Starting at age 14, he read widely to educate himself about investing. As soon as he started his first job in information technology at 25, he began saving 20% of his salary, and he set a few rules for himself. First, he almost never pays up-front commissions to buy an investment. Second, he picks funds with the lowest expenses. “A higher expense ratio doesn’t mean it’s a good fund,” Ulin says. “Plus, the lower the expense ratio, the more I can invest.” A few of his favorites bargains: Dodge & Cox Stock (DODGX) and Vanguard Total Bond Market (VBMFX), which charges just 0.20% of assets a year. His picks have paid off—John says his family reached the million-dollar mark a few months ago.
How you can do it too: One reason sophisticated investing strategies fail is they’re expensive. Even the average actively managed stock fund charges 1.26% of assets a year. This comes directly from your returns. The lower a fund’s expenses are, the more likely it is to produce bigger gains. Read more on that and other simple, successful investing strategies here.
The Strategy: Buy a Franchise to Build a Business Fast
Tom Burtzlaff, 57
The approach: Getting laid off from his job at a cosmetic company in 2009 didn’t derail Burtzlaff’s path to wealth, but it did change the direction. Rather than returning to the corporate world, Burtzlaff decided to buy a CMIT Solutions tech-services franchise. He got a $175,000 SBA-backed loan from a local bank in 2010, plus a $25,000 line of credit, both with a variable interest rate of prime plus 1.9% (currently 5.15%). The seven-year repayment schedule—longer than the usual three- to five-year bank loan—enabled him to hire a full-time technical manager early on. “He helped the business quickly build a customer base and is still employed with us,” says Burtzlaff.
With annual revenues of about $400,000, the business is profitable today. Burtzlaff employs three others but pays himself a modest salary—less than half of his old six-figure income—so he can reinvest in the business. “When I bought the business, I realized I’m building an asset,” he says. “I have been very focused on making the right decisions to build the value.” If the business keeps growing at its current pace, Burtzlaff expects to be able to cash out for more than $1 million when he is ready to sell. “Maybe sometime in 2020, I’ll reevaluate where I’m at,” he says, “and, depending on how much fun I’m having, I may decide that’s when I would start to slow down.”
How you can do it too: About one in four millionaires run their own firms. They’ll tell you the secret to success isn’t the cachet of a big idea. Most seven-figure enterprises are pretty run-of-the-mill. The key is managing your other C’s: cash flow, credit, customers, and incorporation. Read more on creating a seven-figure small business here.
The Strategy: Become a Landlord on the Side
Lewis Scott, 39
U.S. postal worker
The approach: To make a part-time landlord gig easier, buy nearby property. That’s what Lewis Scott had in mind last year when he put down $30,000 for the $150,000 three-bedroom next door. “I can always keep an eye on it,” he says—and he can mow the lawn when he does his own. Scott and a friend painted the inside of the house, but he hired someone to replace the carpeting and put on gutters on to keep the foundation dry.
In two years he plans to buy another home until he has three or four, using the rental income to retire his mortgages. Scott pays a property manager 10% of the $1,350 rent, yet still clears about $350 a month. “This strategy is just another leg of my stool as far as raising wealth,” he says. “The goal is to get to $1 million.”
Since his job is delivering the mail, he can spot houses for sale quickly, but he’s not rushing. “I am putting a restriction on myself for two years so I don’t get overwhelmed trying to reach my goals,” says Scott. “I don’t want to overextend myself.”
How you can do it too: Rents are climbing, up 5% in the past year alone, reports Trulia, and you don’t need a big portfolio of properties to make $1 million in real estate. Managing three or four units on the side can do it. Buying a single rental now and adding two more as you go can boost your net worth by seven figures in just over 20 years. Read more on how to prosper in real estate here.
The Strategy: Catch Up By Living Way Below Your Means
John and Heather Pierce, 50 and 43
Co-owners of physical therapy business
The approach: The Pierces got a late start on retirement savings when John, originally an accountant, went to earn a doctorate in physical therapy in his thirties. Once tuition bills were paid, they worked hard to catch up. For instance, even as their family grew to include three daughters, they remained in their 1,700-foot starter home longer than planed to replenish their savings. Despite the detour, the couple now max out their 401(k)s and IRAs, worth $800,000, and are on track to becoming millionaires, with plans to retire in 10 years with $2 million saved. “We have no car payments, pay off our credit cards each month, and make additional payments on our mortgage,” says Heather. “Our hard work, discipline, and planning has allowed us to live the American dream.”
How you can do it too: While getting an early start eases the way, there are plenty of opportunities you can take to boost your savings later on, such as redirecting tuition and mortgage payments once the kids are out of school and the house is paid off. Uncle Sam will also lend a hand. Workers 50 and over can save up to $23,000 in a 401(k). Read more on ways to boost your savings later in life here.
The Strategy: Wipe Out Debts to Free Up Money to Save
Jose and Stacey Figueroa, both 46
IT program manager and part-time musician
The approach: As an IT program manager with a six-figure salary, Jose does well for himself. But a decade ago, his relaxed attitude toward spending left him little savings and $50,000 in consumer debt. He and his wife Stacey, a homemaker and part-time musician, took it step by step. First paying off loans, then building an emergency fund, finally plowing money into their retirement savings. It took three years to get back on track, but Jose says that today he saves 15% of his income for his retirement— effectively 23% since his employer matches the first 8%. That kind of power saving “will not come right away, but you can get there,” he says. “You have to start somewhere.” He expects his net worth to hit $1 million at about age 50, and a financial adviser he and Stacey recently met with declared them on track for retirement by around 65.
How you can do it too: If you’re living on a tight budget‑ and who isn’t?—hearing that you have to sock away 10% or 15% of your salary for retirement can be intimidating. Don’t psyche yourself out. Economists that study savings patterns says putting aside a little at first and slowly increasing your savings rate over time is more likely to get you to your goal than trying to go cold turkey. It can be as simple as banking the 2% to 3% annual raises meant to keep your salary in line with inflation. While you’ll have to trim spending here and there as prices rise, you’ll still feel as if you’re living on the same salary. Read more here.
The Strategy: Bump Up Your Income—Even After a Setback
Hugh Taylor, 49
Freelance technical marketing writer
The approach: After a layoff from IBM in 2009, marketing writer Hugh Taylor decided to start his own business. But Taylor, a married father of three children ages 7, 9, and 13, needed to earn a substantial income to keep the family well positioned for the future. Taylor found that by focusing on projects that tapped his technical knowledge—he even earned a certificate in information security a few years back—it was easier to ramp up revenue at his firm, Taylor Communications. Today, the Harvard Business School graduate’s take-home income is about double what he made at IBM.
A key part of getting there was learning to focus on profitable, in-demand work. “I make money when I write about very specialized, technical topics,” says Taylor. “I’ve learned how to charge fees that are reasonable, but not low.” Sometimes, that means turning down work, like one time-consuming project last year. “Two years ago, I would have done it.”
Taylor and his family have just moved from Los Angeles to Cleveland, which will also help them save. Taylor was surprised by the attractive housing prices when he visited Ohio. “It’s a lot more affordable,” says Taylor, noting, “I can work anywhere.”
How you can do it too: It’s the career bump that helps you get to $1 million. If you make $100,000 and can secure a 15% bigger paycheck, that reset will keep paying off, even if you go back to 3% annual cost-of-living raises. Bank the extra pay every year, and in a decade you could have another $200,000 saved. Read more on ways to earn more here.