I am going to discuss how I automate my accounts and invest, which along with my income, enabled me to become a millionaire fast. My method made me a millionaire by the time I was 35 years old and I want you to be able to do the same. A big contributor to my developing wealth over time was automation and buy and hold strategies – specifically with index funds. I will provide you with specific stocks, mutual funds, and investment tools I have used over the years. I am not going to provide you with specific investment strategies because I am not a licensed investment advisor. So everything I discuss today will be more about what has worked for me.
I also want to be clear, my situation is not the same as everyone else’s. So, I recommend taking what I say and adapting it to fit your personal situation.
I want to start by talking about a man named Ronald Reed. Ronald Reed was a gas station worker in his younger years and a janitor in his later years. He was from Vermont in the US. He lived until he was 92 years old. Unbeknownst to everyone around him including his family and his neighbors until he died, Ronald was a millionaire – and he got there by using many of the methods I am going to talk about today. He lived a reasonable lifestyle never spending money unless he had to – and for the record I’m not going to tell you to do that, but you will get wealthier faster if you don’t have major spending aversions. He didn’t own any crazy nuanced investment products – he owned a lot of blue chip stocks including Johnson and Johnson, JPMorgan, GE, CVS, Dow Chemical. So his buying strategy wasn’t returning much more than an index would over time. So how did Ronald get rich? The answer to that question is simple…TIME.
The two keys to getting rich are time and fortitude. You need the time to be in the market to allow your equities to grow and compound and you need the fortitude to stay in the market through volatility, which is where many people fail. They see a stock go down a couple of point and rather than seeing it as an opportunity to buy more at a discount, they see it as “loosing money,” they get scared, and sell. Ronald had fortitude and time and because of that he died with $8 million in the bank on what we in the US would call a lower middle class income.
The reason I am brining this up is that I want you to know developing wealth can be done by anyone, including gas station workers and janitors, not just people with high salaries – and it just takes Time and Fortitude.
So, let’s get back to my story for a moment. I was a millionaire at age 35 with no help from family or anyone else and I am currently 39. This wealth development was from my wife and I making high incomes, developing businesses on the side, and investing wisely. But I can tell you that you don’t need the high incomes to be a millionaire, you just need time and fortitude.
Before we go any further, I want you to know that the most important financial decision you will ever make is who you decide to marry. You need to know going in if that person will be a contributor or a detractor. Meaning will you end up with a net gain as a result of the marriage or a net loss. And just because the other person doesn’t earn an income, doesn’t meant they are a detractor. There are a lot of contributors who don’t bring in income. They just contribute in other ways. Maybe they build your self esteem and motivate you. Maybe they take care of things you don’t like to deal with so you can focus on wealth building. Your partner’s spending habits are, however, going to be a big indicator of whether they are going to detract or contribute. You want to be with someone who spends reasonably but who also motivates you to want to go out and provide them with a better life. Keep that in mind if you have goals of being wealthy when you are looking for a mate or if you already have one.
Over the last several years my money life has become about optimizing. How do I allocate my spending and investments in a way that works for me? What don’t I really care about that I spend money on that I can cut out of my expenses? what do I absolutely need? And what do I love?
One rule I have developed around spending is asking myself the following questions before I buy anything: Do I need it? Do I love it? Do I want it? If I need it, then I need it so I must buy it – food, housing, utilities, transportation (paid in cash). If I love it, than I give it some time, contemplate whether or not I still love it in one month and go back an assess it again. If I absolutely still love it, and I can afford to pay cash for it (so it must meet those two criteria) I buy it. If I just want it, I wait two months instead of one, reassess, and if I still want it and can afford it with cash, I go for it but many times if it’s in the “want it” and “love it” category, I will lose interest. If it’s something that you will derive immense value from, like an experience with your family, and it fits within your budget, qualify that as a “love it” item. Spending money on experiences is important, as long as you have the money to pay cash for them.
Quick note On Debt:
I don’t have any debt but I have had vehicle debt and housing debt in the past, and have developed rules around debt. I also use a credit card for all my purchases. I pay the credit card off every two weeks (you can do this every month, but I am a bit OCD about not getting hit with any fees). If you have debt, you want to pay debt down first before investing, unless it is vehicle debt at an interest rate lower than 6% and housing debt. If you are buried under consumer or education debt, I recommend using the debt snowball method and throwing as much money as you can at the debt. There are a variety of debt snowball calculators online. Pause investing, pause saving aside from $1000 for emergencies and attack the debt with all your financial might.
A quick note on spending:
If you can get your higher level brain which is called the pre-frontal cortex, to govern your spending, you will be in far better shape. If you operate from the low level brain like the amygdala, which is more compulsive, you will have a harder time developing wealth. You want to be incredibly deliberate with your money and considerate of your spending so you don’t develop high interest debt. One way to increase the power of the pre-frontal cortex is by educating yourself on personal finance. So, I recommend you purchase books on the subject, read blogs, and educate yourself on the topic as much as possible.
With all of this spending stuff in mind, everyone should have a “screw it” number that they can spend without questioning it. Like buying a pack of gum at the store. Obviously that’s a want that doesn’t need to be agonized over for a month but big purchases, should be assessed under the Love it? Need it? Want it? Umbrella. We can also allocate money for some of this stuff in what author Ramit sethi would call a guilt free spending account. That guilt free number will be higher than the amount necessary to acquire a pack of gum.
I now want to talk to you about how I think about money:
I think of money as an incredibly high performing person, rather than an inanimate object (like 1’s and 0’s). Money has a purpose just like a person. Money has a job just like many people. So, I assign my money a purpose and a job. The primary job of my money is to develop more money, to provide safety and security for my family, and optimal happiness for me and my future generations. I consider my money as an extension of me, in some ways – a clone of me that I can deploy into the world to essentially be a second me. So to clarify this concept, you are you. You go to work, you go home, but I want you to think of your money as something you can deploy to be ann optimal high performing second you. Questions you want to be asking yourself – What’s your moneys job? What does it do to replicate your efforts to make money? How does your money work for you? It’s your clone, your conception, you made it – it’s your servant, your robot. You employ it. So what do you have it do to replicate itself?
Just like a human, you want your money to struggle and fight to survive and build a legacy – replicate its genetics (I know this concept is out there but bear with me). As humans our job is to reproduce. That’s our genetic fight for survival. Our legacy. Ask yourself the question, what is your money doing to follow the genetically programmed cycle of reproduction that god (or whatever you believe in) instilled in us? What is it doing to reproduce itself and create more money? This is the most human and god given of yearnings..wanting to reproduce. Your money is both your baby, your friend, your employee, your servant, and your robot all in one. Deploy it to do the most human of tasks…reproduction – passing down its genetics to the next generation. Just like a person, you need to train your money so it can grow up big and strong and self sufficient. Now that’s my metaphor for asset allocation and investing.
So, I do my research, automate my money, designate a “set it and forget it index fund investment” strategy, and send my money off to college ie Vanguard and let it come home to me once a quarter in the form of a statement (which is its report card or in the US workforce we have reviews, that’s its review) and provide it a little nudge and give it advice once every year (assess it, make changes or keep it the same etc).
Now, I don’t forget to feed it (ie continue to invest). I’m not joking here though, money is your progeny and a reflection of you. You work your tail off for it and many of us neglect our real children for it, if you are anything like me as much as we hate doing that we do it. Deploy the money and let it work for you so eventually you don’t have to work at all and your money can take over for you as the primary earner. In an optimal scenario, you are living off the dividends your money is earning and not even touching the principal. Now that’s optimal…not necessarily going to happen for everyone. But, and this is my last metaphor on this, just like in many cultures where the child grows up take care of the parents, let your money grow up big and strong and one day support you.
Monthly Spending Automation:
Before I get into how to automate and allocate my spending and investments, I want to preface by discussing Maslow’s hierarchy of needs. This is a model that was developed by a scientist names Avbraham Maslow in 1943 which shows our motivations for human behavior. The reason I mention this is two fold. One, not everyone’s financial situation is the same. Some of you may be having problems achieving your basic needs using the amount of money you have or the amount of income you are making. And 2, I want you be aware of why you are motivated to do certain things with your money.
Photo of Maslow’s Hierarchy – Plateresca / Getty Images
If you look at Maslow’s hierarchy, our base motivations are to have some very basic human needs met – being able to buy food, shelter, have a safe place to sleep, have some clothing on your back, and the yearning to reproduce. But these all cost us money. So we first need enough money to take care of these basic needs. Once the basic human needs are accounted for, we can start thinking about our money at a higher level, like accounting for our safety needs. So, that may be about upgrading your home from living in a city to a more expensive place in the suburbs where it’s a little safer and they have good schools. Might also mean upgrading to better insurance or paying for private or in the US we call it concierge medicine. It may mean joining a gym and buying whole organic foods to account for your health. And then from there, once the safety needs are met, we start spending on love, and then esteem – improving our station in life, finding a better career, putting money into ourselves to improve ourselves – maybe going to college, and once all that is done and this really happens once you know you are financially set for life, you can start to self actualize. Some of the most high performing wealthy people I know go to silent retreats, some have retired, they meditate frequently, they are very mindful of their actions and this is something to really aspire to…being able to lead a mindful, thoughtful, examined, existence. And honestly, this is the optimal state to be in if you want to start to help others. If you have the money, you can start to give back and be philanthropic.
So, again, I wanted to talk about Maslow hierarchy because we all need to make sure our basic needs are met by using our money before we can focus on anything else and as a result, our asset allocations will be different.
Optimal Monthly Spending Percentages:
Now I want to talk to you about optimal monthly spending and how I allocate my money.
Have you every heard the term pay yourself first? This is one of the reasons I put my 401k allocation at the top of my expense list every month. It’s also taken out of most peoples paychecks first (just like taxes) and for those of you who live in different countries this is similar to a pension account or any retirement account. Pay yourself first means: before you do any spending, prioritized your long term financial well being. So if possible, talk to your employer and if you don’t have an employer, setup a retirement account yourself – and setup an automation so money is taken out of your paycheck or whatever account your income goes to, every time it’s deposited, and send the money to your retirement account. I like to invest 20% of my gross salary towards retirement. If you can’t swing 20%, try to do a minimum of 10%. And if you can’t do that, find out what your company match is and try to put the optimal amount to get the most out of the company match – in the US it’s usually between 4% and 6% of salary.
From there, I want to talk about how I allocate my assets after I receive my income, so the discussion from here is assuming my retirement allocation is taken out already, taxes and insurance have been paid, what do I do with my net income? I shoot for 50% of my spending to be on fixed costs every month, which is housing or rent, a car, utilities, homeowners insurance, property taxes, groceries, recurring food costs of any kind (restaurants), recurring medical (MDVIP), massages. Now, because I make a good income, I use a whopping 30% towards guilt free spending and variable expenses. Normally I don’t spend this amount so I end up saving more than 20% for retirement. But this 30% to guilt free spending is where I get my vacations, experiences with the family, some high end clothing and shoe purchases, etc. Note: I bundle my savings and retirement under that 20% allocation rule. The savings is your emergency plan if you get fired or something unexpected happens to your household. To break this down further, you may want to allocate 5% to savings and 15% to long term investing until you hit 6 months of expenses in your savings account and the allocate the entire 20% to retirement.
Now, I want to be clear, these numbers change if you don’t have access to a 401k at work. In that case, I recommend putting 20% of your income into a Roth IRA or whatever long term retirement account your government has available, and reduce other expense categories in kind to make up for the difference – so your fixed costs allowance may reduce by 5% of that 20% your guilt free spending may reduce by 10% – you really want to hit those long term investing goals.
My Monthly Automation:
Now I want to talk to you about my little money clones, servants, robots, and how we are going to make them work for us. We are going to automate everything. Before we dive into this, it is critical that you have monthly income. If you do not have an income, get a job – do whatever you have to. We need to have an income and all steps that follow are derived from that income. Remember, step one to to talk to your employer and find out if they can automate a transfer to your retirement account. Divert it directly from your direct deposit or paycheck. Make sure you pay yourself first (and FYI I will later talk about how I invest my retirement money personally). Second, have a checking or savings account at the ready to receive your work income because many additional steps stem from there. Once that money is wired into your checking, the first thing that I have is an automated transfer to my wife and my joint checking and from there our mortgage, utilities, property taxes, and insurance get paid every month. We also use that account to pay nannies, landscapers, housekeepers, home maintenance, joint expenses of any kind. I want that account to be solvent because a lot of my fixed costs are coming from there so I automatically blast 50% of my income to that account. Granted, this is just the way we do it in my house because we are a two income household. If we were 1 income this would most likely come out of that original checking account.
So from the joint checking we also have a joint saving for longer term expenses like larger home repairs, remodels, private school costs for our son, and camp. Eventually, there becomes an excess amount from the 50% of our income that we put into that joint account and when it gets to a certain number above what we need to take care of our fixed joint costs, we transfer it to the savings account to take advantage of a slightly better interest rate – and recently we have been transferring a lot of it to Vanguard Money Market Funds (VMFXX) to take advantage of a 5.27% interest rate.
Now from that original non-joint checking account, that’s where more of your personal guilt free spending, savings, and non-401k investing allocations will come from so you want 50% of your net over there to transact for those purposes. My personal guilt free spending which goes on my credit card gets paid off with that account, my allocation to my son’s 529 college savings plan comes out of that checking account, and all of my personal investing comes out, and I have some very specific accounts for very specific things: an IRA from Vanguard is additional long term investing, a brokerage account from Vanguard for once the IRA is maxed out, s Robinhood account for speculative equities investing, a Stash account – I call this my “amenities” account, which is where I put the money to upgrade from coach to first class or from the Marriott to the Four Seasons (both proverbially and literally). I keep 1% – 2% of my investable assets in bitcoin, just in case it works out but I won’t be too hurt financially if it doesn’t. I also allocate 1% per year to speculative investing – mostly opportunities that the general public cannot get access to but I can because of my work relationships (like venture capital investments and funds).
Now I want to talk to you about specific investments:
I just want to emphasize that I am a big proponent of low cost index fund investing. 80% of my personal invested assets are in low cost index funds which I manage myself. Index funds mirror the entire index (like the S&P 500 or Dow) so it’s essentially like getting a piece of every company in that portfolio, so it naturally diversifies you. The US stock market has returned about 8% after taxes year over year, if you were exposed to the total market, so I can easily make projections showing how much money I will have after a given period of time.
I am not going to tell you specific dollar figures but I will share with you and justify which stocks and funds I am holding. First off, my entire 401k is in VIGAX which is the Vanguard Growth Index Admiral Fund. This is basically a fund that contains all of the top US growth companies. I’m 39 years old. I think when I turn 50, I may consider diversifying more but at my age, since I’m not planning to retire ever, I don’t feel the need to be incredibly diversified. My wife have about half her 401k in a target dated fund which de risks into fixed income instruments as you get closer to retirement but it also doesn’t return as nicely during bull markets so I feel a level of diversification because she offsets my 401k holdings. The other half of her 401k is in index funds.
I have a fair bit of money in these four Vanguard funds VFIAX, VEIPX, VDEQX, and VMFXX. All of these vanguard funds are very low cost. VMFXX is essentially a holding fund I used. It’s a money market fund that has a 5.27% yield right now so your money is not in the stock market, so it’s not at risk of stocks going down, and they pay you 5.27% just for putting your money there and you can transfer it out almost as easily as you could money in a savings account. It could take a few days to process the transfer but that’s about it.
We also have money in the ETF VOO (mirrors the S&P), and VGT (Vanguard information technology), and specific stocks that we bought when the market took a dump after Covid – like MSFT (Microsoft), NVDA (Nvidia). We have made a lot of money on NVDA over the last three years.
I then have a more speculative strategy within my Robinhood account. Again, I keep around 1% of my investable allocation in speculative stocks because there is a high probability I will lose that money, but it keeps me interested in the companies and the market. Those high risk spec stocks, and I want to reiterate that I do not recommend investing in these, are NIO and Lucid – both electric car companies, both very high risk compared to Tesla. It’s a complete shot in the dark that these companies will overcome the barriers to entry in the market and become super successes. Another spec play I hold is PRME Prime Medicine which is a shot in the dark biotech. I think they do work with the CRISPR gene. I also own Bitcoin and Etherium which makes up 1% of my portfolio.
So that is my allocation and investment strategy. It is infrequently changing but I will make updates to this as it changes. Again, I am not a licensed investment advisor so if you follow these strategies, do so at your own risk. This was written in January of 2023 and this update was made in May of 2024. I will emphasize that employing these strategies have put me in a very wealthy position. My high income has also contributed greatly. So if you want to be wealthy, get your income up, spending under control, automations in place, and invest aggressively.
