Ignore “get rich quick” schemes peddled by hucksters. Such tripe is for the mega-rich at best, and just click bait for us average earning lemmings at worst. Wanna know how to really short circuit your journey to millionaire status?
There are four frugal hacks that almost anybody with a full time income can execute. It may take some sacrifice and discipline, but if you execute all 4 hacks simultaneously, you can become a millionaire in just 10 years.
The plan: 5 years of hard sacrifice followed by 5 more years with an old car
Let’s dive in, shall we? Here are the 4 hacks and their value after 10 years of investment:
- Shop discount groceries only.
- Duration: 5 years. Value in 10 years: $110K
- Max Pre/Post 401K and IRAs.
- Duration 5 years. Value in 10 years: $780K
- Drive a paid off beater.
- Duration 10 years. Value: $170K
- Max HSAs.
- Duration 10 years. Value: $130K
That’s a grand total of ~$1.2M in investments in just 10 years, with most of the sacrifice in the first 5 years. Even better, leave that $1.2M parked for 10 more years, and watch the magic of compounding interest grow it to a whopping $2.9M, without investing another dime.
Sound to good to be true? There is no magic here; its simple FI math. A 10 or 20 year time horizon is hardly a “get rich quick” scheme, and its certainly a reasonable amount of time for the stock market to return its historical average of 10% return a year.
The real magic comes from you. Your commitment to a plan will determine whether you have 5 zeros in the bank or a stunning 7 zeroes in 10 years. Without making any other sacrifices or decisions, you can become a millionaire by simply driving a jalopy, shopping at Walmart, and automating 401Ks/HSAs.
For many, I know seeing is believing. I tend to be a visual learner myself, so below I’ll go into more detail in each of these hacks and show how the money saved/invested compounds over time.
Hack #1. Shop Discount Groceries for 5 years
Statistics on food costs are all over the map largely due to personal choice (premium vs discount, salmon vs turkey burger, organic vs non-organic, name brand vs generic etc.)
Most 2023 statistics however clock in around $1300 a month for the average family of 4. It won’t be easy, but this can be drastically reduced simply by making frugal choices every week at discount stores like Aldi.
My family of 4 averaged about $450 a month in 2022 (a year of hyper inflation no less) by winning this battle of personal choice in the shopping aisles every week. That saved $850 a month over the average household.
What if you saved this $850 (and invested) every month for just 5 years? It would be worth $110K by year 10. Take a look.
Hack #2: Max 401K/IRAs for 5 years
I wrote extensively about the Secret Life of FI Super Roth Hack here. In short, it covers how and why you should drive your (1) pre-tax 401K and after tax 401K (if applicable) to the $66,000 max (including company match), and (2) your IRA to the $6,500 yearly max.
In essence, this means superfunding all tax advantaged retirement accounts to the combined max IRS limit of $72,500 for just 5 years, and then letting compound interest and time do its magic. Take a look below to see its growth path over a 10 year period, including the first 5 year maxed out contributions.
Most Americans on the other hand, don’t even come close to maxing their 401Ks, let alone bothering with IRAs. The median American 401K contribution is just 7%; and only 23% of Americans even contribute 10%. You might end up a millionaire over time . . . but you’ll likely be in your 60s.
Alternatively, if you max out these tax advantaged investments for just 5 years and sit tight for 5 more years, never investing another dollar, you’ll have near $800K. Park it 10 more years, and by year 20, that 5 years of sacrifice could be worth $2M. Take a look at the magic of compound interest.
Hack #3. Drive a Beater for 10 years
The math here is pretty simple. The average car sells for $48K and the average American trades it in every 4-5 years. Average insurance and monthly payments add up to ~$900 a month.
What if instead of trading in at 5 years, you kept driving that now paid off car for 10 more years? Liability insurance costs me about $30/month, leaving $870 to invest instead. Here’s what investing $870 a month does over time.
As you can see, that single 10 year period with a paid off beater earns $175K in investments. Leave the money parked 10 more years, and it compounds to $0.44M. Double those figures if you are a 2 car family.
In short, giving up your two shiny cars with heated seats for just a 10 year period is worth near a whopping $1M in 20 years.
Hack #4. Max HSAs for 10 years
HSAs are well known supplements to 401K investments in the FI community. Though they were created to cover medical bills, you can think of the HSA as another IRA/401K bucket. Like a 401K, it’s funded with pre-tax money. Its differs in that (1) you can withdraw tax free for medical expenses any time and (2) non-medical expense withdrawals are penalty free at 65 years old with an HSA as opposed to 59 for an IRA.
Why you should contribute to one should be obvious. Including a potential employer match, the HSA also offers another $7500 you avoid paying taxes on (IRS yearly max). That’s a significant amount of taxes you can save every year, and the HSAs tax free withdrawals can be used for dental, medical, vision, etc., including elective procedures like lasik.
What if you are insanely healthy and rarely use it? No problem. Now its tantamount to a backup IRA once you reach 65.
If you fund it for just 10 years only, it’ll be worth about $130K. See below.
Leave that money parked, and in year 20 its worth near $300K. Its compounding math that looks like every stock market chart/index fund chart you’ve ever seen. In other words, boring/vanilla “get rich slow” math everybody should follow.
The eighth wonder of the world . . . over time
Albert Einstein called compound interest the “eighth wonder of the world.” A century worth of stock market data proves it, as the stock market has returned an average of 10% year over year.
But its magic is benign without the added catalyst of time. Maximizing time in the market is the purpose of all 4 of these hacks, which are designed to superfund your investments as early as possible. Time does the rest of the work for you.
By year 10, instead of working for money, your money will be working for you. Your $1M+ portfolio could start returning more passive income than you make yourself in a year.
So take the challenge. What are you waiting for? Challenge yourself to max out 401Ks/IRAs and shop cheap groceries for just 5 years. And for just 10 years, challenge yourself to max out your HSA and keep driving that beater. You’ll have over a $1M and mastery over your own life.
What you do next will be up to you, and the possibilities are endless. Happy trails FI pilgrims. I wish you good fortune on your journey to financial independence.