Millionaires Aren't Made by Saving

You see it all the time: the “how to become a millionaire” articles and books all sharing one big theme:

Saving.

Marie Claire’s article “How to Become a Millionaire – Easy Money Making” recommends “withdrawing 80 percent of your take-home pay for three months and dividing it into envelopes marked long-term savings, short-term savings, rent, clothing allowance, food, cable bills, partying, etc.” (“Becoming a millionaire by 30,” they assure you, is “easier than you think.”)

In his book “A Million Bucks by 30,” Alan Corey talks about how he’s frugal almost to a fault, so “by pinching pennies… he watched a pittance blossom into a seven-digit bank account” in about eight years, earning a modest salary. Pretty impressive, right?

What does this advice have in common?

It leads the reader to believe that, by being a slave to their savings plan, they too can join the millionaire ranks in less than a decade.

And while it’s true that that strategy will almost certainly get you there over the course of your life (yes, I do realize that saving can and does make people millionaires) the fraud of the message lies in one simple fact: saving alone won’t get you there by 30. Telling readers otherwise is outright deceitful. If you want it in the first half of your life rather than the last, millions are not made through savings.

Basic math reveals the impossibility: to build up a million-dollar bank roll between graduating college at 22 and celebrating your 30^th birthday – and doing so solely through saving – you’d have to be earning…

$125,000 per year.

And saving just about every penny.

($1,000,000 / 8 years… $125,000)

Now, obviously this doesn’t include interest – you’d be earning some, right? Let’s say you made some exceptionally good investment decisions and earned an average of 8%. Then you’d have to save less, right? Well, you’re right – at 8%, you’d only have a save a mere $95,000 every single year.

(Which is no big deal, really, since you followed all that good advice, and are busy “pinching pennies” and “living within your means,” right?)

To become a millionaire by 30, by 40, by 50 – whatever – you have to do a lot more than buy the bargain brand toothpaste and live off Ramen (which, oh by the way, our aforementioned Alan Corey actually did. More incredulously, he actually chalks his success up to this habit and proudly mentions it no fewer than three times in his book. Eat Ramen every day, is his message, and you too can manage to save $95,000 of your $40,000 annual salary...)

The thing people don’t tell you is this: numbers will always be numbers, and a million dollars doesn’t manifest out of spare change over the course of 8 years. It can happen in the long run, sure, but here’s the real way to go about it more efficiently:

Create or transfer something of real value.

Remember that hypothetical 8% you earned on savings earlier? Forget about that 8%. If you’re shooting for zero to a million in under a decade, your new figure should start at 50%. That’s what you should be earning on your “savings,” which, by the way, aren't in stocks or bonds so much as they should be in small businesses - preferably your own. Think about things more aggressively, stop sweating over the difference of several cents at the grocery store, and start thinking bigger - and more creatively - about the value you could yield.

So, while Alan Corey did really earn a million dollars by the time he reached 30, the reality of it all is that he did it through real estate and local bars – not through Ramen noodles. Sorry to say, Alan, but you could’ve saved yourself – and your heart – the sodium and probably still made it to six digits eating proper food.

And until he – and Marie Claire – start telling it straight, I want you, dearest reader, to know the truth:

If you want to become one by 30, millionaires are not made by saving.

They’re made through making value.