We’re more than excited to have our friend Maria from the blog Handful Of Thoughts share her secrets on how she and her husband saved their first million dollars and they did it in under a decade. You don’t want to miss this story!
I have always been a saver. But it wasn’t until I met my husband that I became more conscious about my money. Once we joined our finances, we started having conversations about our money and what it could do for us.
Our conversations revolved around not having to work for other people for the rest of our lives. We knew a few people who had worked until traditional retirement age only to die from various illnesses a few years after retirement. That was not the life we wanted to live.
Now we had a purpose for our savings, financial independence.
So we set out to save our first million dollars. It would be easy to say we budgeted and saved more, invested in stocks that doubled, or tripled, or even quadrupled. But that’s not how our story goes.
Yes, we did a lot of small little things along the way, but here are the things that had the biggest impact on accumulating net worth.
When we first started tracking our net worth I was working at a job that paid me a wage that was considered to be below the poverty line. But I didn’t care. I could afford my lifestyle so I didn’t give much thought to the money.
I loved what I was doing. So much so that I was often working multiple jobs, not because I needed the money, but because I enjoyed it. Because I was always working, it became easy to save. You can’t spend money going out and doing things when you are busy at work.
But then something changed at work, due to budget cuts my hours were scaled back. As much as I lived a frugal lifestyle at the time, I could not afford to live off half of my income.
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I was lucky to have a very encouraging boss who was supportive of me going back to school part-time. I enrolled in an after degree program part-time while continuing to work close to full-time hours.
After two and a half years, I earned my education degree and was hired as a teacher at the school that I was already working at.
That one move of going back to school resulted in my annual salary doubling. As a teacher, I was now also on a salary grid that ensured annual wage increases for the next 10 years!
Because we had already grown accustomed to our lifestyle and tried to avoid lifestyle creep, the wage increase went directly into savings.
The Power of Real Estate
We lived in a one-bedroom condo before we bought our first home. The condo belonged to a friend who had temporarily moved abroad.
In the condo we had her furniture, my furniture, and my husband’s furniture. Our little one-bedroom condo could comfortably sleep 7 people.
We learned a lot during that experience living in someone else’s house. But it also enabled us to save up money for a down payment on our first home.
Our First Home
When it was time to buy our first home we were conscious about only looking at properties that we could afford. We had been pre-approved for a mortgage much higher than we were comfortable having. But we made the decision to buy within our means, not what the bank thought we should.
Eventually, we had to increase the price point of homes that we were looking at. One of the homes in the lower price range had shag carpet – on the front door! Even though we did come up in price from what we originally wanted to spend, we were still within our budget.
Once we bought our first home we made it a goal to pay off our mortgage fast. This meant that a substantial chunk of our monthly income went to our housing. In order to help offset this, we had friends and family rent rooms from us.
This was well before we knew what house hacking was. Our friends and family needed a place to live, we had extra rooms so it seemed like a no-brainer.
They paid us a bit in rent (much lower than market rents) and we put it directly onto our mortgage every month.
Four years and eleven months after we bought our first home we were mortgage-free. This move saved us over $125,000 in interest over the full term of the mortgage.
Now that we had a paid-off mortgage and had extra cash flow every month we decided to invest in real estate. We took a home equity line of credit (HELOC) out on our house and used that money as down payments on rental properties.
Because we had no debt we were able to negotiate a great rate and good terms on our HELOC. That first year after we paid off our mortgage, we bought 4 rental properties.
Our rental properties became cash flowing assets. Not only did the tenants rent cover all our costs, but there was also money left over every month.
Eventually, we grew our rental portfolio to 9 properties housing 9 families. Although the rental market has dipped slightly since we began investing, every property is still in a positive cash flow position. The best part is our tenants are paying down the mortgage every month.
Real estate is not a passive income source. We self-manage all our properties so there is work involved. But every month our net worth is increasing exponentially thanks to our tenants’ rent payments.
If every property cash flows just $100 a month and the mortgage pay-down is on average $500 per month then on 9 properties that is $5400 a month. Or just about $65,000 a year that our net worth goes up just from tenants’ rent payments.
When all our rental properties are paid off they will cash flow much higher than $600 a month and will easily be able to replace our annual wages. For us, real estate is a buy and hold long game strategy. Massive cashflow from our portfolio of properties is still over a decade away.
One of the biggest mistakes we made on our way to becoming millionaires was not paying attention to our taxes.
After we bought rental properties and were making income off of them we had a big tax bill at the end of the year. There are strategies we could have done to minimize this tax bill but we weren’t paying attention that first year.
Since that year we had a big tax bill we have gotten smarter. Now we make sure to invest in our tax-advantaged accounts as much as we can. This lowers our marginal tax rate and the amount of tax we owe.
Because our tax is held back by our employers this would normally amount to a tax return.
But since we own profitable income property the tax we would owe on our portfolio of properties is offset by the tax return we would normally get from investing in tax-advantaged accounts.
There are many ways to be tax efficient. If you find you are paying a lot in taxes every year it is worth a conversation with a tax professional to see how to optimize your tax position.
On our journey to becoming millionaires, there have been some common themes that anyone can apply to their financial situation. Live within your means, optimize the big decisions and have a plan.
We have always made an effort to never have more home than we needed or could afford. Remember that one-bedroom apartment that slept 7? This is a prime example of us living within our means.
The big decisions we have optimized relate to our housing and tax efficiency. As these two costs account for a major portion of our budget, getting control of them meant we didn’t have to watch the little decisions as closely.
Throughout everything, we always have a plan, that plan often changes and adapts to our situation but we always have a plan. A plan to pay off our mortgage faster, a plan to buy real estate, and now a plan to eventually achieve financial independence.
It took us just less than a decade to accumulate a million dollars in net worth and become millionaires. We are optimistic that the next million won’t take us as long.
What about you, what big decisions have you optimized? Let us know in the comments below!
Thank you Maria, for sharing your amazing story with us. You guys are such an inspiration.
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