investment pillars

The Three Pillars of Becoming a Millionaire

If you are able to look past the cunning headline, I am actually going to give you some timeless and foolproof advice here.

Main part of becoming a millionaire or retiring early lies on 3 strong pillars. They are the ethos that one must follow and stick to:

  1. Save as much money as you can. There is always room to cut your costs and have more money left over at the end of the month. It is almost miraculous how people tend to be able to save about the same percentage of their income despite how much they make. This shows that most of the money is flowing to all sorts of expenses that you make to upgrade your life quality.

    I know this, because I used to be the same way. Until when I turned 40, I realized that I do not want to work until I die. From that stemmed a decision to do something about it. After a painful introspective research I discovered that the main thing stopping me from piling up money is my personal inability to cut my spending.

    With bigger salary I bought a bigger home, a second car, a motorcycle, went travelling more often, started travelling further (those two I never regret, but still).

    Had I kept this behaviour, I would never have reached the millionaire status or the ability to quit my day job and become free of the 8-5 debacle.

    So my desire to get rid of this compulsory routine finally had become greater than my desire to just sit on the couch and do nothing reasonable.

    This all lead to me starting to keep track of my spending and trying to save more money every month. This became a challenge and I love challenges. I ended up with being able to save 30% of my salary, which was a huge thing for me.

    So the first pillar is to actually be able to save a significant portion of your income. I would say that 20% is the bare minimum that you should aim for.

  2. Second pillar is investing that money. I know that you may feel better to just save it up without risking anything. That is cowardish and will not take you to your goal. Instead, it will hurt you, as inflation will decay your wealth.

    A big part of the formula is knowing how to invest and luckily we live in a world where investing has become very easy. Everyone can open up a brokerage account or use their checking account to buy some securities. It’s easy. The hard part is knowing what to buy.

    Research shows that most money managers are performing worse than the overall market in a longer time period. The statistics are horrible, it shows that 80-90% of actively managed funds fair worse than the market.

    What this tells us is that you are more likely to lose more money with a fund manager than by buying a passive index fund that follows the market and returns about the same yield as the market in aggregate.

    Check this article in the Financial Times to read more about the underperformance of active fund managers –

  3. Keep at it. That’s right. Most people get excited about long term investing and start doing it with sufficient motivation. Sooner or later the motivation will dry out and they will quit.

    Quitting is a sure way to not reach early retirement. You are almost guaranteed to work until the official retirement age or even further.

    On the other hand, if you are able to keep at it, you will reap the benefits and drink the coolaid when you get to your goal. The feeling of true freedom is well worth the effort. I didn’t quit, but I reduced my working hours by more than 50% and only deal with customers that I want to deal with.

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