CHAPTER ONE
Meeting
the Automatic
Millionaire
I’ll never forget when I met my first Automatic Millionaire. I was in my mid-twenties and was teaching an investment class at a local adult-education program. Jim McIntyre, a middle-aged middle manager for a local utility company, was one of my students. He and I hadn’t spoken much until one day when he came up after class to ask if he could make an appointment with me to review his and his wife’s financial situation.
The request surprised me. Though I felt strongly (and still do) that just about everyone can benefit from the advice of a qualified financial planner, Jim didn’t strike me as the type who would seek it out.
I told him I’d be happy to set up a meeting, but if he wanted my help, his wife would have to come too, as my group managed money only for couples who worked on their finances together.
Jim smiled. “No problem,” he said. “Sue’s the reason I’m here. She took your Smart Women Finish Rich seminar and told me I should sign up for your course. I’ve liked what you’ve had to say, and we both figure it’s time to do some financial planning. You see, I’m planning to retire next month.”
Now I was really surprised. I didn’t say anything, but as I looked Jim up and down, I doubted he could be in a position to retire. From the few comments he had made in class, I knew he was in his early fifties and had worked for the same company for thirty years, never earning much more than $40,000 a year, and didn’t believe in budgets. I also knew that he considered himself to be “ultraconservative,” so I figured he couldn’t have made a fortune in the stock market.
My Grandma Rose Bach had taught me never to judge a book by its cover. But something didn’t add up. Maybe Jim had just inherited a lot of money. For his sake, I hoped so.
“WHAT AM I MISSING HERE?”
When the McIntyres came into my office a few days later, they looked exactly like what they were: hardworking, “average Joe” Americans. What has stuck in my mind about Jim is that he was wearing a short-sleeved dress shirt with a plastic pocket protector in his breast pocket. His wife, Sue, had a little more flair, with some seriously blond highlights. She was a beautician, a couple of years younger than Jim.
The thing was, they didn’t act like middle-aged people. They were holding hands like two high school kids on a first date, bubbling with excitement. Before I could ask how I could help them, Jim started talking about his plans and what he would do with his free time. As he did, Sue kept exclaiming, “Isn’t it great he can retire so young! Most people can’t retire until they reach sixty-five if then, and here’s Jim able to do it at fifty-two!”
“LET’S NOT GET AHEAD OF OURSELVES.”
After a few minutes of this, I had to interrupt. “Guys, your enthusiasm is contagious, but let’s not get ahead of ourselves here. I’ve met with literally hundreds of potential retirees over the last few years, and I have to tell you—hardly any of them have been able to retire in their early fifties.” I looked Jim in the eye. “Usually people come to my office to find out if they can retire,” I said. “You already seem to be sure you can. What makes you so certain you can afford to?”
Jim and Sue exchanged a look. Then Jim turned back to me. “You don’t think we’re rich enough,” he said, “do you?” The way Jim put it, it wasn’t exactly a question.
“Well, that’s not the way I would have phrased it,” I replied, “but yes, it takes a fair amount of money to fund an early retirement, and most people your age aren’t even close to having saved enough. Knowing what I do about your background, I’m truthfully curious about how you could possibly have enough money.” I looked him in the eye. He gazed back at me serenely.
“Jim, you’re only fifty-two.” I said. “Considering that only about one in ten people can barely afford to retire at age sixty-five with a lifestyle equal to what they had when they worked, you have to admit that retiring at your age with your income would be a pretty big feat.”
Jim nodded. “Fair enough,” he said and handed me a sheaf of documents. They included his and Sue’s tax returns as well as financial statements that listed exactly what they owned and owed.
I looked first at their tax returns. The previous year, Jim and Sue had earned a total of $53,946. Not bad. Not rich, to be sure, but a decent income.
Okay, next. How much did they owe?
I scanned their financial statements. I couldn’t find any outstanding debts listed. “Hmm,” I said, raising an eyebrow. “You have no debt?”
“THE MCINTYRES DON’T DO DEBT.”
They exchanged another smile, and Sue squeezed Jim’s hand. “The McIntyres don’t do debt,” she said with a chuckle.
“What about your kids?” I asked.
“What about them?” Jim answered. “They’re both out of college, on their own, and God bless ’em.”
“Well, all right then,” I said, “let’s see what you own.” I turned back to the financial statement. There were two homes listed: the house where they lived (valued at $450,000) and a rental property (a second house valued at $325,000).
“Wow,” I said. “Two houses and no mortgage on either?”
“Nope,” Jim replied. “No mortgage.”
Next came the retirement accounts. Jim’s 401(k) balance currently amounted to $610,000. And there was more. Sue had two retirement accounts of her own that totaled $72,000. In addition, they owned $160,000 in municipal bonds and had $62,500 in cash in a bank savings account.
Talk about a substantial asset base. Add in some personal property (including a boat and three cars—all fully paid for) and they had a net worth approaching $2 million!
By any standard, the McIntyres were rich. It wasn’t simply that they owned a lot of assets free and clear (though that in itself was pretty impressive); they also had a continuing stream of income in the form of interest and dividends from their investments and $26,000 a year in rent generated by their second house. On top of that, Jim had qualified for a small pension, and Sue liked being a beautician so much that she planned to keep working until she was sixty (even though she didn’t need to). Suddenly, Jim’s plan to retire at fifty-two didn’t seem so crazy. In fact, it was completely realistic. More than realistic—it was exciting!
“WE INHERITED KNOWLEDGE.”
Normally, I don’t get wide-eyed about people’s wealth. But there was something about the McIntyres that impressed me. They didn’t look rich. And they didn’t seem terribly special. To the contrary, they seemed perfectly ordinary—your average, nice, hardworking couple. How could they have possibly amassed such wealth at such a relatively young age?
To put it mildly, I was confused. But I was also hooked. I was in my mid-twenties at the time, and even though I was making good money, I was still basically living paycheck to paycheck. Some months I did manage to save a little, but more often than not I’d get busy or spend too much the next month and not save a dime. Many months it seemed that instead of getting ahead, I was falling behind, working harder and harder to make ends meet.
It was embarrassing, really, and frustrating. Here I was, a financial advisor teaching others how to invest, and I was often struggling myself. Even worse, here were the McIntyres, who probably in their best year barely made half of what I was making, and yet they were millionaires, while I was falling further and further into debt.
Clearly, they knew something about taking action with their money that I needed to learn. And I was determined to find out what it was. How could such regular people have amassed such wealth? Eager to know their secret but not knowing where to begin, I finally asked them, “Did you inherit any of this?”
Jim broke out in a deep belly laugh. “Inherit?” he repeated, shaking his head. “The only thing we inherited was knowledge. Our parents taught us a few commonsense rules about handling money. We just did what they said, and sure enough it worked. The same is true for a lot of people we know. In fact, in our neighborhood, about half our friends are going to retire this year, and many of them are even better off then we are.”
At this point, I was hooked. The McIntyres had come to interview me about how I could help them, but now I wanted to interview them.
LOOKING RICH VS. BEING RICH
“You know,” I said, “every week I meet people who take my classes like you did but who are exactly the opposite of you. I mean, they look rich, but when you get into the details of what they really have, it often turns out that they are not only not rich but broke. Just this morning, I met with a man who drove up in a brand-new Porsche, wearing a gold Rolex watch. He looked loaded, but when I went through his statements I found he was actually leveraged to the hilt. A guy in his mid-fifties, living in a million-dollar home with an $800,000 mortgage. Less than $100,000 in savings, more than $75,000 in credit card debt, and he was leasing the Porsche! Plus he was paying alimony to two ex-wives.”
At this point, the three of us couldn’t help ourselves. We all began to laugh. “I know it’s not funny,” I said, “but here was this guy, looking rich and successful, and actually he’s a financial and emotional wreck. He handled his finances just like he drove his Porsche: redlining all the way. Then you guys come in. You drive up in a Ford Taurus. Jim here is wearing a ten-year-old Timex—”
“Nope,” Jim interrupted with a smile. “It’s an eighteen-year-old Timex.”
“Exactly!” I said. “An eighteen-year-old Timex. And you’re rich. You guys are happy as clams, still married, two great kids you put through college, and you’re retiring in your mid-fifties. So please tell me—what was your secret? You must have one, right?”
Sue looked me straight in the eye. “You really want to know?” she asked.
I nodded wordlessly. Sue looked at Jim. “You think we can spare an extra fifteen minutes to explain it to him?”
“Sure,” Jim said. “What’s fifteen minutes?” He turned to me. “You know, David, you already know this stuff. You teach it every day. We just lived it.”
JIM AND SUE SHARE THEIR STORY
Sue took a deep breath, then launched into their story. “Well, first, we got married young. Jimmy was twenty-one when we started dating, and I was nineteen. We were married three years later. After our honeymoon, both of our parents sat us down and told us together that we needed to get serious with our lives. They said we had a choice. We could work all our lives for money and live month to month, paycheck to paycheck, like most people. Or we could learn to make our money work for us and really enjoy our lives. The trick, they said, was simple. Every time you earn a dollar, you should make sure to pay yourself first.”
“WE DECIDED TO PAY OURSELVES FIRST.”
Jim nodded in agreement. “You know,” he said, “most people think that when they get their paycheck, the first thing they should do is pay all their bills—and then if there is anything left over, they can save a few dollars. In other words, pay everyone else first and yourself last. Our parents taught us that to really get ahead of the game, you have to turn this around. Put aside a few dollars for yourself, THEN pay all your other bills.”
He sat back in his chair and shrugged, as if to say, “No big deal.”
Sue smiled and shook her head. “Jim makes it sound easy,” she said, “but the truth is we had to learn how to save our money. In the beginning, we tried to put ourselves on a budget, but somehow the numbers never added up and we started fighting a lot. One day I called my mom, upset because of a money fight we’d had, and she told me that budgeting didn’t work. She said she and my dad had tried it and all it had led to was endless arguments. So they decided to toss the budget and instead take 10 percent of their pay out of their paychecks and put it in a savings account before they ever saw it or had a chance to spend it on anything. ‘You’d be surprised how quickly you get used to doing without that 10 percent,’ she told me. ‘And meanwhile it’s piling up in the bank.’ The secret, she explained, is that you can’t spend what you don’t see.
“So that’s what we did. We originally started by putting aside just 4 percent of our income and slowly increased the amount. Today, we save 15 percent. But on average we always saved about 10 percent, just like Mom said.”
“And what did you do with your savings?” I asked.
“Well,” Sue said, “the first thing we started saving for was our retirement.”
“You know, back then we didn’t have 401(k) plans,” Jim broke in. “But a lot of companies, including mine, had pension plans that allowed you to contribute extra money if you wanted to. Most of our friends didn’t bother. But we did.”
Sue took up the story again. “After that, our next priority was to put aside enough so we could buy a home. Both our parents told us that their homes had been the best investments they had ever made—that nothing gives you freedom and security like owning a home. But the key, they said, was owning it free and clear. In other words, you pay off that mortgage as quickly as you can.
“They said that while our friends were busy splurging on decorating their apartments and eating lunch out every day, we should be watching our spending and saving as much as we could. They made a big point about how so many people waste big money on small things.”
She looked at Jim. “You remember that, honey?” she asked.
“I sure do,” Jim replied. He turned to me. “You know, the trick to getting ahead financially isn’t being cheap and boring. It’s watching the small stuff—little spending habits you have that you’d probably be better off without. In our case, we realized that one of the main ‘small stuff’ things we were spending too much money on was cigarettes. We both smoked about a pack a day and our parents hated it. Back then, the health risks were just beginning to be publicized, and they pointed out that if we stopped wasting money on cigarettes we could probably save enough in two years to make a down payment on a home. And we’d be saving our health in the process.”
