Earlier this year, my wife and I watched our net worth cross over the million dollar mark. It was a surreal moment.
When we got together 10 years ago, our net worth was a negative number. And now it’s a 7-figure positive one.
I’m an amateur personal finance geek.
Your tools have helped me become a smarter investor.
Personal Capital Dashboard User, February 2021
Looking back, we’re thrilled about the progress we’ve made together as a couple. And now we’re trying to help our kids learn the same wealth-building skills we’ve ascertained over the past decade. That way, our family’s generational wealth will live on well past our lifetimes.
Outside of sharing with our kids, I love helping others on their young millionaire journeys too. So if you’re looking to become a millionaire in your 30s, here are five tips that helped us get there.
1. Invest Early
The earlier you invest, the more wealth you’ll build. If you start regularly investing in your 20s, compound interest will do wonders for your retirement portfolio.
It did for me.
I started investing regularly at 28 years old through tax-advantaged retirement accounts like my workplace 401k, Roth IRA and eventually through a Health Savings Account (HSA). These accounts have consistently grown over the past decade to leave us with over $400,000.
If we simply leave that $400,000 alone and let it grow (with a conservative 7% interest rate compounded annually), we’ll have around $2,500,000 by the time we’re 65 years old.
Time and compound interest can do amazing things.
2. Pay Fewer Taxes
There are lovely (and legal) ways to reduce your tax burden each year. My wife and I took advantage of these options and depending on your situation, you could too.
401k
When you invest in a traditional 401k, you are investing today with pre-tax dollars. This means you are not paying taxes today and instead deferring them to a later time. That later time will be when you withdraw your money in retirement.
In theory, you may be in a lower tax bracket in retirement so this tax hit may not be as large for you. Or it may be. The future only knows.
During our decade of wealth-building, we averaged around $190,000 per year. Our higher-than-average income was ripe for the traditional 401k because we were able to defer our taxes on our 401k contributions.
Roth IRA
There’s also something great about paying taxes on your retirement contributions today, too: You won’t have to pay them when you’re retired. That’s where the Roth option comes in.
We chose to invest in Roth IRAs for over a decade and those balances have grown steadily and they’ve grown tax free. That’s the beauty of the Roth IRA.
There is also a Roth 401k option as well. There are some key differences between Roth 401k vs. Roth IRA, but they both help you save on taxes as your investments grow.
Health Savings Account (HSA)
Another super stealth way to save on taxes is by saving and investing in a Health Savings Account (or HSA).
The HSA is an account that helps you save for future health care expenses. Just like your 401k, you can save and invest pre-tax money with your employer. When you need to pay for qualified health care expenses, you use your HSA debit card and you’re all set.
You can even invest the money in your HSA!
529 Accounts
If you have kids like we do, the cost of college isn’t getting any cheaper.
By some estimates, my daughter’s college experience will cost us nearly $200,000! And that’s for an in-state college in Michigan (ahem, Go Green!).
After we nearly passed out from that number, we looked for ways to make this possible for our two kids.
The 529 College Savings Account became a smart way for us to save and invest for our kids’ future college expenses. Our contributions are not federally tax deductible, but our investments do grow tax-free.
And although the federal government doesn’t give us a tax break, our state government in Michigan does. Now, that may not be the case for every state, so check to see if your state has a 529 state tax deduction.
3. Make Investments Automatic
Once you’ve discovered your investment strategy, start making your contributions automatic.
If you do this, you’ll not only grow your investments consistently over time, but you’ll avoid the worst investment mistake of all time: forgetting to invest!
When your investment contributions are automatic, you can relax more knowing that you’ve done your part. Now, it’s time for compound interest to do the rest.
In 2013, I started a new career and had a 401k option. My employer matched 15% of my contributions annually so I decided to max out my contributions during the entirety of my employment. Every month, my 401k contributions were taken out of my paycheck, invested in low-cost index funds, and my balance slowly grew and grew.
When I left my job in 2020, I had a $200,000 balance!
4. Eliminate Unnecessary Expenses
My wife and I disagree on financial decisions from time to time. But there is one thing we never disagree on: Spending money can be fun!
We love going on vacations, eating at restaurants, watching our kids play youth sports, going to concerts, binging on a Netflix series, and having dozens of other experiences.
At one point in our lives, we said, “What could we spend less on so we could spend more on the things we love?” With this thought, we started to investigate how we could get more out of life today.
Saving on taxes (as mentioned above) was a great start, but then we started to look at our bills. Things like cable, utilities, insurance, cell phones — these could all be negotiated or reduced without it really affecting our joy.
So that’s what we did. Through this process, we found ways to reduce our “un-fun expenses” by $20,000” and increase our “fun expenses” by $10,000. It meant happiness today for our young family.
Think about how this could work for you.
Could paying off your debt give you more opportunity for fun today? Or more opportunity to invest for a comfortable retirement?
Or could shopping at a lower-cost grocery store each month allow you to go on an epic family vacation each year?
It’s worth a look.
5. Give Back
This may sound counter-intuitive to building wealth, but I believe giving away your money helps you to become truly wealthy.
At one point, we found ourselves giving only 1% of our income each month. Now there’s nothing wrong with that, but I thought we could do more.
Quickly accelerating our giving was difficult for us though because we had a lot of other priorities for our money. We decided to ladder up our giving over the following years.
In 2018, we got to 3%. Then in 2019, it was 5%.
Now this year, we’re working on our own version of 10% giving:
- 5% for charities
- 4% for family giving
- 1% for random giving
It’s our first year going for the full 10% (in our own way) and we’re loving it. When there’s a cause or a charity we want to give to, we have the cash set aside for some big gifts.
If we attend a wedding or our niece graduates from high school, we can give a nice cash gift to help them in the next chapter of their lives. It’s a fun way to give to those you love.
Random giving is my absolute favorite. Big tips at restaurants, giving the janitor at my office a $100 bill, or handing each employee at the burrito place $20 during the holidays have been a few ways we’ve celebrated this random-giving tradition.
Everyone grows wealth in a different way. I’m hopeful that these strategies of ours not only help us to continue down this net-worth growth path, but I hope also to leave a smile for our neighbors and family along the way.
Next Steps for You
Interested in growing your own net worth? Personal Capital’s free, online tools give you clarity on your financial situation so you can focus on your goals.
Millions of people use this technology to get a better understanding of how their money is working for them. With the free tools, you can:
- Plan for retirement given a wide range of scenarios
- Budget and save for your short-term and long-term goals
- Analyze your investments and uncover hidden fees
Ready to begin planning for your financial future?
Personal Capital compensates Andy Hill (“Author”) for providing the content contained in this blog post.
