How One Couple Climbed Out Of Debt And Became Millionaires In Their 30s (2024)

It was right after college graduationwhen starting a new life suddenly became very expensive. First, a brand new Honda Civic. Next, a house. Then an engagement ring for a long-timegirlfriend.

Student loansstill lingered, too.

Pretty soon the debt totaled up:$25,000 for the car loan, a $100,000+ mortgage and $45,000 in outstanding student loan debt.

The Canadian couple had a combined income of just $85,000 per year -- he's an engineer, she's a pharmacist -- right out of school, whichleft money tight afterpaying bills.

It was not long beforeFrugalTrader, at age 27, decided he was going to climb out of debt and become a millionaire by the time he turned35. He was going to blog about it too. (He maintains the FrugalTrader moniker to protect his anonymity, since he providednet worth updates every month to the world on MillionDollarJourney.com.)

In 2006, the couplestarted with a net worth of nearly$200,000. This took into account about $28,000 in cashandsavings, $70,000 in investments, $266,500 in real estate and $20,000 in two quickly depreciating cars. The student loans had been paid off, but $186,000 in debt still lingered from the mortgage and car loan.

Thecar loanwas thefirst to go. Then by2010, they were mortgage free.Last year, theyreached themillion dollar markseveral months ahead of schedule, despite having weathered the 2008 financial crisis and the added expense of raising two children, now 7 and 4.

One of the first things FrugalTrader will tell you is that he started investing in mutual funds at age 16, at the direction of his father, who was obsessed with the stock market and used to have buddies over to the houseall the timeto talk shop.

He'd sometimes only sock away$20 or $50 a month,but every bit helped. That was typically with money from his part-time jobs, which he started holding down in junior high. In college, hedid a work-study program that helped him graduate in the green, without any student debt. (His wife was the one with loans.) It was also during college that hestarted to learn more about investing. Over the years he has read some 80 personal finance and investing books that linehis book shelf.

The summer aftergraduation, the couple raided their savings account to put down a down payment on a reasonably priced home withtwo apartments. Theidea was they wouldlive upstairs, and rent the basem*nt apartment out. They picked up another rental property a couple years later, too.

The rentals were meant to provide easy, passive income. One of FrugalTrader's rules was that the rent checks should at least cover themortgage payment.They did for a while and helped keep the couple's total housing costs low. Butafter several years theymade the decision to sell when it became apparent thatthe income wasn't as passive as they would've liked."Over four years, we had four sets of tenants. I figured out quite early being a landlord wasn't quitefor me. It's a second job if you have bad tenants," says FrugalTrader.

Plus, they had a new baby, and the house was a little too small and the neighborhood wasn't quite right.

They sold the properties and built another house nearby in akid-friendly areawith good schools where they still live today. They paid off that mortgage in less than three years. How? By putting down a large down payment, keeping their mortgage payments low compared to their incomes, and aggressively lobbing payments at it twice a month and even in annual lump sums.

Since renting out properties didn'twork for themover the long run, FrugalTrader began looking to dividend stocks for passiveincome."My hope is to grow the dividend income enough to pay recurring expenses," says FrugalTrader, who ownssome 40 dividend growth stocks. Johnson & Johnson is one, which has increased its dividend for the last 52 years. Coca-Cola is another.

He complements the dividend stocks with index funds, which he likesbecause they are cheap, easy, andbeat active funds after fees. His tolerance for risk is high, though: Some 95% of his entire portfolio is in stocks, with just 5% in bonds.

"I believe in the long-term growth of the market," he says of his asset allocation. "I ran the numbers myself. If you bought just the S&P 500 index over the entire history of the stock market, you never lost money over any 20- or 30-year period."

Armed with this knowledge, hestayed calm during the 2008 financial crisis and held onto his stocks. In fact, he even looked at the downturn as a buying opportunity. "I did buy a little bit, but I regret not backing up the truck. I regret not buying more."

Another regret: Not always buying index funds. One of the first individual stocks he bought was Nortel ("at one point it was Canada's Apple," he says) on a friend's suggestion during college. The stock had dropped from $120 to $60, and seemed like abargain, so he scooped up $3,000 worth."I held and I held and I held. Then it went bankrupt and I wrote it off." Now he does hisown due diligencebefore making an investment.

In addition to experimenting with rental income and investing in the stock market, the couple looked to their jobs to bring in extra income.

By both working full time, the couple wasbringing in a combined$105,000 a few years after they graduated, up from an initial $85,000. Theyalso worked overtime and took on extra side gigs. For instance, FrugalTrader began running a few websites (including MillionDollarJourney.com, where he documented his financial journey) and did some consulting work. At his busiest, hewas working between 70 and 80 hours a week, he estimates. Eventually, after the couple was debt-free, he scaled back to spend more time with his family.

The couple alsoleveragedgovernment perks. For instance, Canada provides (partially) paid one-year maternity leave.

The other crucial element to the million dollar journey: Aggressive saving.

After college, the couple continued to live like students. "I think the most effective way we saved moneywas to keep our lifestyle inflation in check," says FrugalTrader, who estimates that they've aimed to sockaway15-20% of their income, and more whenever possible. Any raises, bonuses and tax refunds went toward paying down debt or into savings. "We banked our raises, not like a lot of our friends," he says.

For retirement savings, they've always taken full advantage ofworkplacematches and contributed the maximum amount allowed intax-advantaged accounts.

To keep spending in check they created a budget.Frugal habits -- like brown bagging lunches and getting books for free at the library -- have also helped, although the couple allows for certain indulgences (like eating out) in their budget.

They'vethought carefully about big recurring expenses, like insurance, too. For instance, whole life insuranceistoo expensive for what you get. Instead, they have aterm life insurance policy, which they say costs less, protects what's important, and allows you to invest in products that maybe don't have ashigh of fees aswhat an insurance company would choose.

At the end of2014, the couple hit the million dollar mark they had been shooting for, several months ahead of schedule.

Within the next five years, FrugalTrader hopes to achieve complete financial freedom. He figures he needs a $1.3 million investment portfolio, which would allow him to quit his job."I can picture myself stepping away from the 9 to 5 work," he says.

He'd like to travel more. Right now, the familytries to take a big vacation every two years. The last two trips have been to Orlando, Florida: once to Disney, once to Universal Studios.

Another goalis paying forhis children's first undergraduate degrees. He's been contributing to their college education funds and is hopeful the balance after 17 years will be enough to cover tuition.In the meantime, he's teaching them about the value of money and perseverance.

"If they have to work, that's great too. That's what I did."