I’m going to share with you the formula I’ve followed to become (together with my wife) a millionaire.

But first, some context.

The United States has more than 11 million households reporting a net worth of more than 1 million dollars based on the latest Spectrem Group Market Insights Report. That number represents about 8 percent of the US population. On the other hand, most of the American public is facing a debt crisis, with consumer debt being at an all-time high in 2018, a collective number that totals more than $13.2 trillion. That amount includes student loans, a quarter of which are in default, that are nearing $2 trillion.

Clearly there are very different approaches to finances being taken by people at the opposite ends of the financial spectrum of American society. Interestingly, it’s often very hard to distinguish who are the self-made wealthy – those who intentionally created a life of prosperity through hard work and discipline – and who are the people faking it, strapped by debt from purchasing expensive clothing, jewelry, cars, and houses, substituting the temporary satisfaction of appearing wealthy for the peace that accompanies setting yourself up for long-term prosperity.

My Motivation to Build Wealth

When I graduated from high school in the mid-1990s, I had very little in the way of marketable employment skills, and my understanding of how life worked was limited. My work resume as a teenager consisted mostly of jobs like pizza maker at Pizza Hut and assistant cook at Dairy Queen, although I had been part of a thriving lawn mowing business with my brothers that we had used to earn money to buy school clothes and help with our sports expenses.

Soon after I turned 18, I set out on a 2-year volunteer mission for my church, which is common among young men in my religion. During that two years, I learned most of what I have used since, including now, about setting goals, organizing my schedule to accomplish those goals, budgeting money, and being disciplined about going to bed and getting up early.

I observed some human nature trends during my two years as a missionary in Canada that I found to be very instructive. The group of missionaries (about 200 organized into zones and districts throughout the province of British Columbia) among whom I worked were all given an equal disbursement of funds each month that were calculated to be adequate for the month’s expenses. I noticed that while many of the missionaries had no problem getting to the end of the month before their money supply was exhausted, there were too many (in my humble estimation) who consistently tore through their allotment half way through the month, and others who were only slightly better, coasting in at the end of the month with just enough money left to survive.

The stress level created by running out of money didn’t seem to be worth the pleasure these missionaries might have gotten from spending their money without a plan or discipline. I learned early on during that mission experience the benefits of spending less than what I received each month. After several months, I had saved up a significant (for a missionary anyhow) cash reserve. Not only did that buffer take away financial stress and allow me to focus on the important work I was doing, but it allowed me to help out the mission in ways that I could not have if I hadn’t saved money. For instance, during one mission “transfer” (once each month, several missionaries are moved to a different area) I got a call from mission headquarters asking for my help getting bus passes and train tickets for several missionaries whom I managed. Mission headquarters was surprised to find out I had enough money in my bank account to cover the travel costs.

That experience, among others, taught me about the power of saving money, putting something aside for surprise situations that might require more than the typical daily expenses. This principle has been emphasized in every legitimate wealth building program, including two of my favorites: Dave Ramsey’s 7 Baby Steps and the One for the Money pamphlet written by Marvin Ashton.

The Millionaire Next Door

Shortly after I returned home from my two-year mission, my uncle gave me a book called The Richest Man in Babylon as a gift to help me set my financial course. I read the book and learned a lot about the habits that cause a person to become wealthy. I also took away from the book an understanding of the importance of being generous and giving back as much as possible.

A couple of years after I read The Richest Man in Babylon, a college roommate of mine loaned me another book about wealth building and the “secrets” of financial prosperity that helped me become focused financially.  The book documents findings of a survey about millionaires in America done over a period of 20 years. It’s called The Millionaire Next Door.

I always appreciate learning from books that have practical, actionable advice. The Millionaire Next Door includes a list of seven traits the authors discovered about those whose net worths topped $1 million. It is straightforward enough and useful to look at these seven traits and compare them against your own financial background and habits.

According to the conclusions of the surveys conducted to create The Millionaire Next Door, people who become wealthy:

  • live well below their means.
  • allocate their time, energy, and money efficiently, in ways conducive to building wealth.
  • believe that financial independence is more important than displaying high social status.
  • did not have parents who provided economic outpatient care.
  • had adult children who were economically self-sufficient.
  • are proficient in targeting market opportunities.
  • chose the right occupation.

In The Millionaire Next Door, authors Thomas Stanley and William Danko debunk the idea that millionaires come mostly from the ranks of doctors, lawyers, people who wear expensive clothes, and drive expensive cars, the exclusives who live in mansions, and hire butlers and gardeners. In fact, the title of the book suggests that you likely have neighbors who are millionaires, and you probably wouldn’t even know it.

The picture presented of a millionaire in The Millionaire Next Door is a hard working small business owner who didn’t necessarily complete college (more likely went to a trade school). The common millionaire described in the book is simply someone who learned how to earn an above average income, discipline their spending, save money, and invest. The “secrets” to becoming a millionaire are not secrets at all. They are simply financial common sense.

How Well Do You Accumulate Wealth?

Something that has motivated me since the first time I read The Millionaire Next Door is its well-defined standard for evaluating my personal history and ability to accumulate wealth. Their formula is simple. Try it out and see whether you’re on track with your wealth building plan according to this standard.

The calculation goes like this.  Your net worth should be at least your age times your pretax annual household income divided by ten. These calculations (including household income and your expected net worth) should exclude anything that comes from inheritance, since inheritance is not directly related to your financial performance.

Computing Expected Net Worth

Expected net worth = (age in years x household income)/10

If your net worth is significantly less than what the formula expects, you are considered an UAW (under accumulator of wealth). If your net worth is much higher than the expected net worth according to this formula, you’d be considered a PAW, a prodigious accumulator of wealth. If you come in close to the expected net worth, you’d be considered an average accumulator of wealth, or a UAW. This formula has its flaws, including that it doesn’t adjust very well for situations such as a young person who recently saw a large jump in income. In most cases, it is a good estimation of wealth building proficiency.

While writing this article, I was a bit nervous about doing the calculation to assess my own wealth building habits. I haven’t done that in quite awhile. Since the time my wife and I passed the $1M mark about 7 years ago, we have intentionally become more generous, which tends to bring down the amount that we save. Thankfully, I was still able to qualify as a PAW in my latest calculation. The habits we developed early in our marriage of deliberately saving and being disciplined in our spending has stuck with us over the years.

My Own Story of Wealth Building

When I was preparing to go to college in 1997, at 21 years old, it was recommended to me by a school counselor that I should get into “computers”. I followed that advice, taking several computer programming and electrical engineering courses that helped me to learn ultimately that I didn’t want to become a career coder. I did learn over the four subsequent years of working for technology companies that the economy of the 21st century provided lots of opportunity for people who were willing to learn how to use technology in some way.

After a failed attempt to start an automotive repair business with my father and brothers, I jumped into ecommerce by creating websites built on osCommerce and Zen-Cart shopping carts, drop-shipping products from suppliers, and doing an old version of search engine optimization.

I first built a store selling outdoor sports equipment: OuterSports.com together with my brother. When that store was big enough to support his family, my brother asked if he could have it for himself. In the meantime, I was getting married. Together with my new wife, I built a new online drop-shipping store selling team sports products: RobbinsSports.com. We grew that store to more than $1M in annual sales over the course of 5 years, then sold it for $400,000. At closing, we received a payment of over $200,000, and we financed the rest of the purchase price as an investment over the following 10 years.

After we sold our sporting goods store, my wife and I were able to buy our new dream home with cash. In 2006, we had purchased our first home, a modest one that was less than half the price of what we were prequalified for. For several years leading up to the housing crash of 2008, we had watched the real estate market locally and nationally. We sensed that the irresponsibility of interest-only loans and the subprime lending practices typical of real estate financing those several years leading up to the 2008 crash were bound to backfire, so we waited and watched the real estate market instead of getting anxious and purchasing a larger home when we saw the prices moving up.

Being conservative in our approach to upgrading and waiting to buy a new home saved us several hundred thousands of dollars. By 2011, as the housing market started to rebound and our new home gained equity, my wife and I had passed the $1M net worth mark, more than two years before the time frame we’d set as a goal when we were first married.

Over the years since I sold my sporting goods store, I’ve built several other similar stores, including a medical products business, a clothing store, a children’s formal wear boutique, a safety products business, a vinyl decorations store, and a few blogging businesses, including this one, Prosperopedia.com.

I created a Udemy course documenting how I built my several ecommerce stores. You’re welcome to take the course if you’re interested in going down the career path I’ve used to create wealth.

I am now at the point in my wealth building career that I am changing a lot of my focus to investing, being more assertive about making my assets work for me, including buying rental properties, land, and other real estate. I feel like I’m a few years behind on learning about investing, which is one of the reasons I created this blog to motivate myself to learn about investing and reinforce that learning by sharing what I’ve learned.

What I’ve Learned About Building Wealth

Business Ownership Builds Equity

Somewhere along the line of developing the various ecommerce stores I’ve been involved in over the past two decades, I learned an important lesson about career paths. Although you can certainly increase your income and build wealth while working as an employee for a company, for those who can master the various roles required to be a business owner, that path is naturally a much more efficient way to increase income quickly. As a business owner, in addition to your regular earnings, you build equity as your company grows.

For instance, compare these two scenarios. Jason gets a job that pays $100,000 per year. Over the course of a year, he takes home his salary minus taxes and other possible withholdings. Kevin decides to build and operate a business that nets an income of $100,000 per year. If both people decide to leave their places of employment, Jason by leaving his employer and Kevin by selling his company, the business owner comes out much further ahead, most likely by at least a bonus $100,000. In most scenarios, the business netting $100,000 can be sold for $200,000 or more. Outside of a possible severance package, an employee typically doesn’t walk away from a job with more than the trinkets he’s accumulated at his desk.

Several years ago, my wife wanted to build a children’s boutique store. She also wanted to buy a grand piano for our house. I made a deal with her: as soon as her business made $5,000 in one month, we would buy the piano she wanted. Well, the store never got over $3,500 in monthly profit during the year we owned it. We made a choice to sell the store so she could focus more completely on being a mother. We sold the store for $60,000, which qualified her for a grand piano, and that gave us another example of how equity is built alongside income from a business.

Of course there are exceptions to this scenario, such as when there are opportunities to obtain equity in a company as an employee. Many startup and quickly growing technology companies offer new employees a chance to cash in on the company’s growth as a way to attract top talent. If that’s your situation, good for you. Take advantage of that type of opportunity.

If you choose the employee career path, you can often apply the business owner mentality towards your job and see the benefits of increased income from it. This is especially true for jobs that pay commissions, but also in other situations, where advancement opportunities and pay raises come when outstanding performance is observed. I have a brother who works as a loan officer. Most people in his office make less than $100,000 per year. He makes over a half million annually because he treats the job like it’s his own business and is consistently finding ways to improve his processes.

Don’t Waste Money On Things That Lose Value or Have Little Value

The way you spend your money the next time you go to the store, today, and tomorrow, and the next day is critical to your financial future. Despite pressure from society, friends, or other influences, there really is no reason to have a car payment, to finance your Christmas purchases, or to eat at expensive restaurants. In the materialistic world, this can be a very difficult concept to master, but with some Even with a net worth well in excess of one million dollars, I still often tell people, “I can’t afford that.” In reality what I mean is, “I choose to spend my money on something of more value to me.”

To help you get a baseline for where you stand with this principle and how you can improve, here is an exercise for you. First, take a half hour or so and write down what things matter to you in life, what you hope to accomplish in the near term and in your future. This will help you determine what your values and priorities are. Write these down. Don’t just think about them or even stop at verbalizing them to yourself.

After you’ve written down what matters to you, take the next 30 days and record in a written ledger or in a mobile or computer app every dollar, every penny you spend. At the end of the month, take an hour and categorize those items on which you spent money, and compare the totals for each category against what you determined to be what matters most to you.

In so many cases, people find that they are spending their money (which is essentially an extension of themselves) on things that don’t matter to them.

Once you’ve completed that exercise, you’re likely feeling ready to start a proactive budget, which is the logical next step. I recommend using the free EveryDollar app from Dave Ramsey, who is a master at helping people gain control of their financial futures.

Following a proactive budget will align your spending with your values, and will naturally cause you to save money and build wealth. You will be in control of your spending rather than being a victim of your own impulses.

Educate Yourself Efficiently, Without Debt

The importance of a college education has been driven into the minds of people moving from youth to adulthood so much that it is causing serious problems in society. Too many people think that going to college is a blanket good idea for anyone who wants to get ahead. The number of student loan defaults in the US shows that college students are not thinking at all about or calculating ROI (return on investment) for the money and time they spend in college.

I can’t think of very many college degrees that are worth strapping yourself with debt for. I know too many doctors, pharmacists, and other people in medicine, attorneys, and others with advanced degrees who, because of their constant struggle to catch up to their debt, wish they could have another shot.

If your plan for college doesn’t involve a robust financial evaluation (along with a mental and emotional commitment to a plan) of how well your four or more years of secondary education will pay off for you, don’t do it!

There is so much useful, income-enhancing education available outside of expensive university institutions. Most 4-year degrees require you to sit through hundreds of hours of courses that you would not choose to take based on their own merits and that have nothing to do with what you’ll be doing in your job. Most of what I’ve learned to build my current Amazon business I learned on YouTube, from Amazon’s seller help guidelines, and elsewhere online for free. There are thousands of small, one-person businesses that can be built using free information from the internet. I’d much rather see someone spend a few hundred or a few thousand dollars on some courses that take a few months, then build a business netting $100k+ than to sit in classrooms accumulating debt in exchange for an education that only qualifies that person for a $40k/year job that hardly covers living expenses outside of the student loan that has to be paid back.

Work Hard, Really Hard

While my wife and I were operating our sporting goods business, there were nights where we would switch off sleeping and working whenever we had deadlines that we absolutely had to meet.

On one occasion, a customer ordered 1,000 jackets that each had to have patches sewn onto the sleeves. The order had to be shipped within one week of the date that the order was placed. We had only a single-head embroidery machine on which to do the work. We calculated the time that would be required to get the job done, then we set up a schedule that would allow us to alternate sleeping shifts between the two of us in order to keep the machine going 24 hours a day. In this case, as with many others, we met the deadline. We made a lot of money on the order. We worked really hard. We then took some time off to recover.

Some people interpret this principle to mean that they have to always be working, even at the expense of relationships of a spouse and children. I absolutely don’t advocate for that. What I do strongly recommend, a strategy that has worked well for me, is to remove from your schedule those things that are not important, and that you spend the time that you are working having intensity and purpose. Instead of blowing four hours on a college football game (or eight hours on two of them) as I did when I had more time available or wasn’t as ambitious, I now watch either just a portion of the games I’m interested in, then catch the highlights online at night.

I have assertively looked for and found other ways to reallocate time so that I can get lots done without being overwhelmed. One program I’ve heard good things about is discussed in a book called Getting Things Done by David Allen. I’m planning to try that methodology in the next year to see if I can squeeze out even more productivity by reducing waste in my schedule.

There are tons of strategies available for being more productive in less time. I use a combination of a daily and weekly schedule, a calendar, and time blocking to balance getting lots of work done, coordinating with several partners, spending time as a volunteer, and fulfilling my top priorities of being a husband to a woman who is my best friend and a father to six very involved children.

You Can Choose to Become a Millionaire

Perhaps my favorite thing about life is the ability each of us has to choose our own path and be accountable to ourselves and our loved ones for the person we ultimately become. Especially in this modern age when freedom and opportunity are always within reach, there really is nothing keeping almost anyone from deciding to work hard, get the right education, pursue a rewarding and highly-compensating career, and ultimately become financially independent.

I hope this article motivates you to get going on your own millionaire story.