Knute Iwaszko - The 401(K) Millionaire: How I Started with Nothing and Made a Million and You Can, Too

T here was a time not too long ago when only the billionaires and bare-knuckled traders ruled Wall Street. The closest average Americans got to the stock market was watching Walter Cronkite note the Dow Jones averages at the end of the CBS Evening News. Of course, there was also a time when I could run a marathon and had a 32-inch waist but not anymore.

With the advent of the 401(k) plan in 1980, the fortunes of Wall Street and Main Street converged. The hard hat worker on a construction site now can have as much riding on the stock market as the pin-striper who occupies a plush office in a skyscraper down the block. Unfortunately, chances are that the boardroom baron might know a bit more about the intricacies of investing than the hard-hat who spends his days working with a power driver instead of a pie chart.

That's where I come in. Closing that knowledge gap and making a millionaire out of you through your 401(k) plan is my mission. It's also something I know a little bit about. No, I'm not a Wall Street whiz kidI've worked all my life, mostly for somebody else. I've worked at everything from shining shoes to running a bed-and-breakfast inn. But I became a millionaire using my 401(k) plan and, as a result, was able to realize a dream and retire early.

How'd I do it? By applying a few simple rules to my financial behavior that ensured I made the most of my 401(k) investments. In this book, you'll hear a lot about these rules; starting early, maximizing your money, learning the ropes, understanding risk, and never, ever touching your 401(k) money until retirement. If you take away nothing from this book-and I think you'll take away lots-learn and live these simple rules and you, too, can retire a millionaire.

A lot of people tell me that, rules or no rules, they'll never become wealthy because they don't make enough money. Nonsense. Whether you're a school teacher or bus driver, a comfortable, secure financial future is within your grasp. Anyone can do it and I'm living proof.

I'm not saying I learned all this the easy way. I made mistakes early on and paid for them. But even though you can't change history, you can learn from it. That's what I did.

I was born and raised in Philadelphia, Pennsylvania, where I lived a normal, All-American existence growing up. Short of worrying about what it cost me to fill my car with gas, money was the furthest thing from my mind. In fact, my academic interests as a teenager leaned more toward science than anything else. With a career in science in mind, I attended Penn State University in the mid-1950s, where I studied chemistry. I graduated with a degree in chemistry and almost immediately landed a job with a Pittsburgh ceramics manufacturer. The job creating ceramic colors was unremarkable, save for two things. One, the company had no pension plan, although in the 1950s you could say that about most employers across the country. But even at a young age and with no background in finance, I knew enough to be concerned about saving money. There were certain things in life I wanted, like a house, marriage, and a family, that I knew would require some cash.

The second factor that helped shape my early opinions about money was a friend with whom I wound up sharing an apartment in order to cut down on expenses. Two bachelors with grandiose dreams, our conversations about the fortunes of the Pirates or Steelers often turned to plans of making big money in the stock market. My buddy had more experience in Wall Street matters than I didhe was one of the first mutual fund salesman in the region (Massachusetts Financial first introduced mutual funds in 1926, but they were still relatively unheard of outside Wall Street). A typical salesman, he blew a lot of smoke about the financial markets and I was never sure what to believe. But one thing he told me that has stuck to me like a barnacle on the hull of a boat is the importance of investing early. Knute, he'd lecture me, if you sock away $60 a month in the stock market, you'll be a millionaire by the time you reach age 65. Sixty bucks a month? That was less than what I was paying for that used MG I had to have when I graduated.

I immediately grasped the simple clarity of my friend's point. Just as planting seeds and carefully feeding, nurturing, and cultivating those seeds yields a lush garden, putting away a little bit of money early, cultivating it, and adding a little bit more money every year, one day you theoretically could have a million dollars. That was the seed of my dream of saving a million dollars and retiring early. It was a dream that would come true, although I never would have guessed it then.

It's a dream that can come true for you as well. If you follow my five simple rules for 401(k) investing, you can end up a 401(k) millionaire, too. Let me demonstrate how it's done.

B ack in the mid-1950s, when I was just starting out, I was a big spender. Like many other carefree bachelors, I had to marry a good woman before I set my priorities straight. It was time to deep-six the bachelor mentality and create a budget so I knew where our money was going. My wife, Pat, and I both wanted a family and a nice house, and we knew we wanted to save for long-term goals, like college for our kids and a nice retirement for us. I've been a runner ever since my high school days and I still try to put in my miles. During my daily run, I'd try to figure out how to pull some money out of our budget for investing. Keeping track of your dollars and cents is the first step to becoming a 401(k) millionaire; it's the bedrock on which everything else rests. Once you record your monthly expenses and compare that with your monthly pay, you can adjust your style of living accordingly. And the earlier you do it the better. If you don't pinch pennies in the beginning, you're squandering a golden opportunity to make more money down the road. It's what economists call compound interest that's when you earn interest not only on your original investment, but also on the interest it has already earned. Through compounding, your investment assets grow, slowly at first, then at greater speed as the years go by. By the time you get to the end of this book, you'll understand that compound interest is the fuel that makes your 401(k) run.

Consider a monthly investment of $300. Given a 9 percent rate of return, that $300 monthly investment turns into $22,627 after 5 years; $58,054 after 10 years, $200,366 after 20 years, and an astounding $336,337 after 25 years. In fact, the longer you leave it alone the more the interest compounds. No wonder Albert Einstein referred to compounding as the most remarkable mathematical discovery ever! I call compound interest your very own personal money-making machine.