The 5 Rules That Helped Me Become a Millionaire by 40

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It may sound corny, but I truly believe almost anyone who lives in the United States can become a millionaire. As men and women living in this county, we are afforded opportunities to work hard, educate ourselves and build something from nothing.

I did all the above and became a millionaire before I turned 40. Here are the rules I followed:

1. Invest Every Windfall

When you receive an unexpected windfall such as an inheritance, cash gift or bonus, don't spend it. Invest it. If you weren't expecting the money, you're not depriving yourself of anything by not spending it.

When I was 24, I received a $1,600 inheritance from my grandmother. Although I thought about buying clothes and shoes, I resisted the urge to adorn my body with depreciating assets and shopped for something far more valuable: stock in a publicly traded company. I remember the day I made my first-ever stock purchase. It was Jan. 27, 1993, and I bought 40 shares of Starbucks (SBUX) at $39¾ per share. Looking back, it was risky to put all my eggs in one basket, especially with a company that had only recently gone public and had no trading history. But as you can imagine, I got lucky.
starbucks stock chart
Twenty-one years and five stock splits later, those 40 shares that cost me $1,600 would now be worth almost $100,000. I sold the shares long ago because as I matured as an investor, I decided to take modest gains by occasionally selling stocks and using the proceeds to diversify my investments across of wide range of companies.

2. Live Below Your Means

You've heard that advice a million times, haven't you? You keep hearing it because it really works. You can't build wealth if you spend more than you save. In my early 20s, I lived in a small, roach-infested, studio apartment in Washington, D.C. Until I was 27, my salary never exceeded $30,000. I was paying down student loans and generally didn't have a pot to piss in. But I made do.

I figured out early on the difference between needs and wants. The one exception was an expensive gym membership. Technically it was a "want," but for me it was a "need" because had I not had a venue to work off my stress, I would have gone postal.

Do I still live in a studio apartment? No. I'm married and live with my husband and stepdaughter in a three-bedroom townhouse. But I'm still living below my means.

3. Continually Invest Small Amounts of Money

When you live below your means by not upgrading your lifestyle every time you get a raise or promotion, you have more and more money to invest. The secret to not getting whipsawed by the stock market's volatility is to invest small amounts of money at regular intervals. You do this by default when you contribute to your employer's 401(k) or 403(b) plan.

Many people have remarked to me that their 401(k) took a beating during the 2008 stock market crash but recovered fairly quickly. That's because they kept putting in the same amount every paycheck and were able to buy shares of mutual funds on sale. This approach, called dollar-cost averaging, means you'll buy more shares when prices are low and fewer shares when prices are high.

4. Contribute to Retirement Accounts

If your employer offers a retirement plan, participate in it, especially if there is a match. The match is free money, which is essentially a 100 percent return on your investment for just showing up. There are many reasons why you might choose a Roth IRA over a traditional IRA or an IRA over a 401(k). In the grand scheme of things, they're all good.

When you sock away money in a tax-deferred account, you don't have to pay Uncle Sam and his offspring, the states, every year. Your money gets to compound like a snowball for many years until you take it out for retirement. With a Roth IRA, you don't pay any taxes when you take out the money at retirement.

A guy once commented on my Facebook page that I "was not really a millionaire" because more than a third of my wealth was tied up in retirement accounts and I couldn't access it. It's fair to say that most accountants, financial advisers and DailyFinance readers would disagree with that statement, as I surely do.

5. Pay Attention to Your Investments

We've all heard the rule, "buy and hold." I don't agree with that, because it often turns into "buy and ignore." As a financial adviser, I provide complimentary portfolio reviews to prospective clients. I would run out of fingers and toes if I tried to count how many people come to me with account statements showing stocks that once traded at $60 or $70 a share and now trade at $10 or $5 or don't even trade at all.

I'm agnostic on the question of whether you should hire a financial adviser/money manager or manage your money yourself. But if you choose the latter, you need to spend the time to educate yourself (or read my book) and review your portfolio on a regular basis. When I started investing, there was barely an Internet. I spent less time on my hair and makeup in the morning and more time reading the Wall Street Journal. With the plethora of free online resources available to you today, educating yourself is easier and cheaper than ever.

The information contained herein is strictly for educational and illustrative purposes, providing commentary, analysis, opinions, and recommendations and should not be considered investment advice for any specific subscriber or portfolio or an offer to sell or a solicitation to buy any security.

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I'm 35 and almost there. Here are my 5 rules:

Rule #1: Pay yourself FIRST.

Rule #2: Don't let greedy salesmen/brokers/agents take any of your money in fees, commissions, loads, etc. Do the paperwork yourself with a discount broker - Fidelity, Vanguard, TD Ameritrade, etc., then invest in no-load mutual funds with no front loads, no back loads, and certainly NO 12b1 FEES whatsoever. It will make a difference of hundreds of thousands of dollars by the time you retire!

Rule #3: Don’t waste money on stupid stuff you don’t need. Don’t get $100/month smart phone. I pay $20/month with tMobile. Don’t get $100/month auto insurance. I pay $24/month with Insurance Panda. Don’t spend $50/month on your gym. I spend $15/month at Planet Fitness. All these expenses add up and end up cutting into your savings.

Rule #4 Save at least 10% of your gross income. Join your 401k at work, set up IRAs on your own.

Rule #5: Again - Pay attention to your savings. As they grow you will feel empowered

March 16 2015 at 12:14 PM Report abuse +2 rate up rate down Reply
1 reply to Apurva's comment


March 16 2015 at 5:31 PM Report abuse rate up rate down Reply

I'll give you an example other than myself: A friend of mine, John Drake. He became a millionaire recycling cars.
You could take everything away from him, his real estate, machine tools, credit cards, IDs, money, all of it. And in a year he'll be a millionaire again.
If you ask him how he did it he says one thing "Get off your dead a _ _"

March 16 2015 at 11:36 AM Report abuse rate up rate down Reply
1 reply to alfredschrader's comment

Anyone can get rich in America.

There is only one rule.

Work half days. Yep, it's that easy. All you have to do is work half days. It doesn't even matter if it's the first half of the day, or the second half.

March 16 2015 at 3:14 PM Report abuse rate up rate down Reply
2 replies to bobohtwo's comment

What about nights?

March 16 2015 at 8:14 PM Report abuse rate up rate down

John Drake never did half of anything in his entire life.
I've seen him take a car he got for nothing just for simply towing it off
and sell the used battery out of it for $25.00 and the set of five tires with rims off of it for 50 bucks then put the engine from it into another car he got for nothing and sell that for $1,800.00 then tow the first car to the salvage yard and get $200.00 for the iron making a total of $2,075.00 and do it all on a Saturday.

March 16 2015 at 8:58 PM Report abuse rate up rate down

Too bad that far too many people don't think like this. They think Uncle Sam is going to take care of them in retirement. Or, they wake up way too late and try to play catch up when they're in their 50's and 60's. Basic rule of finanical planning 101 is "pay yourself first." This means to invest on a regular basis, usually monthly, or with each payday. Dollar cost averaging is the way to go for most investors who weren't born rich. They should teach basic financial planning early in high school. Maybe then, this country would have more people who are capable of retiring and aren't so dependent on Gov't programs which were never meant to be the sole source of one's retirement income. Investing isn't rocket science. More people spend more time planning a vacation than for their financial future. Just insane.

March 16 2015 at 11:06 AM Report abuse +2 rate up rate down Reply

Who is that disciplined to do that though? Not many. No one would be riding motorcycles either because that would be considered living above your means; and Harley Davidson would be out of business. I know people that live in a shack and ride a new HD because that is their choice of lifestyle. You can invest a lot of $$ for the price of a new HD Ultra Classic ($30k) but you see them selling new bikes at the dealer every single day.

December 17 2014 at 7:11 PM Report abuse rate up rate down Reply
2 replies to MrGoose's comment

I am that disciplined. I have a harley, a camaro convertible and 6 houses. All paid for. I let my tenants pay for my living expenses and I bank all my checks. I was a single parent until my son was 17. I am in my 40's and have no debt, because I always live beneath my means. Doesnt mean you cant splurge once in awhile.

March 16 2015 at 3:01 PM Report abuse +1 rate up rate down Reply

Everyone gets to make choices. I've never complained about the people that bought a H.D. motorcycle, called them greedy, or not paying their fair share. I don't understand why people won't respect that I made different choices, and became a millionaire. I don't understand why I'm expected to pay more, than those who chose to extend vacations, visit the casinos, and refuse overtime.

March 16 2015 at 3:04 PM Report abuse +1 rate up rate down Reply

Mrs. Itkin, way to go! Your article is helpful, informative and can really make a serious difference for Americans who are routinely having money problems in today's vague, weird and turbulent global economy!

September 12 2014 at 7:25 PM Report abuse rate up rate down Reply

Laurie Itkin. The 5 Rules....RULE !

This is one of the better articles that have been published on the Daily Finance site lately.

If those of us who are not mental giants and who can follow the simple rules, then we have a pretty fair chance for achieving the higher levels of net worth. It takes dedication, determination, hard work, learning from our mistakes, and development of wisdom along the way.

As they say though, "No pain... no gain." So, it'll probably be more easier for many of us to just borrow, pee away most of the $$ on short term stuff, and allow more bankers and business owners to become the millionaires at our expense.

September 08 2014 at 6:11 AM Report abuse +1 rate up rate down Reply
1 reply to rbearland's comment
Laurie Itkin

Thank you for the nice feedback, rbearland. Glad you enjoyed the article.

September 08 2014 at 12:06 PM Report abuse rate up rate down Reply

Aside from investing, buying a house at some point with what you have invested is a good idea, because what is the point of investing money every month if you have to pay $1000, $2000 or even more money (depending on where you live) in rent every year? And by buying I mean buying it without a mortgage, which also means living well below your means at first, but at least it's not a roach-infested apartment.

September 08 2014 at 12:36 AM Report abuse +1 rate up rate down Reply

that and A LOT OF LUCK !!

September 07 2014 at 8:42 AM Report abuse +1 rate up rate down Reply

Sorry but I will disagree with you until the end of time (despite your success) that buy and hold is hold and ignore. It boils down to the investor, someone who say follows the Graham-Dodd approach of buy and hold doesn't fit into your category. Anyone who followed their buy and hold advice did quite well (and I mean beyond Warren Buffet, they made hundreds of wealthy individuals). See its all about mentality, psychological health (which you barely mentioned but is a significant matter in investment). You say don't buy and hold yet your first example is the best kind of example of what happened if someone had bought and hold. Someone who buys and holds shouldn't think of their investment as a stock purchase but ownership in that business (which is what the stock represents - not the value of the company alone). Your other thing about being worried about putting all your eggs in one basket ended in failure, your fear led you out of a good return. Its okay to put all your eggs in one basket in the beginning, when you end up managing large sums is when that is a bad thing. Over diversification can be a bad thing as well, concentrating your efforts in one area doesn't necessarily mean a bad return or risk. Its all about your goals, what you need from your investments. Appreciate? Growth? Income? Do you have the ability to last through the all to common downturns? Can you resist the urge to sell during times of quick optimism? For tax purposes one should buy and hold, at least for a year. Don't get me wrong I realize this is a how I became a millionaire by 40 article. I respect your return but I don't wish to have it. I can buy and hold and far before 40 I can be a millionaire far quicker, I will be a millionaire by the time I am 35(I am 22). Hey if you read this we should come together in 13 years and lets compare returns. I am teaching myself investing and you had okay advice until number 5 then you entered an area to which your knowledge, however deep, fails you.

September 06 2014 at 10:40 PM Report abuse +2 rate up rate down Reply
2 replies to kenbushway's comment
Laurie Itkin

I think it is awesome that at 22 you are reading this article and are very knowledgeable about different investment strategies. Yes, I'd say there is a good chance you will become a millionaire before you are 35. Keep it up!

September 07 2014 at 2:33 AM Report abuse +1 rate up rate down Reply

We all have our own priorities. At one time in my life yonder years ago, I actually had a "spare" thousand dollars to invest. I put that amount into Harley-Davidson stock and sat on it, and almost forgetting about it for about 6 years, until I decided I really wanted a new HD motorcycle. So I cashed-out and the profit from that paid for about half of a new bike, so I considered it as I got my bike at half-price for using my money during that time. That same thousand dollars would never have gained me the same just sitting in a bank savings account for that period. This was my only venture into the big financial world as I've never really had "spare" money to afford investing again after that, but I still have that same Harley 16yrs later.

September 08 2014 at 1:25 AM Report abuse rate up rate down Reply
1 reply to chzyrider's comment
Laurie Itkin

I love that idea! Women who like shopping for clothes could so the same thing with stocks of clothing companies. They could lose money on the stock but they would spend the money anyway on the clothes!

September 08 2014 at 12:06 PM Report abuse rate up rate down

She is a financial advisor and now she is a millonaire. That is the best reson NOT to use a financial advisor. Read John Bogle's book, The Little Book of Common Sense Investing.

September 06 2014 at 11:19 AM Report abuse +1 rate up rate down Reply
1 reply to Mike's comment

That man has made millions off that book.

September 08 2014 at 6:27 AM Report abuse +1 rate up rate down Reply