Wednesday, April 26, 2017

A Millionaire by Age 30? Here's How

A fellow named Grant Sabatier has revealed his technique for turning millennials into millionaires by the time they reach 30.

There's a lot of wisdom in his story. But it reminds me of another story.

A concert audience member, blown away by the pianist's skill, walked up to the stage as the other audience members were leaving. She told the performer how much she'd enjoyed the concert, and then added, "I'd give anything to be able to play the piano like you do." Expecting a reply of "thank you," or "ah, shucks, ma'am," what she got was, "Oh, no you wouldn't." Startled, she protested, "Oh, yes I would. Why do you say that?" "Because," he replied, "you wouldn't be willing to practice six hours a day for ten years."

In other words, while our young millionaire has his math right -- any teenager willing to do what he says will have a shot at $1,000,000 by his or her 30th birthday -- few if any would be willing to follow the steps and live the life required to achieve that wealth.

Mr. Sabatier's recommended life, a kind of ultimate deferred gratification, reminds me of another story by way of explanation.

A farmer was leaning on his fence, looking out over his pasture, when his neighbor came over to chat. Noticing a mule lying on his side in the middle of the pasture, the neighbor asked,"How's your mule doing?" "Not so good," replied the farmer. "I was training him to live on dew; almost succeeded when he uped and died."

Sabatier doesn't require that his followers live on dew, but his requirements are only marginally more generous. He would probably agree with the thrust of the Saturday Night Live sketch in which a young couple with financial problems (played by Steve Martin and Amy Poehler) are urged, "Don't buy stuff."

The basic formula is that you hold more than one job, one of which you grow into a business, cut expenses to the bone, and invest a far larger share of your income than most would choose to do.

His investment strategies seem sound enough, and similar to what many investment advisers have to say: Buy index funds with the lowest percentage fees (rather than individual stocks or managed funds); on a regular schedule ("dollar cost averaging"); diversifying among max cap equities, small cap growth, foreign firms, real estate, and bonds (taxable and tax-free). Of course, that's the easy part -- once you have the money to invest.

I've given teenagers similar advice with a couple illustrations, both leading to the million dollars (in my illustrations, by age 65). One involves a 15-year-old smoker who gives up the habit and invests what would otherwise have been burned up. As I put it to a one-or-two-pack-a-day teen, "Smoking is not a $10-to-$15-a-day habit, it's a $1-to-$2-million-dollar habit."

The other illustrates the contrast between paying cash and buying on credit. Two teens want cars. One buys on credit and makes monthly payments for cars all his life. The other saves first, pays cash, drives the car while putting aside and investing monthly payments for the next one, repeating the process for all of his life. When then reach 65 they both still have cars, but the one who pays cash will also have $1-million in investments.

Or, as I used to tell law students (albeit before graduation carried with it $100,000 or more in debt), "If instead of buying a Mercedes or BMW you continue to live during the next ten years (as a lawyer) the way you did during the last ten years (as a student) you could retire at 35. You'll find your 'lifestyle' living on 90% of what you earn not noticeably different from living on 110% of what you earn."

It's all about the capacity for deferred gratification, illustrated by the marshmallow experiment. Jacoba Urist, "What the Marshmallow Test Really Teaches About Self-Control," The Atlantic, September 24, 2014. I was born during the Great Depression. Deferred gratification was not a goal, it was a reality born of lack of money. There was no alternative, if I really wanted a bicycle, to getting a paper route first, saving my money, and then paying cash for it. One saying of the time was, "Use it up, wear it out, make it do, or do without."

But there is an alternative to poverty as the driving force.

If one thinks of doing without as painful deprivation, it is unlikely any teen who uses all their money to "buy stuff," one whose very identity is dependent upon physical possessions, will have any significant investments by the time they are 30, let alone $1-million dollars.

Yes, it's hard to alter one's behavior if one cannot alter one's thinking. But it's possible to alter one's thinking. I've written a book about it: Test Pattern for Living (available from Amazon).

Interested? Start by learning a little more about Grant Sabatier's journey, accomplishment, and program. Grant Sabatier's Millennial Money Blog; "Millionaire By Age 30? One Blogger Offers a Few Not-So-Easy Steps," Here & Now, WBUR, April 25, 2017.

The financial rewards can be enormous. But, like the lady who wished she could play the piano like that virtuoso, whether you are willing "to give anything" to achieve them is up to you.

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