The Basics
4 secret millionaires' road to riches
They're from modest backgrounds, and they've faced plenty of hurdles. But these folks learned how to slowly, steadily build wealth without drawing the least bit of attention.
By Liz Pulliam Weston
You're probably surrounded by them.
They live in modest homes, drive older cars, brown-bag their lunches. They don't look like millionaires. And yet they're worth seven figures.
Almost a decade ago, the book "The Millionaire Next Door" alerted America to these quiet-living folks who accumulate wealth while their neighbors spend themselves into debt.
Every day, more people join the ranks of the secret millionaires. Some of them post on the Your Money message board. I thought you might like to meet a few of them and learn how they did it.
The best revenge
Who: Linda, 52
Where: Houston
Net worth: just passed the $1 million mark, including $150,000 in home equity
Her tips: Get educated for a high-paying job; max out your retirement accounts; take some risk; buy disability insurance
Linda's story sounds a lot like a country song.
She dropped out of her East Texas high school at 16. She got married, divorced and then married again. She was 20 and five months pregnant when her husband was killed in a Christmas Eve auto accident. Seven weeks later, her father dropped dead of a heart attack.
Her mother moved in with her. After years of supporting her mother and son, Linda finally remarried, only to get divorced again after giving birth to another son. Eventually, her younger son decided to live with his father, and Linda ended up paying child support.
Then at 48, she developed a crippling case of lupus that forced her to quit work.
So how in the world did this woman become a millionaire?
Linda traces the start of her journey back to the dark days after her first son was born. The husband who died in the car wreck had failed to change the beneficiary on his life insurance, Linda said, and her in-laws kept the proceeds.
"I was broke, uneducated and had no medical insurance," Linda remembered. "I owed the hospital and doctor for my son's birth and owed for my husband's funeral. My treatment by my in-laws made me furious, so I decided I'd show them!"
Linda started reading the classifieds in the Houston Chronicle and noticed a lot of ads offering high-paying positions for pipe designers, an engineering job in the oil and gas industry.
"I thought, 'How complicated could that be? (A pipe is) a tube with a hole in it,' " Linda said. "I called a community college that was a hundred miles away and asked if they taught pipe design, and they said, 'Sure, but late enrollment ends tomorrow.' "
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Linda hustled to sign up and sold most of what she owned, including her television and stereo, to help pay for school. After graduating with her two-year degree, she moved her family to Houston and went to work in June 1978 for $4.95 an hour. Over the years, her pay rose to $40 an hour, or more than $80,000 a year -- "not bad for an AA degree," as she put it.
After working for several years, she was offered the opportunity to start investing in a 401(k), and she grabbed it. She initially split her money between a stock fund and a bond fund, but eventually shifted more into stocks to get a higher return.
"I knew if I ever had a hope of retiring, I'd have to be aggressive in my investments," Linda said. "Through bull and bear markets, I've stayed almost 100% in stocks all this time. I've kept it diversified among U.S. and international and a small amount in emerging markets. I am just now beginning to move some assets into less-volatile holdings, but still have about 75% in stock funds."
She made another smart decision: buying long-term-disability insurance through her employer. That policy now pays her $60,000 a year, about two-thirds of the salary she was making when her disability forced her to quit work in 2000.
Four years ago, she remarried. She convinced her husband, who had no retirement savings, to start contributing to his 401(k), but the bulk of their current wealth came from the years when she was making $60,000 or less and supporting her children and mother.
"All in all, I can't believe I've managed to accumulate as much as I have," Linda said. "If I can do this working from the hole I started out in, anyone can. All it takes is discipline."
Linda said they live modestly in an "average middle-class neighborhood." Their cars, a 1998 Camry and a 2004 Corolla, are paid for. Their big indulgence is travel: They've been to Europe several times and enjoyed cruises to Scandinavia, Russia and Alaska.
"Other than that, we live quiet lives and try to help our kids and grandkids as much as we can," Linda said. "I'm sure my neighbors would be shocked to learn we have assets anywhere near what we do. Especially when they see me working in the garden in stained clothes and with no makeup on, it would be hard to believe I wasn't a hired gardener at someone else's house!"
Rags to riches to rags to . . .
Who: Ed, 65
Where: Plano, Texas
Net worth: nearly $2 million, including $350,000 in home equity
His tips: Buy (and hang onto) real estate; invest in your 401(k); watch your spending
Ed is another Texas high school dropout who's had his shares of ups and downs, surviving a harrowing real estate recession and losing $1.5 million in the dot-com bust.
Ed immigrated to the U.S. as a teenager and spent nine years in the military, including a tour in Vietnam. By the time he was discharged, he had his high school equivalency degree plus three years of college study under his belt. He got a job working on computers for a large corporation.
"My wife and I saved diligently and purchased our first house in 1966," Ed said. But the commute to his job was over 100 miles a day, so they decided to buy another home closer to work and rent out the first house.
That was the start of their real estate empire. The couple continued buying rental properties and did well -- right up until the Texas housing market crashed in the mid-1980s, a victim of lower oil prices that cratered the state's economy. People left Texas in droves, and suddenly the couple had vacant rentals as well as a mortgage on a newly purchased, $250,000 home that carried a 16.5% interest rate.
Many other landlords in similar situations let the banks foreclose on their vacant properties. But Ed and his wife hung on, using the savings they had built up to pay their mortgages and doing all maintenance chores themselves. Slowly, the market recovered.
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Ed retired from his job at age 50. He rolled his retirement accounts, including a 401(k) and a profit-sharing plan, into a self-directed individual retirement account.
"I was very aggressive in the market during the dot-com years," said Ed, whose net worth peaked at $3 million. "On my best day, I made $102,000 . . . and lost $104,000 on my worst day."
Once again, the market turned against him, and he wound up losing half the couple's wealth in the 2000-2001 bear market.
As before, the couple refused to give up. They began selling their investment properties to supplement their income and moved their retirement portfolio into mutual funds, bonds and cash. Today, they are "back on the road to recovery" with a net worth near $2 million and an annual income in retirement of $80,000, Ed said.
But the careful buying habits of a lifetime haven't changed, he said. "My wife still clips coupons and is always on the lookout for sales."
Ed said they have never talked about the peaks and valleys of their wealth with family members or friends, who he says would be shocked that they have such a high net worth. His wife in particular is eager to keep their secret, Ed said: "She is afraid that envy would interfere in her friendships."
House-rich and frugal
Who: Lynn, 46
Where: Bay Area, California
Net worth: about $1.2 million, with $650,000 in home equity
Her tips: Contribute to retirement accounts; have a good-sized emergency fund; drive older cars; watch your spending
Living in an area with a high cost of living, as Lynn does, is a double-edged sword.
Lynn's $90,000 salary as an account manager doesn't go as far as it might in, say, Kansas. But her net worth has benefited mightily from the recent run-up in real estate prices.
Lynn and her husband, who was then a general contractor, bought their current home for $200,000 in 1995 and spent the next decade fixing it up. They did the work as they could afford it, charging the expenses to their Visa card but paying the balance in full every month. (They used the rewards points they earned this way to take their vacations.) The house is now worth more than $850,000.
Along the way, the couple continued funding their retirement accounts, a $35,000 emergency fund and a college plan for their teenage son, which together constitute slightly less than half their net worth.
Lynn is now the sole breadwinner as her husband starts up a new production business. They continue to live as they always have, looking for economies large and small.
"I don't use any magic; I've just always been frugal," Lynn said. "I learned to stretch from my foreign-born mom."
The couple drive older cars, a 1992 sedan and a 1995 van, both maintained regularly so they'll last. Lynn brings her lunch to work every day and makes or bakes gifts for the holidays. Parties are potlucks, and they've so far resisted the urge to upgrade their other entertainment options.
"We don't own a plasma TV or have a game room," Lynn said. "In fact, the TV in the living room cost me $45 at a garage sale, but the screen is 25 inches and the color is great."
Other ways she saves money include:
Buying food at a grocery outlet.
Using half a cup of laundry detergent for each load versus a full cup.
Buying cleaning supplies at a dollar store.
Cooking most meals at home (although they eat out once a week as a family for about $30 a pop.)
Using plastic grocery bags to line small wastebaskets.
Waiting until movies come out on DVD. It's "cheaper and quieter, too," she says.
Buying clothing at Ross and shopping early in the day for the best savings.
Avoiding discount warehouses. "I stopped shopping (at Costco) about nine years ago when I realized I was overspending in a feeble attempt to save money."
Their lives are focused on family, friends and the community, she said. They donate to charity, and she volunteers at two community organizations.
"In our area, we would never be considered 'wealthy,' " Lynn said, "but we try to enjoy our time on this earth."
Her only regret: Starting late
Who: Candace, 45
Where: New York metropolitan area
Net worth: about $1.1 million, with $225,000 in home equity
Her tips: Own a home; stay out of debt (other than a mortgage); contribute to retirement accounts; invest automatically
Candace credits her father with encouraging her to avoid debt and save money. Currently she saves about 40% of her gross income. It helps, she says, that she's single and has no kids.
"Since I only answer to myself, it's easy to limit my spending," Candace said. "My luxury is getting my hair highlighted -- a must because it makes me feel good about my appearance. Expensive hair, cheap clothes work for me. I exercise by running on the boardwalk, so no gym costs, either."
Candace said she built her wealth by contributing to her 401(k) and IRAs and by staying in her job as a civil servant for 18 years, long enough to build up both her pension and her salary.
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"I have found that automatic investing is a great way to save money," she said. "I've learned to live without the cash, and the funds are moved to savings every pay period, so I don't have to remember to do it. With automatic investing, your savings grow quickly."
She invests in index funds, which mimic stock market benchmarks. Her one regret is that she didn't start investing sooner.
"I didn't get into stocks until my late 30s," Candace said. She plans to keep the bulk of her portfolio in stocks, which should help give her the inflation-beating returns she'll need to fund a long retirement. She also hopes to leave an inheritance to her younger relatives.
"My goal is to bequeath a sizable amount of money to each of my nieces and nephews," she said, "so that they can have the seeds to wealth."
Liz Pulliam Weston's column appears every Monday and Thursday, exclusively on MSN Money. She also answers reader questions in the Your Money message board.
Published Feb. 19, 2007
