5 Financial Principles from a 34 Year Old Millionaire Investor

I asked regular reader Philip to share his story of how he grew his net worth to over $1M before the age of 35.  Enjoy!

I was recently with a group of good friends out for a charity golf tournament, enjoying a nice day on the links instead of being at work.  As usual, I had a few amazing shots, but many more horrible ones that I just wanted to get out of my mind. 

Despite my mediocre golf play, it was a great day to have fun and relax. At the end of the round we grabbed dinner at the clubhouse and chatted about various things.

At one point during dinner, the conversation somehow turned to finances, where the majority of my friends were unified in complaining about taxes, the cost of life and the stress of debt. Most of them are in the same stage of life I am: mid 30s, living in suburbia, 10 years into their careers and married with kids.

From what I know of their careers, some of them make very good money, some of them have more modest incomes. Regardless of their incomes, they all seemed to give me the impression that things were tight and saving was a luxury most don’t have right now due to young children, daily expenses and big mortgages.

On the way out of the clubhouse and back to our cars, I couldn’t help but notice that most of them had really nice golf bags, filled with the newest and hottest wedges and drivers. To match that, many of them headed back to newer SUVs and higher end sedans. My walk back to the car was no different, with the exception of my old set of golf clubs and my 7 year old car.

I have been teased a few times about my old set of  “executive OSI” bi-metal technology wedges. Yes, my golf clubs are 16 years old. While I might play a bit better with a new set, but for me, my set works just fine.  I don’t seem to play golf much worse than my friends who buy a new set every year, so I figure it isn’t worth spending a ton of money just to buy something new.

My old golf clubs are a good representation of how I manage many things in my life. I’m careful with my money, and I’m usually pretty happy with the material possessions I have. I’m in a really good position, where I don’t have a lot of the financial stresses that my friends are facing right now. I was lucky to get really good financial advice early in life, and I’ve followed it religiously through the years.

At this point, I’m 34 years old, married for 7 years and have a 4 year old child.  Our net worth is now $1.35M.  Our home is worth about $350K with no mortgage, and our other assets (RRSPs, TFSAs, and Non-Registered portfolios worth approximately $1M) I manage myself.  

Both my wife and I work full time. We both earn about 100K per year individually which has been a big contributor to our savings success (note though that our salaries weren’t always as high as they are today).  We also have never inherited anything, so  we started from scratch early on and made it from there.

I think the biggest contributor to our savings and future savings is in our lifestyle, that’s essentially where we save the most money.

Related: 25 Ways to Save Money

Our financial strategy has been fairly simple, almost boring, but it has paid off for our family. Yes, it means I play golf with older clubs and drive an older car.  But that’s a choice that I’m comfortable with and I’m happy with what I have.

The financial and lifestyle management strategy we follow is based on five really basic principles.  We don’t get much more complicated than this in our financial planning, and it works for us.

 1. Geography

I am well diversified by geography, with no more than 10%-15% of my portfolio in Canada.

My rational for this is:

  • Canada is less than 3% of the total world stock market;
  • In the past 10 years, the Canadian market has only been the top world performer once; and,
  • Only 10 companies make up 41% of TSX exchange, so it’s pretty small: 5 banks.  4 energy stocks.  1 rail stock.  More info:  http://www.world-stock-exchanges.net/top10.html.

2. Asset Class

I carefully track what asset classes I invest in, with an overweight on stocks (instead of real estate, bonds etc).

My rational for this is:

  • Generally, since 1926 stocks have outperformed bonds and other investments by a factor of about 30:1   
  • In Canada, the 25 year average house price gain is 5.3%.  Meanwhile, inflation was running at 3.03% over the same period.
  • Over the same period, the TSX composite would have returned 10.75% annually, bonds 10.9% and the S&P 500 13.5%.

3. Portfolio Costs

I’m very careful on my portfolio costs.  I do most things myself through self-directed accounts, buying ETFs or low cost mutual funds.

My rational for this is:

  • The “average” investor (like me) expects to earn (before fees) 6% per year on their portfolio of stocks/bonds/real estate – over a 25 year period.
  • If I am paying a 2% fee to someone who is managing this portfolio for me, it can cost me a large portion of my overall portfolio growth.
  • I also think most mutual funds are just enriching themselves and not their clients.  Therefore I stay away from most of these financial products.

4. Tax

I think pro-actively about tax and what it means in my investment choices.    I always think about how to best structure myself for tax efficiency (see portfolio allocation).

My rational for this is:

  • Capital Gains tax: Basically, you’ll pay a max of 23% tax on these in most cases.
  • Canadian Dividends tax:  you’ll pay a max of 30% tax on these.
  • Income / Interest / Bonds tax:  you’ll pay a max of 46% on these.

 5.Lifestyle management

  • I enjoy my life.  I invest in hobbies, annual vacations, and luxuries.  However I do this within the context of what I earn, so that I always can save a good portion of my income, aiming for 20% per year.
  • I learn how to do things myself (renovations, car maintenance, home maintenance).  If I need a new deck, new driveway, new bathroom, new flooring:  my first question is how can I learn to do this myself and get it done.
  • For any new purchase, the first thing I consider is if I can buy it used.  Most times I can and do. This saves me an incredible amount of money.  I rarely buy things new.
  • I really take care of my things.  I’ve had my golf clubs for 16 years; I’ve had my BBQ for 12 years, etc.  I basically just take care of things and give them the maintenance they need to avoid issues.  Overall I tend to save a lot of money here – I just don’t often find I need to “buy stuff”.
  • I have a wife who shares my values and we are both happy and comfortable with our lives.

So that’s my financial story in a nutshell.  It’s a bit boring, but somehow it’s working and we really find ourselves in a fortunate position.  We have a great life, we’re happy, and we have what I think is a good financial plan.

Thanks for sharing your story with us Philip!  Do you have a financial success story that you would like to share?  If so, contact me!

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Investor Trip
4 years ago

Having 2 100k+ incomes makes getting to 1 million dollars a lot easier. I’ve traveled all over the world and let me tell you: earning a good salary is a lot harder to do than simply cut expenses. You need somewhere to start building up your wealth but it’s really hard to do on a lower income. Also, lifestyle management is the most important because your savings rate determines how long you need to work until you retire. I’ve been following the FIRE movement and aim for 75% savings rate. Easier said than done.

I’d like to read more tips & strategies from millionaire investors. Thanks for the useful suggestions here.

7 years ago

The point about buying “low cost” investments because he only expects to make 6% per year. Well, there are ALL kinds of evil high few funds that have returned 5-7% per year over a 25 year period. So, what’s the point of stressing yourself out if your gross returns are no better than net returns on higher cost advisor products? That net worth would also yield quite low advisory fees (tax deductible) through large brokerages or even Private Banks which over advice on a wide spectrum of issues so I fail to see the benefit of this guy doing it himself.

9 years ago

Just read this and just want to say that you are an inspiration. My husband and I are both in our early 30s and have net worth of $650K. Granted, we have only been living together for a year and half months total and just began earning the same level you guys have this past several years. Living together with significant other since you are young definitely saves a lot of $ in the long term (we still rent and don’t do stock etc) and I imagine that had we met and get married earlier, we would have been in the same boat you are since we do save over 50% of our income. Don’t worry about justifying yourselves; in the end, your worth is for yours to keep. Others can question is but as long as you know you have it, you are well on your way, Thanks again for the inspiration =)

10 years ago

Addressing the “hater” meme, again, pretty sure no one here is against savers, frugalists, the rich, or high-income earners. What people are opposed to is incongruent story lines, insubstantial “facts”, detail skirting, etc. to support the presented claims.

Perhaps Philip does not need to justify himself to the readers, but it’s a two-way street — the readers need not believe everything put forth on the internet.

For all we know, FrugalTrader and MillionDollarJourney could be completely make-believe. He is, after all, completely anonymous. Start a blog about money, but not just any money — $1,000,000! Make some stuff up for a couple years, get some press, then let ‘Guest Bloggers’ write the bulk of your blog while you collect the ad revenue.

Worse (and more corrupt) business plans have transpired in the world of finance for which people have fallen hook, line, and sinker.

Happy long weekend!

10 years ago

I’m pretty tired of the haters! What Philip has done however he’s done it is amazing! I have been privy to couples making more than $200,000 a year and being in debt! They have every gadget, every high end thing they can get their hands on and buy and their kids are down right spoiled! They have credit card debt up their ass! People, it is a lifestyle choice!!!

It doesn’t hurt that Philip and his family have a wonderful income but I’m more than positive if their income was lower they would be saving money anyway!

14 years ago I went through a bad divorce and my net worth was down to $3,000 dollars, it’s now $300,000 and growing and I live in New York. I read finance blogs like this to get tips and read success stories and give me ideas how to live a better lifestyle, save and invest my money, and learn how to grow my wealth. What I don’t do is feel sorry for myself by putting down successful people and blaming them for my lot in life! Take responsibility for yourselves, your all adults! Philip does not need to justify himself to you!

Philip — great job! Keep up the great work!

10 years ago

There’s nothing wrong with making over 200K a year. I’m not really sure what the author in the post does for a living but rest assured he’s worked for it. Building up that degree of net worth in your young 30s is impressive 200K salary yearly or not – I make more than him and there’s no way I can catch him.

I finished dental school at 29 with 150K in debt and my girlfriend finished optometry school with 150K in debt at 25 – that was almost 3 years ago now and we’ve just managed to crawl from -300K in net worth to +45K. It’s very hard to do when you start off with such massive debts even when you factor in we made over 325K as a household last year.

10 years ago

I think it is possible to achieve what Philip did, although it would be interesting indeed to know how of his cash came from savings and how much from returns. Timely and Lucky cash reallocation must be part of the equation, as most of us lost money during the crash, and used the market recovery of 2009-2013 to recoup our losses.

I am 36 years old and have a net Worth of around 400K. I have a 250K portfolio and the rest is equity in my home (using purchase price not current market price). I started investing in 2007 (bad timing!) and after being in the red for 2-3 years, my average annual return is now 6.15%. I am self employed (incorporated) and my net business income before taxes is around 140k. My wife is also self employed but makes around 35K before taxes. We have one kid (4 years old). My savings used to be around 25k per year but a jump in my income saw my savings grow to 60k per year.

Since tax is the biggest expense in Canada, I decided that it would be much easier to achieve wealth by being self employed / incorporated. Yes the first years are not easy and demand work, but I love the lifestyle and the tax choices it gives me. Basically, my company pays me a 30K dividend and 30K to my wife, we pay no personal taxes on that (the taxes are paid at company level, 19%). The rest is invested by the company in the stock market and various Financial instruments that are tax efficient. I try to live frugally on the income the company gives us.

There are many ways to achieve Financial independance! Botttom line is find what makes you happy, and design a Financial plan that allows you to do that as much as possible, as early as possible.

10 years ago

Mathematically your story does not make any sense. As others have stated, based on the assumptions your provided relating to income and savings rates, there is no way you would be anywhere close to a net worth in that range. I guess it helped the story?

10 years ago

Wow how did I miss this one? lol

Cangrats Phillip, you have my support all the way. I too face the pressure of not buying new stuff, having the latest gadgets, etc.

STATS posted some obvious things above about the market returns above since 2008. Not hard to believe for someone who doubled down when markets were on sale.

10 years ago

@Harry: one comparison is for stocks vs. bonds over 25-year period, the other is ‘since 1926’ (“30:1…”).

I questioned it in #26.