Hey Everyone, I’m on summer vacation this week. Sam from Financial Samurai is helping out with a guest post today. He’s a legit multi-millionaire so pay attention if you want to get there. Enjoy!
Based on a Market Insights 2019 study, there are roughly 11.8 millionaire households in the United States, making up roughly 3 percent of the US population. Although $1 million isn’t what it used to be due to inflation, having a $1 million net worth is still a significant milestone.
Based on a 4% return, a $1 million liquid net worth could generate $40,000 a year. Add on the average Social Security benefit of $17,532 a year and you’ve got yourself a nice middle-class income for retirement.
With enough time and discipline, many of us will become millionaires in our lifetimes. But for those of us who strive to become multi-millionaires by 40, I dare say – luck is essential.
How Luck Played A Huge Role In Becoming A Multi-Millionaire By 40
One of the things we in the FIRE community need to acknowledge is how privileged and lucky we are. Being surrounded by like-minded people to guide us and encourage us through our journey to financial independence is incredibly important. Without proper guidance, it is much harder to stay the course.
Since middle school, my parents have always tried to make me appreciate the value of money. My first experience with money came when my father scolded me for ordering a lemonade at a restaurant.
“Son, why spend $2 on a lemonade when you can order water with a lemon slice for free?” he said.
This moment instilled in me a level of frugality that has stuck ever since.
In high school, his lesson of frugality paid off when I told him I’d only be attending a public in-state university to save on tuition. He encouraged me to apply wherever I thought looked interesting, but I insisted on saving us money.
In the end, his $2 lemonade lesson saved my parents, and ultimately me, over $100,000 in private university tuition! I always told them I’d pay them back once I got a full-time job and I did.
Here’s a review of how I went from a net worth of $3,000 after saving up money working minimum-wage jobs in high school and college to accumulating over $1,000,000 by 28.
- Luck. I got through 55 interviews over 7 rounds to land my first job in investment banking at Goldman Sachs. Someone like me from a state school (William & Mary), had no business getting this job. But I got on the 6 am bus to go to a career fair one Saturday and one thing led to another. The base salary was $40,000 so that kinda sucked, but my experience taught me how to invest, network, sell and build relationships.
- Luck. Invested in VCSY in 2000, a Chinese internet stock that climbed 50X in six months. Turned $3,000 into $170,000 and sold at $155,000 when it started collapsing. The stock went to nothing a year later. At the time, I only had about $4,000 to my name, so this investment was a significant leap of faith percentage-wise.
- Luck. In 2001, a headhunter called my VP to see if she wanted to work for a competitor covering West Coast clients. She said no and handed me the phone because I covered West Coast clients out of NYC! One thing led to another, and I got a new job after 2 years with GS as an Associate with a raise. Over the next two years, 90% of my GS analyst class got laid off.
- Rational decision making. After arriving in San Francisco for my new job, I decided to live like a pauper for a year and a half because I didn’t know anybody and didn’t know where to live. In 2003, at the age of 26, I put down $120,000 and bought a 2/2 condo in a nice part of town for $580,500. I figured, best to turn funny money (VCSY profits) into a real asset. Today, the condo is a paid off rental generating $4,300 a month and worth ~$1,300,000.
- Went all-in again. At age 28 in 2005, I bought a single-family home I didn’t need on the north side of San Francisco for $1.5 million. The $300,000 downpayment took ALL the cash I had. I needed a $50,000 bridge loan because it was December, and bonuses weren’t paid until February the next year. Things were good for a couple of years until the financial crisis happened. I was sweating bullets with my $1,200,000 mortgage. So I rented out a room for several years.
- Super lucky. I tried to sell the house I bought in 2005, for $1.7M in 2012. I got no takers after 30 days. It was embarrassing, so I took it off the market. My agent said a couple was willing to offer $1.5M, and I said heck no. I wanted to sell because I had just left my job and we had just recovered from the financial crisis. I needed to lock down costs. I ended up selling the house for $2.74M in 2017 after my PITA tenants gave their notice. I couldn’t believe how sentiment turned so positive just five years later. Then the SF property market softened by about 11.5% in 2H2018 as the S&P 500 corrected.
- Won an unexpected lottery By 2011, I was itching to get out of the financial services industry for good. The public hated us and I was no longer having fun after 12 years. Then one afternoon while sipping a beer in Santorini, Greece, I came up with the idea to engineer my layoff. Financial Samurai was a growing site and all I wanted to do was write online instead of go to an office for 12 hours a day. One thing led to another and I negotiated a severance in the spring of 2012 worth five years worth of living expenses. I truly felt like I had won the lottery because I got all my deferred cash and stock compensation that paid out over three years and a private investment management forced us to make in 2010 that paid out in 2017. If I quit, I would have gotten nothing.
- Unwavering consistency. Real estate has made me over $2.5 million, but it is Financial Samurai, my personal finance site that has come out of the left field and done the most for my net worth growth. I started the site in 2009 during the middle of the financial crisis and made a promise to publish 3X a week for 10 years in a row. I figured, if I could stay consistent all these years, the site would grow, allow me to leave my job, and earn me some online income and equity in the process. Almost 10 years later, it has done just that. A couple of my peers in 2018 sold their websites for $6M – $7M, but I plan to keep going because running Financial Samurai is fun! I did not start Financial Samurai to make lots of money.
More than half of my wealth has been created through luck. However, the key was not taking my luck for granted and continuing to save and invest aggressively, as if my luck would run out.
I got crushed during the financial crisis and made a poor investment in a Lake Tahoe property in 2007, but I kept on going no matter what. I expect misfortune to fall upon me again, but hopefully, I’ll be better prepared this time around.
Every morning I wake up thinking about the time I tried to order a $2 lemonade as a 13-year-old. At the time, I had nothing and needed to hustle to get ahead. This desire to hustle is the main reason why I asked Joe if I could guest post on his wonderful site.
I will never take Financial Samurai for granted. Instead, I treat my site as if it’s still in its first year of operation. luckily, Joe was kind enough to say yes!
Here is a graphical representation of my road to $1 million.
It’s hard to keep the faith, but you must during the most difficult times. If you continuously put yourself out there, sooner or later good things will happen.
Aggressively Build Passive Income
You will for sure have your share of doubters. Ignore them. As you grow your business and your wealth, you’ll have haters. Use them as motivation to build even more wealth.
Every time someone leaves a racist comment it pumps me up like Popeye’s spinach to work harder. I’ve been told getting motivation from nasty criticism is unusual. But for some reason, I do, which I guess is another way I’ve lucked out.
Below is a snapshot of my various passive income investments to hopefully hold us over during the next recession. I’m focused on building my alternative investments since I have more control over their outcomes.
Real estate crowdfunding is the investment I’m most excited about after reinvesting $550,000 of my SF rental house proceeds in lower-cost areas of the country with much higher cap rates (2.5% vs 10%).
My plan is to keep on reinvesting 95%+ of the online income I earn into investments that generate as much passive income as possible. Being a landlord used to be my favorite semi-passive income stream. But once my son was born, I no longer had the patience to deal with tenants and maintenance issues anymore.
Remember, you only need to get rich once. Once you’ve achieved a level of wealth where you never have to work again, focus on capital preservation. The last thing you want to do is return to the salt mines!
May you keep your luck alive for as long as possible. Fight on!
Sam, Financial Freedom Sooner Rather Than Later
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