How to Become a Millionaire on a Low Salary

Sometimes we see these depressing stats about how millionaires all inherited their money from their parents. And reality is, that is not true. The majority of millionaires are first generation wealthy. And what that means is that you don't have to depend on having wealthy parents in order for you to become a millionaire. I want to show you how you can become a millionaire even if you weren't born into wealth and even if you didn't go to an elite college or make $500,000 a year. How? At the root of this question, there are three main levers that you can actually adjust to hit a million dollars. Lever number one, how long you invest. For now, time truly is the most important thing you have on your side. I've now been investing in the stock market for over 25 years. With more time, my investments start to earn more interest. That interest and the principal that money compounds, meaning I make even more money. It's like rolling a snowball down a hill. It just gets bigger and bigger. At a certain point, you can't stop it. Let me show you what I mean. Let's say you have a salary of $50,000. If you invest 15% of your gross income, that's $7,500 a year. And you invest it for 30 years, you're going to have about $750,000. But if you invest for four years more, just four more years, you'll have just over a million dollars and it grows even faster after that. Do you see that the real gains come at the end, not at the beginning? And notice in these examples, I'm not assuming any salary increases, which of course is likely. I'm not assuming you get married, which would mean you have a higher household income and you can invest more. This is a super conservative calculation. You can try it yourself. The lesson here, don't put off investing. In fact, every single day you are not investing aggressively. You are losing a tremendous amount of money because time and compounding are on your side. So now that you understand time is your first lever that you can pull and push to wealth, what's another lever you can adjust to become a millionaire faster? Well, that brings me to lever number two, how much you invest. If you invest $425 a month, or basically $14 a day, starting at the age of 25, you will easily be a millionaire by the time you're 65. Look at the math. In 40 years, with a low 0.1% management fee, assuming a 7% return, you'd have over a million dollars. This is very straightforward. When I tell people this. You know their first reaction? They go, oh, my God, I have to invest $400 a month till I'm 65. Where am I going to get $400? 25 year olds don't have $400. I'm like, are we focusing on what won't work, or are we focusing on what will work? Because I don't know about you, but I prefer to go through life wearing the lens of what will work, not what won't work. If you want to come up with 50 reasons something won't work, guess what? You're right. It's not going to work. I can't help you. But if you want to know how it works, I'm showing you one way that you can become a millionaire faster. That's by increasing the amount you invest. Now, one of the easiest ways to do this is to increase your investment rate by 1% per year. For example, if you first contribute 5% of your income, create a little rule for yourself. The next year, contribute 6%, then 7%, and every year increase it by 1%. That single decision alone would make you hundreds of thousands of dollars more than all the lattes you will ever buy in your entire life. Also notice that because it's a percentage, as you make more money, you will also invest more money. It's a beautiful rule to have in your financial life. And of course, there are a lot of other ways that you can increase your investments. You can keep your housing expenses and your car expenses low so you can invest more. When you're married, you can have two incomes that can go towards your investments. You can negotiate your salary and then send 80% of that increase to your investments. Take the other 20 and have a great time. You can earn money with a side business like we teach in our earnable program. Take that money and invest it. So now let's take a look at the math. If you wanted to become a millionaire in 30 years, you'd have to invest just over $10,000 a year, assuming a 7% return and a 0.1% management fee. You can take a look. But what if you want to go faster? You. I want to become a millionaire in 20 years. Okay, fine. You'd have to increase your investments to $23,100 per year. Again, keep in mind that these are just average numbers. But as your income increases, you'll be able to contribute more, whereas at the beginning you're probably able to contribute less. Remember that people in their 20s don't have a lot of money, but people's incomes increase in their 30s and 40s. So the important part here is to set up the automatic habit of investing so you can automatically increase your investments as you make more. Okay, we've covered lever one, how long you invest for lever two, how much you invest. And that brings me to lever three, your investment returns. Listen up and listen closely. You have less control over this, which is why it's lever number three. So this really should not be your priority. Okay? A lot of financial freaks online, they go around thinking, I'm gonna get 18%. I heard of Renaissance Technology. It's possible. If he did it, I could do it. No, you can't. You pretty much cannot. I'm going to tell you right now. You want honesty. This is honesty. We know from history that the market returns about 11% per year. That's the nominal return minus about 3% per year of inflation, which is 8%. 8% is the real return, meaning post inflation. Now we're going to just use 7% to be conservative. It's like if you're running a race, put a weight vest on. Because when you run the real race, take that vest off, and it's going to be easy. So we're assuming 7% per year returns on average, based on decades of history. You can find the research in my book. The point is, for everyone who's about to write me a comment named dividend investor, 22222, do me a favor. Close your account and never post online again. First of all, why are you dividend investing at age 22? It makes no sense. Second of all, all these dividend freaks, they really think they're gonna get 20 to 25% returns. These folks, they live in the middle of nowhere, and they're like, I'm a PE investor. Private equity. It's all about IRR. Like, can I be honest? Those PE firms don't want your $18,000 investment. Trust me. Is this video just one of Ramit Sethi's grievances after another? Because if so, this is my favorite video of all time. I'll do this all day. Dividend investors drop shipping nuts on TikTok. Get real, okay? I don't need a picture of you on a fake boat. They go out on a rental in Santa Barbara. It's like $150. They rent a. Get a boat rental on Yelp. And they're like, look at me on my yacht. It literally has the name of the touring company on the side. I'm like, you're the worst at lying. You're so bad at this, you can find the research in my book on why we assume 7 to 8% returns. The point is, you're not magically going to get 15% returns, so don't even bother. In fact, don't even worry about changing your investment return assumptions. I myself use 7% for my assumption. Now, there is one thing that will alter your investment returns, and that's paying fees. For example, if you're investing but you're paying a financial advisor 1% of your returns, you're actually dramatically reducing your returns. For example, a 1% fee translates over the long term to about 28% of your lifetime returns. That means you're going to pay over 25% of your returns in fees. So I always recommend that you pay a flat fee or an hourly rate, never a percentage, if you choose to work with a financial advisor. Here's another suggestion. If you end up managing your own investments, which you can easily do using my book I Will Teach youh to Be Rich, always look for low management fees or expense ratios and you'll be in a pretty good place. Now, what's a good management fee? Well, in general, 0.2% or lower. And many of the best index funds at Vanguard, Schwab, or Fidelity, including target date funds, offer very low fees like this. Now that you understand the three investment levers that you can adjust to grow your investments faster. Faster. This brings me to a point that's going to make or break your financial journey. And this is really important. And this is what the math doesn't show. A lot of people watching this are like, if this is so easy, why don't more people do it? Well, there are lots of reasons that people don't take this advice to grow their wealth. And I think it's really important to talk about them. Money is deeply emotional. We learn about money from our parents. We. We hear phrases in our head that they said 30 years ago, we can't afford it. And as you've heard on my podcast, even when people start to make more money, they often still play small. Now, it's okay that money's emotional, but I want you to understand your attitude and behavior towards money. A lot of times, people are frustrated that they don't make a lot of money or they make a lot of money. They can't figure out where it's going. Why don't I have any money left to invest? Well, there are lots of reasons. Sometimes you have certain responsibilities that other people don't have. Maybe you're taking care of an elderly parent. Maybe you have a young child at home and for the next couple years it's going to be really tough. Maybe you have to prioritize your mental health. Maybe you were simply never taught about investing or even taught that it's okay to want more. We are often taught that in order to get rich, we've got to have 30 screens with all these ratios running down the screen and we need to pick stocks. That's not real investing. That's day trading. That's gambling. Investing is boring. It's not entertainment. You want to be entertained? Get a dog. Better yet, watch my Netflix show. But real investing is like watching paint dry. That's why when I realized that I had a million dollars, or even much more than that, I didn't feel it here. But I did feel it here. When I was able to be super generous, when I was able to buy something I truly love, when I was able to take a trip with my loved ones and experience a true moment of awe. That's when a million dollars has meaning. So I hope this video helps you on your path to creating your rich life. Check out this video popping up on screen to watch more.