A Multimillionaire's Guide to Becoming One

I recently sat down with a friend of mine who confided in me that his family's net worth recently passed an incredible milestone -- $2 million. While he asked to remain anonymous to protect his family's privacy, he was willing to share what it took to achieve that astounding accomplishment.

What follows is our conversation on how he got there, edited for clarity and to better preserve his anonymity.

Chuck Saletta: Thanks for being willing to take the time to share your story. Wow -- $2 million. How long did it take, and what made you decide to go for that goal?

Anonymous Multimillionaire: It took us around 20 years to build that kind of nest egg. We never set out to wind up with $2 million. We just kept finding reasons why it made more sense to save than to spend, and compounding took care of the rest.

Saletta: What sort of reasons convinced you to save that much?

Multimillionaire: Mostly job-related. I started working in information technology in the late 1990s, during the tech boom. A whole bunch of the high-tech investment in those days was because companies were scared their systems would break because of the Y2K bug. When that problem was solved, much of the investment dried up.

I saw many of my coworkers get laid off in early 2000, just as the tech bubble started to unravel. Most of them couldn't find jobs paying nearly as much as they had been getting before. I got lucky that I was a new hire and was cheap, so I kept my job. Still, the experience convinced me how important it was to live cheaply and save for a rainy day.

Saletta: And that stuck with you for two decades?

Multimillionaire: Well, the need to keep saving kept getting reinforced. The layoffs kept coming, and the only jobs I could find would have required a pay cut in exchange for options that might be worth something if the company did well. I figured that I shouldn't get used to too big of a salary, because my job didn't feel secure and the other roles out there only looked really promising if everything went right.

Ironically, by the time I'd had enough of the insecurity and found a job outside of technology, it was in corporate finance. Not that long after I made that move, the financial crisis hit, and I found myself among the displaced workers.

Saletta: So, you survived the tech wreck only to lose your job in the financial crisis?

Multimillionaire: I lost my role, but my employer at the time offered laid off people some time to find another job before they were formally let go. I again got really lucky in that I had skills outside of finance. I was able to snag a job where they needed people who knew both finance and technology. Still, the need to keep saving and live cheaply remained very clear.

Saletta: Got it. You saved heavily and kept saving because you felt like you had to. Where did you put all that money?

Multimillionaire: The first place it went was to an emergency fund. With no real job security, we wanted a few months of living expenses in a safe place. Once that was squared away, our savings went into stock funds inside my 401k and stocks in Roth IRAs for both my wife and me. We've been mostly maxing out those accounts ever since, and that's where the bulk of our net worth is today.

Saletta: Wow. That puts you in the 401k millionaires club. Congratulations! Any after-tax investments?

Multimillionaire: Not much. Mostly, once we started maxing out our retirement accounts, what we did was save to be able to pay cash for what we wanted above the bare essentials. We've kept the things we have to spend money on every month down to where we could cover them on two minimum wage jobs. But we paid cash for our last car, take cheap vacations that we pay for in cash, and volunteer instead of having expensive hobbies.

To the extent that we've saved outside of our retirement accounts, it has largely been in 529 plans for our kids' educations. With our retirement plan on track, we wanted to make sure our kids had a chance at educations without crazy debt.

Saletta: So you put your retirement ahead of your kids' educations?

Multimillionaire: We love our kids and value their educations, but we learned early on that parents' retirement account values aren't used in student aid calculations. So, we figured they'd get better overall aid packages if the bulk of our money wasn't counted.

In addition, both my wife and I worked through college and during the summers to help cover the costs, and many of our friends were in ROTC or had co-op programs. We feel that we valued our educations more because we had some of our own skin in the game, and we also want our kids to recognize the links between education, sacrifice, work, and money.

Plus, if our kids do need loans for some part of their schooling, we can always help them pay back the loans later if we have enough to comfortably cover our own costs of living.

Saletta: You're worth $2 million and covering your costs of living is still an open question?

Multimillionaire: It all depends on when and why I stop working. If I just happened to lose my job today, we could make ends meet. Still, between health insurance and the costs of tapping our retirement accounts early, the money wouldn't go as far as you might think. Also, if I were forced to stop working early due to health reasons, we could easily burn through that cash.

Plus, a decent chunk of my 401k comes from money my employer contributed. That money is more or less tied to company stock until I turn 50 or leave the company. I don't think anything is going to happen to the company between now and then, but if I lose my job because the company is struggling, that portion of our nest egg could largely evaporate, too.

On the flip side, at a normal retirement age and assuming Social Security, Medicare, and the company remain strong, we can live better in retirement than we live today. You tell me what the future will bring, but history tells me I can't rely on smooth sailing for the next few decades.

Saletta: Fascinating. Thank you. So, if I were to summarize how you got to be worth $2 million, your strategy boils down to:

  • Start early.
  • Keep your costs of living low.
  • Max out your retirement accounts and make those accounts a top priority.
  • Invest in stocks for the long haul.
  • Prepare for things to go wrong so that you're better able to handle them when they do.

Multimillionaire: That's a nice way of putting it. Thanks for letting me share my story.

Saletta: Thank you for sharing it!

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Chuck Saletta has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.