My Millionaire Pledge

Over at Budgets are Sexy, J Money has been curating a list of readers and bloggers who are pledging to perform certain actions to become millionaires. Being a millionaire sounds awesome! Millionaires have luxury cars, fancy clothes, and mega-mansions right?

 

Wrong. From reading The Millionaire Next Door and The Millionaire Mind, I know that if you are a millionaire, you are far more likely to be driving an affordable, used car than a Ferrari. You probably have never spent much money on clothes, and you live in an average home. You’ve spent far below your means, and have been saving and investing the difference wisely over many decades.

 

That’s the basis for my pledge. I want to:

  • Spend less than I earn
  • Save and invest wisely over an extended period of time.

While those are pretty much the basics of any personal finance initiative, they’re not very specific. Vague goals are bad goals, so I’m going to be more specific and break things down below.

Spend less than I earn

There’s two ways to look at this. I can cut my spending, or I can increase my earning.  Why can’t we have both? Well we can! So that’s what I’m going to do.

To cut my spending, I pledge to:

  • Continue track my monthly expenses. You can’t know what is going on in your financial life without tracking it. I’m obsessive over checking Mint right now, and I want to continue to monitor it daily. Maybe a little bit less than the 15 times a day I check it right now. (Uhh hello… nothing changed in the last 45 minutes while you were in your cube…)
  • Continue looking for ways to reduce my spending. So far, I’ve started bringing lunches to work, and taking public transportation. However, I still want to look into other methods of reducing spending.

To increase my income

In my profession, promotions and raises are pretty rigid during the first 5-10 years of your career. I can probably estimate when I would get my next 4 promotions, and how much I’d be making at each position within a year or two and within a few thousand dollars. That’s an incredibly valuable set of information, but it is only relevant if I stay productive at my current job. In order to do that, I pledge to:

  • Work hard while I’m at my job
  • Network and look for other opportunities within my firm to take on additional responsibilities.
  • Take advantage of my vacation days and sabbatical opportunities. Burnout is easy in public accounting, so taking time off will help keep that at bay.

 

To invest the difference wisely over an extended period of time

So if I’m cutting my expense and increasing my income above, I need to do something with the difference. I’m sure my dogs would appreciate a new toy every day and some gourmet puppy chow, but that’s probably not the best use of my extra money. Instead, I pledge to:

  • Max out my Roth IRA every year. If I reach the income limits, then max out a Backdoor Roth IRA.
  • Beginning in 2017, max out my Roth 401(k) every year. Currently I’m contributing enough to get a company match, but I’m planning that with my decreased spending and increased income, I’ll be able to hit the $18,000 max next year.
  • Beginning in 2018, start contributing to a Mega Back Door Roth IRA. I’m incredibly fortunate that my company’s 401(k) plan allows this. I’m planning on taking advantage of it by 2018, but hopefully I can swing it sooner.
  • Stick to an asset allocation mix that makes sense given my stage in life. For now that means more stocks, in the future that means more fixed income.
  • Invest in low fee index funds. When I was in college I had a lot more free time and I was trying to apply the information from my Finance major to my investments. I spent hours researching stocks, reading 10-K’s, and following analysts trying to pick the best stocks for my portfolio. Now, I just want portfolio that doesn’t require a lot of maintenance. Low cost index funds is the way to go!

Other goals that I’m not ready to pledge to yet, but I’m definitely thinking about:

  • Move to a lower cost of living area. Los Angeles is awesome, it’s just too expensive.
  • Buy both a home, and a rental property. It’s a big step from renting to having a home and a rental property, but that’s what I’m hoping for.
  • Convincing my girlfriend to take the above pledges with me. She does some of the items, which is better than most 24 year olds, but I want us to accelerate our journey to FI together.

 

To recap, to become a millionaire, I pledge to:

  • Continue track my monthly expenses.
  • Continue looking for ways to reduce my spending.
  • Work hard while I’m at my job
  • Network and look for other opportunities within my firm to take on additional responsibilities.
  • Take advantage of my vacation days and sabbatical opportunities.
  • Max out my Roth IRA every year. If I reach the income limits, then either max out a Traditional IRA, or a Backdoor Roth IRA.
  • Beginning in 2017, max out my Roth 401(k) every year.
  • Beginning in 2018, start contributing to a Mega Back Door Roth IRA.
  • Stick to an asset allocation mix that makes sense given my stage in life.
  • Invest in low fee index funds.

If I follow these 10 steps I’ll become a millionaire sometime between age 33-35. If I can get my girlfriend on board (see goal #3) we’ll hit millionaire status even earlier! The best part is, our portfolios will be tax-free. If all of our contributions are to Roth investment vehicles, we won’t be owing any taxes whenever we start to dip into those accounts.

 

Have you taken the pledge? What do you think of my pledge, do you have any suggestions?

 

 

 

 

 

 

 

 

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