I thought it’d be an interesting exercise to revisit the climb to the first million ($1M) since it was such a big milestone for my wife and I. We both dreamt about such a milestone in our 20’s but it was not always easy to visualize. Still stuck with some student loans, living in an apartment, and both on steep learning curves early in our careers, $1M seemed really far away.
Then of course we were surrounded by “normal” people. Our peers that made just as much money as us, but had a house, nicer cars, went on vacations in the Caribbean…where did all that money come from?
Now it’s as clear as day, we choose frugality and peace of mind over debt, and it paid off. We didn’t always make the best or smartest money moves, but we stuck to our guns and didn’t give up.
I highly recommend the Millionaire Next Door and Millionaire Mind. We both read these books circa 2000 and it inspired us (already savers) to focus on saving and investing.
Same Old Articles…
I first got the idea for this post after seeing (for the billionth time) an article in one of the major media outlets where someone was writing about how to save and reach your first $1M. As usual, the article I read was pretty basic, save x amount of dollars over x amount of time and invest in S&P500 index fund and voila! You’re a millionaire at 65. Boooring. Where’s the real life detail in that?
I was then looking back at one of my charts and noticed all the ups and downs. I could go to some of the dates and notice that I could recall the reason for ups and downs. Some were obvious and coincident with major market moves, others resulted from major life choices like buying a house.
The Chart
So let’s pull back the curtain and see what we find…
The chart I include here shows roughly a 9 year period from 2006 to 2015. Just for reference, we were 40 years old when we hit the $1M mark.
Before 2006, my tracking records have too many gaps, so I left that portion out. If I had good data over this period it would show the ugliness of my 1998 to 2006 swing for the fences phase. I’ll spare everyone the ugly detail from that era.
The red, or bottom portion of the chart represents what I call retirement savings. This consist of 401ks (Roth and Traditional), along with a Roth IRA and a Traditional IRA. The blue or top part is labeled as non-retirement. It consists of all our taxable accounts, checking, money market, savings, etc.
I also include a chart of the Dow Jones Industrial Average (DJIA) over the same period of time. This is a good reference as there are some obvious correlations between our bank accounts and what was happening in the DJIA.
Initially there’s a slow build up in wealth between 2006 and 2008. When you look at the width of non-retirement vs. retirement, you can tell that we were saving a lot more in the retirement pool. Not too bad really, but as I wrote here, one of my lessons learned during the 2008 to 2009 recession was that we had too little cash. Given all of the things that can go wrong in life, if we needed lots of money we would likely have had to sell investments, retirement investments no less, to make it through in a time of need. One of the things I’m proudest of is the widening of the blue band on top from 2006 to 2016. Now it’s even wider, perhaps I’ll post on that another time….path to the second million!
The 2008 to 2009 recession took us down a fair amount. Our net worth reached a high of about $442,000 in May of 2008, down to a low of about $325,000 in March 2009. My own 401k account went from about $93K to $57K in that same period, about a 38 percent decrease!
The climb out of that recession saw an increase in non-retirement savings. That was deliberate as we wanted to have a larger cash cushion and non-retirement savings. It was around this time that thoughts of a possible early retirement crept into my mind. My thinking circa 2009 was that if we were to retire early, we’d need a larger nest egg in our taxable accounts.
In 2010 there’s a steep drop in non-retirement savings that is not mirrored in our retirement accounts. This was from the down payment of our house, the one we eventually paid off in 2018. From the chart you can gauge it took more or less two years to make back that down payment. Yes, I also recognize there is a good argument that we could have continued to rent, save and invest that money instead, and realized bigger gains….but we didn’t do that.
However, we never stopped contributing to our investment accounts. We drained our cash a bit in 2010, but we made it back, and grew back that non-retirement nest egg.
We first reached the $1M mark in November 2015. Then there was this pull back in stocks right after that, specifically in January and February 2016, where we were slightly under the $1M mark. But starting in March 2016, we were back over and haven’t looked back.
Hitting the $1M mark is obviously coincident with the increase in the DJIA during the same period of time. However, if you look back at the home purchase of 2010, we certainly were not guaranteed to hit $1M. We reached this milestone with disciplined spending, saving and investing. At any time during this period we could have messed the whole thing up again with a purchase or worse, some personal calamity.
A Couple of Lessons
- Big recession – The 2008 to 2009 recession sucked the big one. Watching your 401k go down by 38 percent is painful. Watching your 401k go down 38 percent and having the media pile on with negative news to boot is even worse. When the next recession comes, do yourself a favor, tune out of the negative media, focus on your risk tolerance and time horizon and you’ll be fine. Even though that was a rough patch, look at it in the big scheme of things, it was just one blip. If I were to show a graph from 2006 to the present, it’d look even smaller and more insignificant.
- Major purchase – in January 2010 we put made a down payment equating to 40 percent of our house value. If you look at the DJIA from when we made that down payment in January 2010 to the next peak at May 2011, it’s about a 20 percent increase. That money we put down could have seen some big stock market gains. Put another way, going about the home purchase the way we did increased the amount of time we’d have to work to attain FI. Something to weigh if you’re considering something similar.
Some Additional Hindsight
This Investopedia article writes that the average millionaire in the US is 62 years old. My wife and I didn’t always make the smartest money moves, but we’re frugal, believe in delayed gratification, and we worked hard and saved. Even though we made some money mistakes we were still able to reach this major milestone 22 years before the average American. My point in writing this is that we’re not perfect, we made mistakes, and we still arrived at our goal.
Writing this post and putting it on the internet for all to see isn’t the most comfortable thing to do, but I figured it may help some folks. If you’re new and starting out, it shows you can make mistakes and still succeed as long as you don’t give up.
Every so often some major media outlet decides to resurrect the same article of spelling out a simplistic way to get to $1M in savings. The things usually missing from those articles are the basic principles of people in the FI community. Grit, hard work, delayed gratification, frugality, it takes all of these things for most of us to attain meaningful wealth.
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