What does it really take to become a millionaire?
A big, game-changing idea? A high tolerance for risk? An unwavering commitment never to compromise? When we posed these questions to two of the stars from the TV show Shark Tank—Spanx founder Sara Blakely and Dallas Mavericks owner Mark Cuban—these were the types of responses we expected.
The reality show, after all, exalts risk-taking entrepreneurs who pitch their visions and startups to a panel of deep-pocketed investors. And Blakely and Cuban each made a fortune through their own big ideas. Blakely's business gave birth to a new billion-dollar segment of the undergarment industry, and Cuban helped launch Broadcast.com, a pioneering Internet audio and video site sold to Yahoo in 1999 for $5.7 billion.
Instead, Blakely, who in 2012 became the world's youngest self-made female billionaire according to Forbes, talked up the importance of being frugal, prudent, and even thinking small. And fellow billionaire Cuban discussed the need to be resilient in the face of setbacks. As for risk taking, Cuban says he's all for it—in the context of investing in low-cost, diversified stock index funds. Huh?
In their conversation, Blakely and Cuban discuss a strategy for building wealth that MONEY has espoused for decades: by saving aggressively, avoiding debt, keeping expenses low, and investing in yourself.
This simple strategy has proved quite successful.
Of course, taking these steps is no guarantee of joining the two-comma club. Becoming a millionaire still requires some luck, pluck, and risk taking. And it never does hurt to dream big.
Mark Cuban: I think it's possible to have a million dollars in the bank even if you're not an entrepreneur. There are a lot of strategies for people who work their way up the corporate ladder, or even bounce from job to job.
You've got to have discipline in how you spend your money, first of all. When I was getting started, I used to read this book, How to Retire at 35.
NOTE: Cuban is referring to Cashing in on the American Dream: How to Retire at 35, by Paul Terhorst. The book, published in 1988, advised savers to aggressively reduce their housing costs—and to find ways to live on $50 a day.
The whole premise of the book was that if you could save up $1 million and live like a student, you could retire. But you would have to have the discipline of saving. I believed heavily in that book. It was a big motivator for me.
I did things like having five roommates and living off of macaroni and cheese, and I was very, very frugal. I had the worst possible car—those types of things.
Sara Blakely: What kind of car was it, Mark?
Mark Cuban: I had a Fiat X1/9 with a hole in the floorboard. I had a 1966 Buick LeSabre. I mean …
Sara Blakely: Those are real chick magnets.
Mark Cuban: Oh, yeah—big-time chick magnets. I didn't have a car that cost more than $200 until I was 25, I think. It was crazy. But that was my decision. I was determined to save money. I was determined to be able to retire. It wasn't like I thought, "Okay, I'm going to be super-rich." I valued time more than anything. I wanted enough money to be able to travel, have fun, and party like a rock star, but still live like a student. That was my motivation.
Can you save a million dollars? You can, but you really have to be disciplined. You also have to be a little bit of a risk taker. Part of the risk is maybe putting money into a low-cost mutual fund.
NOTE: Investing your savings in stocks is both a risky and safe strategy. The risk, obviously, is tied to potential market losses. However, since equities are among the few investments that can outpace inflation over time, you need to own stocks. To reduce some risk, though, trim the fees you pay by relying mostly on low-cost index funds. Many index funds charge 1/10 the fees of other stock funds, allowing you to preserve more of your nest egg.
Or invest in your education—whatever it may be to help you get to the point where you can truly save money.
Sara Blakely: What I did was start small, think big, and scale fast. I didn't ever get ahead of myself on spending. I only spent what I absolutely needed to. The Spanx headquarters was my 1,100-square-foot apartment. I used my roommate's bedroom.
Even when I had money to move out of my apartment—even though we were all on top of each other, and it was crazy— I didn't. For two additional years, that was the headquarters. Then, from there on out, my headquarters were always way below what I could have spent.
I have that mentality on everything. If I can save money here or there, I'll do it. [Instead of] a very expensive photographer for $5,000 or whatever, I'm gonna go and get a friend and a camera, and we're going to shoot the pictures ourselves. I feel like that's a big part of the formula.
Mark Cuban: Absolutely.
Sara Blakely: For me, it's about being as scrappy as I possibly can. And by the way, I'm still that way. It's like I can't get it out of my DNA.
Mark Cuban: You do have to be scrappy. If we weren't scrappy, if we weren't resilient, we could have just quit. But we kept on fighting, and it ended up really well for us.
For me, the hardest lesson I learned was getting my credit cards ripped up. I would charge something and think I would be able to pay it off and then not be able to. I can't tell you how many credit cards I had ripped up.
But over time, what I've learned is using a credit card is okay if you pay it off at the end of the month. Just recognize that the 18% or 20% or 30% you're paying in credit card debt is going to cost you a lot more than you could ever earn anywhere else.
NOTE: The long-term average return for U.S. stocks is 10% a year. For government bonds, it's around 6%. For cash, it's 3%. In effect, paying down credit card debt charging 20% annual interest will "earn" you more than double what you could ever expect from investing. That's why you should strive to pay down high-rate cards first, before building your investment portfolio. One exception: if you're eligible for a 401(k) where the company offers you a match.
Paying off your credit cards after 30 days or not even using credit cards is the smartest investment you can make or not make.
Sara Blakely: Literally, I've always just spent what I could afford. I'm lucky that [the] kind of prototyping and product that I created—I didn't have to go out and raise a bunch of money. I've never really had debt—if I can't afford it, I don't buy it. That's just how I've been.
Mark Cuban: You're a lot smarter than I was.
Sara Blakely: I just didn't have the appetite for it! The idea of owing people money caused me great stress. So I just didn't.
Mark Cuban: In my businesses, once we got started, we had no debt. I learned very quickly that debt was not my friend. I agree with you there. But the key is living within your means. Saving money and putting some into a low-cost mutual fund—like an SPX fund—and living as inexpensively as you possibly can, will pay off dividends.
NOTE: "SPX fund" refers to any index fund that simply holds all the stocks in the S&P 500 index, which represents roughly 80% of the broad U.S. equity market. In our MONEY 50 recommended list of funds and ETFs, there's the Schwab S&P 500 Index fund, which charges just 0.03% of assets annually (many stock funds charge around 1% a year).
While S&P 500 funds are a good choice, MONEY actually recommends building the core part of your portfolio around so-called total stock market funds. These include S&P 500 shares but also small- and midsize stocks. In the MONEY 50, there's the Schwab Total Stock Market Index fund, with an expense ratio of 0.03%.
If you're making $30,000 or $40,000 a year, it's hard. But at the same time, if you can find a way to save, if you can find a way to invest inexpensively in the market, you can start to build your net worth. You can start to make good things happen. I think that's possible for everybody. I'm not saying that it's easy, particularly if you have a family. But if you can find that discipline, then you can save.
Sara Blakely: When you do spend money, think about what you're spending it on and what the return is. For my particular journey, I spent money on motivational and inspirational tapes, and all of my friends made fun of me and laughed at me.
Mark Cuban: I did the same thing. I did the same thing.
Sara Blakely: Right! I was spending money investing in myself. Just like an athlete: You can have two athletes that have the same kind of physical strength, but why does one win? It's mental. It's always mental. Never underestimate the power of your brain, and that's your greatest asset.
Mark Cuban: So true.
Sara Blakely: We spend a lot of money in our culture on entertainment, but we spend very little money on the inner work of our self. That's an investment that ends up reaping benefits for the rest of your life.
Mark Cuban: I used to ride around all day looking at big houses, listening to Zig Ziglar on motivational tapes that I bought for half price at Half Price Books. Absolutely.
Sara Blakely: Brian Tracy, Wayne Dyer, Tony Robbins …
Mark Cuban: Yup. All of them. Honestly, when I first really made a lot of money, I bought a plane. That was my all-time goal because the asset I value the most is time, and that bought me time. Other than that, I've lived in the same house for 18 years and still have the same cars. Other than the plane, which is a big splurge, I'm still a slob. Not all that much has changed.
Sara Blakely: Yeah. My main thing is I just spend below my means. And as my means change, maybe what I can spend changes, but I always keep that as my baseline. If I'm spending well below my means, I'm going to be in good shape. I'll spend money on things that save me time. I'll spend money on things that create unique experiences for myself, my family, and the people I love. That's where I like to spend my money.
But I don't have a plane. #Goals.