Recently, a friend emailed about joining him in some global travel company that beats the prices of EVERY travel company and pays me money.  An unbelievable opportunity, he said. I thought the word unbelievable very appropriate and declined for the 5^th or more time. You may have heard similar pitches.  Remember Amway?    

While many of us dream of making huge buckets of money, most of us realize it is just that – a dream. We are not in a movie where the main character gets the beautiful woman/man, who happens to be richer than Bill Gates and lives happily every after. 

WALTER MITTY SYNDROM 

Have you ever daydreamed about becoming super rich, famous, sexy etc, (why stop at rich) like Walter Mitty?  You never heard of Walter Mitty?  Walter Mitty is a fictional character in James Thurber‘s first short story “The Secret Life of Walter Mitty“.   Walter is a meek, mild man with a very VIVID fantasy life. He imagines himself a wartime pilot, an emergency-room surgeon, and a devil-may-care killer. The character’s name has come into more general use to refer to an ineffectual dreamer. One dictionary defines Walter Mitty as “an ordinary often ineffectual person who indulges in fantastic daydreams of personal triumphs”. 

MY FAVORITE WALTER MITTY DAY DREAMS! 

Marry BIG Money – Oprah maybe – Oh I forgot about Steadman! NOPE

Play basketball BETTER than Michael Jordan – {N0, I was not vaping at the time!} NOPE

Replace “The Rock” as an action movie star- {I need six years to develop the six pack!} NOPE

Sing and dance better than Michael Jackson – After all we were born the same year!  So what if I cannot dance! NOPE!

Buy the winning lottery ticket and beat the hundreds of millions to one odds. – ME AND MILLIONS MORE!   NOPE!

Start a brand new company that provides a new Clean Energy at one percent of today’s cost and actually cleans the environment! – IMPRESSIVE – BUT NOPE

SO HOW DO EVERYDAY AMERICAN MILLIONAIRES DO IT?  

Majority of U. S. millionaires build their wealth over decades. There is NOTHING complicated about their two simple strategies.  

1.  They save a LOT more than majority of us even think possible.  And I mean a lot more!   

2.  They invest their HARD EARNED MONEY with realistic expectations, aiming for average returns.  

SAVINGS

A high savings rate coupled with time allows your money to grow.  We control our savings rate. You simply spend a lot less than you make. No rocket science or mathematical equations needed.  ESI Money, conducted a study of 100 millionaires and found they averaged over 50% savings rate.  Now that is impressive.  The 2019, U. S. average saving rate  is about seven percent annually.

What is your savings rate?  How can you increase your savings rate in the next six months and even more in 2020? 

INVESTING YOUR HARD EARNED MONEY

It took the average U. S. millionaire 32 years to achieve millionaire status. Majority of U. S. millionaires use the Warren Buffett 90/10 plan for investing.

In his 2013 letter to Berkshire Hathaway shareholders, he wrote: “That the instructions in his will state that the trustee is to invest 90% in a low-cost S&P 500 index fund, with the remaining 10% to be invested in short-term government bonds.” (Note: all of Buffett’s Berkshire shares will be distributed to charities.) Mr. Buffett directed the trustee invest the 90% into a Vanguard index fund. He wrote:  “I believe the trust’s long-term results from this policy will be superior to those attained by most investors — whether pension funds, institutions, or individuals — who employ HIGH FEE managers.”

Earlier this year, S&P Dow Jones Indices released an annual report that compared the average performance of actively managed funds versus the S&P 500 index. For the ninth consecutive year, the majority of fund managers failed to top the S&P 500. Over 85% of large-cap funds have underperformed compared to the S&P 500 over the last 10 years. Nearly 92% of these funds have trailed the S&P 500 over the last 15 years.  The big reason behind this failing track record for actively managed funds is their HIGH FEES. 

Buffett likes the low-cost approach with index funds. The Vanguard 500 Index Fund has an annual expense ratio of 0.14%, while the Vanguard S&P 500 ETF annual expense ratio is a super-low 0.03%.

The 10% that Buffett recommends investing in short-term government bonds, serves as a hedge to the stock index fund investment. When the S&P 500 goes down, short-term government bonds tend to rise in value. 

CONCLUSION 

Financial literacy and discipline set the U.S. wealthy apart from majority of Americans. You do not need a big salary to be a millionaire. What is important – how much you save and where you put that money.

EXAMPLE: You saved $10,000 per year or $833.33 per month and deposit that money in low-cost index funds that earned the stock market’s annual average return of 9%.

If you did that for 27 years, your money would grow to: $1,148,137

Monthly Deposit: $833.33
Period (Month): 324
Annual Interest Rate: 9%
Compound Method: Monthly

Balance at maturity: 
Total Principal: $269,998.92
Interest Earned: $878,138.38
Maturity Value: $1,148,137.31
APY: 9.3807%

With financial discipline you can become a millionaire.

1. Set up automatic savings. 2. Increase your saving rate regularly. 3. Consistently monitor your budget and make small cuts to save more money.

CHALLENGE

If you could pick anyone who you find interesting, knowledgable and successful to shadow for one day, who would you pick?

Now that you have a name or names, reach out and ask if you can shadow them for one day.   Explain your reason. What do you have to lose?

To CHANGE your life you must believe in self and be capable of selling yourself.

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DISCLAIMER

I am a proud nerd (as my beautiful wife and daughter have told me) investment and finance blogger, with a NC State, Chemical Engineering, University Rutgers, MBA and Harvard University, Advanced Management education.  

I started my first business at ~13 years of age. I am a successful investor in equities and real estate and happy to share my personal finance and investment lessons learned with you. However, I am NOT a licensed financial advisor.  Please do not construe my suggestions on this blog, as recommendations for your personal situation.  For individual finance advice please seek your own licensed CPA or financial advisors.