Millionaires tell how they did it

Last year, Kim left teaching to become the president of Bell Labs, and he commutes to New Jersey each week. "I don't know how to take time off," he says. "But I was never focused on the money. You work hard to have good times with your family."

Kim has a bit of other fun, too: He's a co-owner of several professional sports teams. Displayed prominently in his office is a picture of himself with Michael Jordan, once a fellow owner of the Washington Wizards basketball team.

'I could not ask for more'

You may not have heard of Diane Warren, but you have probably hummed a few of her tunes. About 90 of Warren's songs have climbed the charts to the top 10, including "If I Could Turn Back Time" (performed by Cher), "How Do I Live" (LeAnn Rimes), "Un-break My Heart" (Toni Braxton) and, fittingly, "I Could Not Ask for More" (Sara Evans). Warren collects royalty checks averaging about $10 million a year.

Warren whistles a happy tune now because she protected her right to maximum royalties. To understand her story, you need to understand how the music business works. Publishers buy pop tunes from writers for a song and then sell them to record companies for a lot more. In 1983, after publishers had rejected her pieces for a decade, Warren landed a job as a writer with publisher Jack White Productions, which paid her a salary in exchange for the royalties on her melodies and lyrics.

When a few of her ballads, such as "Rhythm of the Night," became hits, it was Jack White Productions that profited. Says Warren, "It was the difference between earning $350 a week and making millions of dollars a year."

In 1986, Warren severed her relationship with Jack White and launched her own publishing company to cut out the middleman and collect full publishing royalties. She ponied up several thousand dollars for an office and an assistant, taking a risk because she wasn't yet established as a hit songwriter or Grammy winner. But her company, Realsongs, received a payment each time someone bought one of her songs, a radio station played one of her songs or a movie included her music on its soundtrack. So her earnings potential became much greater than that of a salaried employee.

Within a year, Warren knew she had made the right decision -- when she framed a copy of her first $1 million check from royalties on the overseas sale of several of her songs. "Before that, the largest check I had received for my music was $500," she says.

Warren has splurged on a home in the Hollywood Hills area of Los Angeles, a beach house and an Aston Martin (see where other millionaires live). But she socks away much of her money in the stock market and real estate. Her main retirement strategy is to live on the future income from the roughly 1,600 songs she has composed. Says Warren, "Music is like real estate in that its sales value goes up over time."

'Trust in the stock market'

Paul Cloud's finances got off to a rocky start after he graduated from college in 1979. Three years later, he lost his job as a chemical engineer. Soon afterward, a severe allergy attack sent Cloud to a hospital for two days. With no health insurance, he charged his $2,500 medical bill to a high-interest credit card. "Being unemployed with no savings made a big impression on me," he says.

Cloud bounced back by trimming expenses and investing in himself. He gave up his apartment and moved in with an elderly cousin rent-free. He returned to school full time to get his MBA and nabbed a part-time job as an accounting clerk to pay down debt. In 1984, he married Doris, who was studying to become a certified public accountant and who shared his financial values: "Be as debt-free as possible, save consistently and trust in the stock market."

Fast-forward to today. Paul is a vice president with JPMorgan Chase in Houston. Doris is a project manager for the human-resources firm Hewitt Associates. Last fall, the Clouds' investment portfolio passed the million-dollar mark, not counting the $64,000 they've set aside to pay for college for their two teenagers, William and Elizabeth.

The Clouds have made it a habit to save a portion of every paycheck, automatically funding their 401(k) retirement plans and paying an additional $1,000 a month on their mortgage.

A $44,000 inheritance boosted their savings, but for the most part they owe the size of their kitty to the 1990s bull market. Their tech stocks suffered during the bear market, but they pulled through, thanks to a diversified mix of mutual funds and stocks they selected by doing their own research. About 80% of their investments are in U.S. stocks, with the rest in foreign companies.

Firm believers in living beneath their means, the Clouds budget their expenses and occasionally have friendly disagreements over such things as whether to splurge on a hotel room with an ocean view when planning a vacation in Hawaii. For the most part, though, the Clouds see eye to eye on finances. They are passing along their values to their children by giving Elizabeth a weekly allowance and requiring William to pay for his gas, compact discs and other expenses.

The Clouds plan on retiring in eight years. By that time, they hope, they'll be millionaires two times over, with assets of $2.2 million that would generate $70,000 a year in earnings and allow them to pursue their leisure interests. Paul wants to spend more time sailing, and Doris would like to donate her accounting skills to a charitable organization.

This article was reported and written by Kimberly Lankford and Sean O'Neill for Kiplinger's Personal Finance Magazine.

< previous |  1 | 2 |