Six Rules On How To Become A Millionaire

see yourself richA million dollars is a nice round number on your path to financial independence.  People tend to think in round numbers (think Dow 16,000) becoming a millionaire has a nice ring to it.  J Money over at Budgets Are Sexy has a great club called the millionaire club where you make a pledge and put together a plan to reach a million dollars.  There are many different ways you can take to reach that goal, here are six rules if you follow will make that path easier.

1. Understand the true opportunity cost of everything
For many college is an opportunity to improve their life, it’s not meant for everyone. It doesn’t make sense to have $80,000 in student loan debt for a job that pays you $35,000 or worse barely above minimum wage. Culinary and graphic design schools are the worst, they’ll cost you $60-80K so that you can come out and make $12 an hour. You’re better off putting your time in a kitchen and working your way up, it might take a few years longer but it’s a much better deal than in being that kind of debt.

Liberal Arts degrees that cost the same as Mechanical Engineering, which absolutely makes no sense. A few Liberal Arts Majors may make it but ask the majority of Starbucks Baristas how that’s working out for them in this economy. When I partied in college it was always with business and liberal arts majors, the engineers were always busy studying.  Having crippling student loan debt means for the next 25 years you’re working for your student loans.

Student loans at 5% really costs you 15% annually, this is your true opportunity cost. (5% for the loan, and 10% which is the market return if you invested that student loan money instead. This is the time value of money and how you should always view your money.

2.  Invest in yourself
Investing in yourself doesn’t always mean additional education, it could be upgrading your skills at work. Taking on new projects so that you have different perspectives. You can go to the gym and get in better shape which will improve your appearance and outlook. Work on your soft skills (listening productively, having an open mind, improving your critical thinking) For 80% of people your job is your biggest wealth building asset, by investing in yourself you can build that career to increase your earnings. It’s pure crap when someone says you can’t get rich from working for someone else, tell that to all the millionaire executives in my company. It’s the same person that’s telling you money can’t buy you happiness.

3. Start at 10, Save 20, Maintain 25 savings plan
From your first paycheck you should save 10% when starting out.  Within 3-4 years you should save 20%, and maintain at least a 25% savings rate throughout your career.  Even if you make $30,000 a year at a 25% savings rate you’ll hit a million dollars in 31 years.

4. Grow your income so taxes become your largest expense, but your lowest expenditure.
I don’t understand how people are excited they didn’t pay retail for items yet willing to pay retail on taxes. I take advantage of every tax write off afforded, when tax season rolls around I read various tax books to lower my liabilities. It’s boring shit, if someone gave you a book to read and you had to recite it back at a rate of $200 bucks an hour for 10 hours would you do it?  That’s how much extra in tax savings I earn from reading about the tax law changes and planning for next year.

Some of my tax reduction strategies are maxing out all retirement accounts, using the mortgage interest from my house to fund my Roth IRA (future post on this), having my accountant in SF so I can travel there to do my taxes for my real estate business, getting solar panels and receiving $19,000 in credits, estate planning utilizing trusts to pass my assets tax free, and reaching out to agents and actively looking for rental properties wherever I go on vacation which makes part of the trip tax deductible.

Mitt Romney earns millions a year but pays only 14% because he earns income as investments, which has a lower tax rate than income earned as labor.  (As it should be to reward risk taking and investments) This is your incentive to generate income from assets as opposed to working. Every dollar paid to the government is one less dollar working for you, so actively look to legally reduce your tax burden.

5. Invest in great assets at great prices
It’s difficult to spot bubbles and even harder to identify when assets are on sale. If you buy great companies at reasonable prices it doesn’t matter what the market does. I bought Netflix at $73 and watched it go down to $55, it didn’t matter because I believe in the business model and earning prospects. Great companies like Coke and Altria are on sale now, while Twitter and Facebook scares me.

Everyone hates emerging markets, you lost money over the past three years if you had any. Some analysts believe that emerging markets are at a generational low, do you see this as a buying opportunity?

6. Hold assets for the long term.
Building wealth takes time, there is no such thing as get rich quickly. As long as you don’t buy into a bubble you will always make money on great assets even if you buy at the wrong time. The housing market in some areas have surpassed its 2007 peak, even if you’re underwater for 10 years eventually inflation and rising rents will make it profitable. I survived two bear markets that have cost me hundreds of thousands yet earned it all back with interest.

Warren Buffett’s holding period for his stock purchases is forever,  yours should be no different.  Go over to J’s website, make the pledge, and follow these rules to become a millionaire.  You can buy me a beer at the bar after.

What rules do you follow?  What is your long term financial plan?


  1. These are all good ones…I know SO MANY PEOPLE who paid top dollar for a degree that can only get them a low-paying job.
    Holly@ClubThrifty recently posted…Club Thrifty February Budget BreakdownMy Profile

  2. Rock on brotha – I’ll see you on the beach one day!
    J. Money recently posted…How I Paid Almost *Nothing* in Taxes Off Our $150,000 IncomeMy Profile

  3. Getting clever with taxes is well worth the time invested. I wish I had saved much more when I was first starting out in work. I’ll just have to make up for it when the debts are paid off!
    Hayley @ A Disease Called Debt recently posted…Interview with Rob from Debt Advice BlogMy Profile

  4. Two other curriculums that are a waste of time as far as job qualifying are gender studies and minority studies. {Don’t anyone play the sexist or racist card here.} Seriously, what job do those degrees prepare a person for? Unfortunately, however, many students simply don’t have the aptitude for science or engineering and parents should provide guidance to these students to select a area of study that will provide them with the means to be self supporting.

  5. As boring as the tax code is, I’ve really been trying to learn more about it to try to maximize my tax savings. I definitely need to increase contributions into tax-advantaged retirement accounts. A write off to fly to SF to see your accountant…hmmm…I dunno about that one… Just curious, what was your major? I was a business and Poly sci double major, I don’t think it’s that business is useful unless you went to a top tier school…poly sci…yeah not useful career wise.
    Andrew@LivingRichCheaply recently posted…Are You (Financially) Better Off Than Your Parents?My Profile

    • Andrew I was a finance major. School didn’t teach any of this, I learned on my own. When I found my accountant and got my first write off I was hooked. I amended my post to include the write off for my real estate ventures that allows me to see my accountant in SF.
      Charles recently posted…What Working At Walmart Taught MeMy Profile

  6. My wife and I save and invest approximately 50% of our income. We invest in low-cost passive index funds and hold forever. I don’t like to talk about our net worth or investable assets, but we are on track to comfortably retire in 9 years.
    Bryce @ Save and Conquer recently posted…Book Review – Flipping the SwitchMy Profile

  7. I always try to invest in companies I believe in. I bought amazon when it was at $185. Even with the most recent price drop, I’m still up by over $150. (too bad I couldn’t afford more shares ;) )
    Stefanie @ The Broke and Beautiful Life recently posted…Love and Money: The Most Romantic GiftMy Profile

  8. Really appreciate you sharing your tips on this subject. I joined J. Money’s millionaire club and, even though on paper right now I’m far from reaching that goal, I think I’m on the right path. Great point about tax benefits and lowering your taxable income. I appreciate 9and agree with) your advice on college but I would guess 99.9% of the people who read this will have already been there done that, for better or for worse. I love the idea of investing in myself and have actively been trying to gain the skills necessary to take my career to the next level.
    DC @ Young Adult Money recently posted…Why Outsourcing Will Increase and What it Means for AmericansMy Profile

  9. Great advice here, Charles. The one area we deviate is in taxes. I don’t think too much about tax deductions, because the standard deduction, personal exemptions, & retirement account deductions cover such a great swath of income that I’d have to spend a ton, to get back a tiny portion in avoided taxes. I’m more concerned with cost avoidance itself (i.e. – avoid spending the $1,000, rather than spending the $1,000 in the right way to get back $100 or $150 in taxes). There are limitations with that approach, as some spending is inevitable so why not try to itemize? But we have never come close to reaching the standard deduction for a married couple and, now, with no mortgage, I doubt we will unless our rental properties have considerable loans.
    Done by Forty recently posted…There Ain’t No Rest For the WickedMy Profile

  10. “Student loans at 5% really costs you 15% annually, this is your true opportunity cost. (5% for the loan, and 10% which is the market return if you invested that student loan money instead.”

    I love that you mentioned this. It’s one of the basics that I’d be willing to bet the majority of the population doesn’t recognize. Thinking about all money decisions this way is so important!

  11. I’m very excited about my new solo 401k and how much I’m hoping to put in there this year. Our HSA is also a great way to save on taxes and invest for health care costs later on.

    So when we come to Hawaii this summer, we should look at some rental properties? I always wanted to visit open houses while on vacation!
    Kim@Eyesonthedollar recently posted…myRA, What Is It And Can It Work?My Profile

  12. It’s true that the tax code does reward investors for risk by giving them favorable tax rates. Just keep in mind Romney also keeps some of his wealth offshore thereby avoiding us taxes at all.

  13. Hello Charles,

    Really enjoyed reading your blog. So much so that I actually read the entire thing, every single article, all in one day. I agree with many of the points you’ve made and I wish you the best on the road to success.

    Take care.

  14. Charles, this is honestly one of the best posts I’ve read. So many people disregard the opportunity costs of everything. I’m one of those idiots who wasted $30k on a degree that has absolutely no ROI (my graduate degree). I’ve paid it off, but I could have built that 30k into a nice little sum had I invested it wisely and purchased attractively priced equities. My next self improvement project is to learn more to reduce my tax burden. We already contribute a good sum to to our 401(k)s and Roth IRAs, but as far as our mortgage, I know there is more we could do. Do you mind me asking which books you read, or any particulars you would recommend regarding taxes? Thanks!
    Ryan @ Impersonal Finance recently posted…best free things in lifeMy Profile

  15. We’ve also considered our choice to remain in a low tax state one of our “no brainer” wealth building moves that many people forget about. I can’t believe how much friends in other locations pay in income and property taxes and think it’s just a normal matter of course!
    Mrs. Pop @ Planting Our Pennies recently posted…PoP Balance Sheet – January 2014My Profile

  16. Steven Lau says:

    Thank goodness we’ve paid off all of our student loans. I agree that you need to save over a long time and let compound interest work for you.

  17. Amazing stuff here, Charles. Our wealthy neighbor is always talking about how he uses the tax system to his advantage, writing off everything and anything he can for his business, and it works! Also, I love this quote: “It’s pure crap when someone says you can’t get rich from working for someone else:It’s pure crap when someone says you can’t get rich from working for someone else,”. Thank you, Charles, for the wisdom you’ve shared here. Can’t wait to read the Roth IRA post.

  18. I love that you mention emerging markets. I think there is a great buying opportunity there right now. I see buying and holding investments long term as a key to the millionaires club.
    Kay @ Green Money Stream recently posted…January Investment and Side Income UpdateMy Profile

  19. “using the mortgage interest from my house to fund my Roth IRA (future post on this)”

    I can’t wait to read this one.

  20. This is really an incredible post Charles, very inspiring! I’ll try what you suggested on what to invest and how to hold money. Hope this will work! Thanks for sharing.

  21. I really like #5 – Invest in assets. I believe if people could understand this one significant pricinple of finance their lives would change completely! Once you recognize that you send all your money out the door and none is returning to you, then you are almost forced to make a change.
    Marvin recently posted…Cost of Vasectomy vs Newborn ChildMy Profile

  22. Certainly great advice for those looking to collect there first million. What has worked best for my husband and I is to invest (mostly) in what we know. Because we too are in real estate and know that market we tend to put the majority of our investments where we know we are getting a good deal. The times we’ve wandered off we have only done marginally well. Of course the number #1 rule I would advice is to find work you love and then it will be pleasant no matter what!
    Kathy @ SMART Living recently posted…Ten Awesome Benefits to Growing OlderMy Profile

  23. Great post! I like your idea about starting at 10% savings and going from there… though hopefully people don’t feel like they have to stop at 25%! :) Especially if you are able to grow your income, you should be able to save even more, and hit that million dollar mark even sooner!
    Credit Limit Increase recently posted…What’s in your credit score?My Profile

  24. Great tips! I think I’ve only begun to scratch the surface of what is a possibility income wise. I still have so much to learn!
    Tonya@Budget and the Beach recently posted…Should I Stay or Should I Go?My Profile

  25. Points number 5 and 6 are probably the most important. For this I like good quality dividend stocks and real estate. What hasn’t worked as well in the past has been savings bonds and precious metals. I find that savings bonds have a very, very low interest rate and that precious metals don’t earn cash, you have to sell the asset to make money.

  26. Hi Charles,
    Thanks for this great article! Glad I found you through J. Money’s Rockstar Finance. Your point about opportunity cost is a huge lesson every American needs to learn. Keep up the good work.
    Slick site too :)

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