Millionaire Next Door Principles – On Any Salary

Following this post I got an email from a reader that went something like this.

Your posts are interesting but we have different financial situations.  My husband and I don’t have company pensions.  We’ve pursued our passions, we love what we do, but because of that it’s more modest living.  We live frugally.  Our house will be paid off by age 50.  We have a good chunk of money in savings.  However reading about your pensions and $1 M savings goal (which you feel is attainable) is probably not realistic for us. What insights do you have for people who aren’t exactly the same path as you?

I thank this reader for their email.  It got me thinking about how I started my savings and investing journey 20+ years ago and what I envisioned for my life back then.  It’s a bit different now.  I didn’t see many of those changes coming.  My life has taken some interesting turns but I’m happy where I am.  It seems the reader is happy where they are – which is ultimately the most important thing in life.

When it comes to getting a handle on finances, building wealth if that’s your goal, I can only offer some perspectives based on my experiences (including my failures) and those success stories I have observed from others.  Today’s post shares a few Millionaire Next Door saving and investing principles – for any salary – and at the end of the day, what it all really comes down to.

Principle #1 – I think you need some money to make money

One of my personal beliefs is you probably need a bit of money to make some money.  I said as much in this post here suggesting folks do these three things before they start investing.  Living below your means or at least within some (budgetary) means is critical to financial health.  Once you find a bit of money to save then watch out for principle #2.


Principle #2 – Avoid lifestyle traps

I recall when I read The Millionaire Next Door avoiding some lifestyle spending traps were very important:

Avoid driving away your wealth

Financing cars or leasing cars (unless you can offset those car costs as part of small business expenses) less than every 10 years will generally be a wealth destroyer for most people.  If you are financing or leasing cars often, you are borrowing money, and paying interest on this money, to buy a depreciating asset.  Let that sink in for a moment.

Avoid buying too much home

Unlike most cars, most homes are an appreciating asset.  This does not mean however you should mortgage yourself into the ground – although that’s entirely your call.  If you bought too much home, you probably have too much property tax.  You probably have too much utility bills.  You probably have too much home maintenance and too much insurance as well.  Those costs add up.  Even if you bought too much house and you can afford those operational costs your financing costs might be too high.  Given where bond yields have been and are now, there is very little reason why most folks should be paying more than 3% borrowing costs on their mortgage; it should be even be less.

Avoid buying too much stuff

Spending is good but to a point.  Put some focus on what your money can do for you to build wealth instead of how you can just spend it.

“There is an inverse relationship between the time spent purchasing luxury items such as cars and clothes and the time spent planning one’s financial future”  – The Millionaire Next Door.

Principle #3 – Plan for the unplanned

We’ve never been very good with emergency funds or cash savings until recentlyIt took me 20 years to get here (yes you read that correctly, 20 years) but at least some money is tucked away now.   I personally feel emergency funds are important but everyone has their own risk tolerance.  Whether your emergency fund is $1,000, $10,000 or even far greater I believe having a bit of money planned for the unplanned is better than no plan at all.

Principle #4 – Avoid paying too much financial advice for sub-par performance

Investing costs are a hot-topic nowadays and rightly so.  Shouldn’t financial advice come with some quantifiable benefits – as in value for money?  Fee-only advisors offer this.  I believe tax experts and accountants also offer this.  But paying more than 2% in money management fees for financial products that underperform the market is not good value for money.  You are falling behind – academic research says so.  What should you do?  Consider indexed funds via Exchange Traded Funds (ETFs) across your portfolio that own stocks and bonds in the appropriate allocations you have determined fit nicely with your financial plan.  Those decisions will likely save you thousands of dollars in the coming years, if not much more.

Back to the email, from what was written to me, the reader seems to be doing well and has a good plan in place.  Actually they are doing quite well.

At the end of the day I think it comes down to this:  you do the best you can with what you’ve got and you try and improve your life from there – even incrementally. Striving for a better tomorrow for you or your family is fine but enjoying any health and wellness you have today is a far greater gift.  Enjoy today, have fun, and plan a little bit for tomorrow.  I will leave it at that.

Thanks for reading.

What’s your take on my Millionaire Next Door principles for any salary?

My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.

19 Responses to "Millionaire Next Door Principles – On Any Salary"

  1. My thoughts are that a person needs to forecast what they’ll need to live on in retirement – if for these folks it’s modest then the amount they’ll need to save is probably lower. It’s fantastic that they’ve paid off their place already and are saving money at the same time as doing things that they’re passionate about. I admire that greatly when most of us get caught up in the corporate world where our passions don’t always match our career directions.

    To me it’s all about having a plan based on what’s important to you and your retirement funding goals and then executing on that- then enjoying life in the here and now with the rest (there’s no guarantee on the future). Unfortunately for me I enjoy cars, but as long as I’m hitting on my plan then that’s fine in my books.

    1. It’s all about your burn rate I believe. If you’re a big spender, you’re probably going to need more cash to stay out of debt in retirement. If you spend less, you don’t need as much. As you reference, pretty simple conceptually. I think the challenge is most folks have no idea, on a consistent level, where their money goes.

      I think it’s great they are on track to pay off their house and have some money in the bank.

      They are also following their passion. I enjoy what I do for the most part but I wouldn’t say it’s my absolute passion. I’m sure I’m like 90% of people out there.

      At the end of the day we’re optimistic if things work out, in 7 years, we’ll start working part-time and call it day. That will be nice. Something to strive for but if it doesn’t work out it’s not the end of the world. Having money is nice, sure, but it won’t make you happy. It just makes things easier somedays!

      Enjoy your weekend Keith 🙂

  2. I too wish I had read about these principles and had started our investing plan sooner. Fortunately for my wife and I we somehow lucked out and mostly followed the principles, I guess by intuition. We just retired at age 56. But if we had started earlier (we basically started at age 40) we would have an even better portfolio and/or would have retired even sooner.
    Looking back on how we did it, I have to say the “how” part was actually quite simple. The difficult part was to actually be disciplined enough to do it. I think what stops most people is the need to live below one’s means.

    1. We probably own too much house to be honest, but we enjoy it here. We’ll see how long we stay. I get the sense my wife wants to move soon.

      Retired at age 56 is very good and sooner than most Patrick – well done. I suspect if I didn’t make so many investing mistakes in the past, we’d be much further ahead than where we are now but alas, such is life and life is full of mistakes. You just learn and learn from them so you don’t make them again 🙂

      You’re right about the discipline part. I’m not sure the “how” has changed in 100 years.

      1. Thanks Mark. We also struggled with how much house to buy about 8 years ago so I feel for you. It seemed like a big splurge for us since our garage is now the same size as our previous entire house. That sounds like we moved into a mansion, but its just that the previous one was tiny.
        In your case it was likely also still a good move, you gain a lot of “wealth” by living a good life in that nice house, even if it’s more than you feel you should have purchased.


        1. Thanks Pat. We enjoy this place. It is more than we really need (if you think about it we don’t NEED that much in life) but we enjoy the place and are willing to work a few years longer to ensure it is paid off – with a margin of safety – before we venture into semi-retirement.

  3. Sounds like they are doing well and I’m also not sure exactly what they are asking.

    It seems to me they should keep doing what they’re doing, and focus on meeting their own cash flow needs with assets that satisfy their own risk tolerance in retirement.

  4. I’ve read the email from the reader and I’m not sure what they are asking for. From what I can tell they are doing very well. My advice is to keep doing what you’re doing.

  5. Ops’, they re not yet 50. Better yet, they have time on their side. The question remains “how have they invested their savings?”
    Too get the greatest possible Income from their savings before they retire the previous advice still applies. Their goal should remain Income Generation and Growth of Income!
    Avoid thinking about the Pile, Market Returns or Total Diversification. Look at building a small number of Large, Secure, Financially Sound and ones with a good history of Returning Income to their stockholders.

  6. “- My husband and I don’t have company pensions.
    – We’ve pursued our passions, we love what we do, but because of that it’s more modest living.
    – We live frugally.
    – Our house will be paid off by age 50.
    – We have a good chunk of money in savings.”

    Sounds like they done extremely well but made no mention of what they have done with their savings?

    “- However reading about your pensions and $1 M savings goal (which you feel is attainable) is probably not realistic for us.”.

    They must be in their 60’s and its unfortunate they didn’t ask or post their situation earlier. Is it too late?, NO. They may not be able to build their pile to $1Mil, but they should, if they have not already done so, set or change the focus of what they expect from those savings. It’s not the size of the pile, but the Income ones savings provides that’s important.

    Being frugal I’m sure that cpp\oas, depending upon their age, probably covers a good portion of their expenses. So how much more income do they require and how have they invested their savings to that end.
    Looked at from that perspective, “good chunk of money in savings” should provide the income they need.
    $300,000 @ 4% $12,000 ___@ 5% $15,000
    $500,000 @ 4% $20,000 ___@ 5% $25,000
    By investing in Blue Chip Cdn stocks with a history of paying and growing their dividend, they should easily be able to obtain those returns, with little risk.

    1. They are younger than 50 cannew, given they hope to have their house paid off by then.

      I think they’re doing very well for themselves. No doubt when they pay off their house, their cash-flow will be much better.

      For many couples that work 30+ years, and save ~$6,000 per year, RRSP or TFSA, doesn’t matter to me, after 30 years they will have about $600,000 with 7% returns. That’s very good and with CPP and OAS and a paid off home – that’s a decent retirement.

      I agree with blue-chip stocks – many folks though are not comfortable with unbundling the Canadian market. I am though. Post to come.

  7. I read the millionaire next door years ago. The principles still applies. All we need is to be focused, enjoy the moment while planning for the future.
    Thanks for sharing

    1. Thanks Peter. If most people want to be financially free, if most people can solve the big ticket items (i.e., house expenses, car expenses and major unbudgeted discretionary spending) they are usually more fine for retirement.


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