If I Wanted to Become a Millionaire in 2025, I’d Do This

You want to hit a million dollars by 40? I've done it. And I've helped a lot of other people do it too. Let's take a look at my track record. I've built a business that generates millions of dollars in revenue. Totally bootstrapped. Hosted my own show on Netflix called How to Get Rich. I wrote two New York Times best selling books about personal finance. In fact, they're both on the New York Times list right now. And I've coached thousands of people with their money over the past 20 years. I've studied how people grow their wealth and I've helped them build it themselves. Today, I'm sharing learned with you so you know the exact steps to follow. No BS, no fluff, just proven strategies that actually work. Step 1. Work backwards from 40. The first step is to really understand your number. It's easy to say I want a million dollars, but what exactly does that mean? A million dollars in the bank, A million dollars in a house. How close are you to that goal and how much do you need to save to get there? Let me show you how to figure it out. When it comes to investing, I personally am more conservative. That means instead of calculating my annual returns at 10%, which is about the average nominal return over the past 100 years of the stock market, I use 7%. That's the real return, which accounts for inflation. That gives me a buffer because I would rather get better returns than I project than to end up 50 years from now short by a million dollars. So going forward, let's assume a 7% annual return when doing our calculations. Next, figure out how many years you have until you turn 40. Anyone who's 55 years old and leaves a comment saying, I wish I'd had this 15 years ago, you're banned. I already know. If you're over 40, just adapt the lessons we're about to learn. All right? Use an investment calculator to plug in the following. Target amount, $1 million. Starting amount. This is whatever you currently have invested in things like your 401k, IRA, et cetera. Number of years you'll invest. This is the number of years until you're 40. Return rate, 7%. And then compound. You can just choose annually. It doesn't really matter right now. With all of this plugged into the calculator, you will quickly see how much you need to contribute to reach your goal by 40. Now I want to take a look at some scenarios to show you how to make the numbers work. Let's look at three starting ages, examples and I'll assume that you are starting with $0 invested. This makes it clear that the earlier you start, the easier it will be for you to hit a million dollars. Age 18, it's 22 years until you turn 40. You need to invest $1,639 per month. Age 25, it's 15 years until you turn 40. You NEED to invest $3,196 a month. That's a lot, especially for a 25 year old. And finally, if you wait until 30, you have 10 years until you turn 40. You need to invest $5,813 per month, every month to hit a million dollars. Now, there's two big lessons you can take. One. Ramit, I'm demoralized. I'm depressed. I hate you. I'm turning off this video. You suck. The inflation economy is crushing me. No, that's the wrong lesson. The second lesson is, wow, time really matters. The maybe I started a little bit later than I wished, but I better start investing aggressively right now because my future self will thank me down the line. So I don't want you to wait. I want you to work backwards to your goal and calculate your number today. And don't panic. Remember, we are learning the mechanics of how investing works. There's one little piece of nuance that I want to add when I talk about investing 1,000 or 3,000 or $5,000 a month. Those numbers are terrifyingly high. However, we should remember that when you are younger, you make less money and most people's income increases over time. So if you have to invest an average of $3,000 a month, you're probably not going to invest that much when you're 25, 26, 27, 28. But when you're 40, 45, 46, 50, you're likely to be investing more. While there is some nuance to early investing and compounding, you should just remember that people's incomes tend to go up. And if you are investing by percentage, you have a very good chance of investing a lot of money. Let's walk through some more steps to get to your goal. Step two, invest 15% or more immediately. In fact, I'm the only person on YouTube who's going to tell you, shut this video off and go open up your Vanguard, Fidelity or Schwab account and start investing. I don't want to see you back here again until your money's automated. Oh, what? Suddenly my channel just disappeared? Hey, where'd everybody go? Okay, come back, come back. Don't do that until later. Now, if I were doing this, if I were starting to invest right now, my aim would be to invest at least 15% of my income. In fact, even more if possible. Why? Because time is your biggest ally, which we just saw in the previous example. And next, the amount you invest makes a big difference. Now, we should remember that real wealth is created by investing. So it's a little ironic that most people agonize over the price of red onions for their entire life, but they don't actually think hard about the percentage of their income that they are investing. It's really important to be aggressive, especially if you're starting out a little later in life. Here's a simple breakdown of the order that I recommend you invest in. Number one, start with employer sponsored accounts like a 401k, especially if there is an employer match that is essentially free free money. Now, with an employer match, you can actually reach your goal of a million dollars faster. I'll show you an example. Let's say that you make $100,000 for easy math at your job and your employer will match up to 5% of your salary in contributions. Check this out. After 20 years, I'm not even factoring in any raises, you'd have $425,336. But without that 5% match, you would have half of that $212,000. That is why you always start with your employer sponsored retirement plans, especially if they have a match. Number two, max out a Roth IRA for tax free growth. Let's continue with the example of your salary being 100k. Since the current contribution limits for Roth IRAs is $7,000 a year, you can max out the account by contributing up to 7% of your salary. That's post tax. If we add this with your 401k and employer match, you would have $723,000. After 20 years, we're getting closer to that $1 million goal. But hold on a second. At this point you're only contributing 12% of your salary. What if we keep going? Number three, go back to your 401k and contribute above and beyond that company match. Instead of only contributing 5% to your 401k, go back and add another 3%. That's a total of 8%. That means after 20 years, with all your contributions and company match, you'd have $850,000. That's closer still. Not a million dollars though. But we have more options. The current contribution limit for a 401k is $23,500. And that does not include what your employer contributes. So, without factoring in any raises or changes in contribution rates, you'd have to contribute a total of 19% of your salary to hit that million dollar goal in 20 years. That's a lot. But let me just show you how the breakdown would look. 12% 401k contributions, that's $12,000 a year. 5% company match, that's $5,000 a year. And 7% Roth IRA contributions, that's after tax, $7,000 a year. Now, I'm overly simplifying this, but you can see the math. Like I said before, this does not factor in any changes to your income. And these numbers can change dramatically depending on when you start investing and how much you invest. I can tell you this. Looking at these numbers, it's a little intimidating. Like, is it realistic that you watching this video right now are gonna start suddenly investing 20% of your income? Probably not. It's like somebody going from sitting on the couch seven days a week to being like, I'm gonna run a marathon every single day. That's unlikely. However, what's the key lesson? The key lesson is, if I want to run a marathon, aka have a million dollars before 40, then I need to start investing aggressively today. And the key is consistency. Don't try to do it every month. Automate your investments so you don't even have to think about it. And then every single year, every December, increase your investments by 1% to get to your goal even faster. Step three, focus on increasing your income. Now listen, let's be realistic. If you're making 50, 60, $75,000 a year, it's going to be very hard to invest your way to $1 million by the age of 40. That is why increasing your income has to be a priority. If your goal is to be a millionaire early on, here's how I would do it. Negotiate your salary. Most people leave thousands of dollars on the table because they do not negotiate. It is critical that you research your market value and you learn the skill of confidently asking for what you are worth. Let me give you an example. Say you currently make $100,000, but you were able to negotiate a $10,000 raise. Stop right there. I know what you. Oh, Ramit. Coastal elite doesn't know what everyone doesn't just have $10,000 floating from the sky. Listen, before you start telling me all the reasons it won't work, I routinely help people negotiate 10,000, 15,000, $20,000 raises. So if your first inclination is to say that won't work, guess What? You're right, it won't. However, if your inclination is to say, hmm, if it worked for all those people, why can't it work for me? Maybe I can't get $10,000, but I can get $4,000 more. And that's a lot. Getting a raise also means that your employer will be matching more in your 401k. Why? Because 5% of 110,000 is $5,500. If you took the entire amount of your raise every year, that full $10,000, and you invested it in your 401k, you'd hit your million dollar goal in only 16 years. That one time $10,000 raise knocked off four years of reaching your goal. That's amazing. Here's the breakdown. 20% of 401k contributions, that's $22,000 a year. For 5% company match, that's $5,500 a year and $7,000 a year to a Roth IRA contribution. Amazing. Next, start a side business. Use your skills to create an additional income stream. You can look into freelancing, consulting, even digital programs. Whatever aligns with your strengths. Please remember I'm not telling everybody to go negotiate your salary. Start a side business, switch jobs. I'm telling you, if you are watching this video because you yourself set a goal of of having a million dollars by 40, then you probably need to take extraordinary action. Extraordinary results means you need to take extraordinary actions. That is why I am giving you all these additional ways of increasing your income and investing aggressively. This isn't for everybody, but most people are not going to have a million dollars at 40 either. Another option. Switch jobs. Sometimes the fastest way to earn more is to move to a different company. Especially if you find that in your current company there's limited room for growth. You could choose a different company in your industry, or you might actually switch industries entirely. But you have options. Now onto the next step for becoming a millionaire by 40. Step number four, cut costs on housing and cars. Listen up, you seven seat having Range Rover driving accident causing SUV drivers. What the is wrong with you? Ooh, I just had a baby. I know what we need to do. Spend $97,000 on an SUV. Why? It's for the kids. What the. There's two areas that people overspend on and they do it all the time. First, housing. And second, cars. I see it every single day. People are perplexed. Ramit, you're telling me I shouldn't spend $90,000 on a car when my income is 85,000? Yes. Who is to judge me. Ramit Sethi is the one to judge. I'm about to tell you right now, you're spending too much on housing and you're spending too much on cars. Now, if I were serious about becoming a millionaire by 40, I would carefully examine these areas. Housing as a guideline. Your total housing costs should be no more than 28% of your gross income. When I say total, I mean total. I'm saying this because every time I say total housing cost, people go ramid. Does that include the sprinklers? Does that include utilities? What does the word total mean? It means all. All of it. Phantom costs like interest, insurance, taxes, maintenance, utilities, the roof repair. That's going to happen 11 years from now. Even your gas to Home Depot. The worst place on earth, all of it. Now, in high cost of living cities like New York, L.A. san Francisco. In fact, even in a lot of cities right now, it is very difficult to find housing that is less than 28% of gross income. So listen, let's be realistic. You can stretch that 29, 32, even 33. But the higher you go above 33%, you start to incur a lot of risk. That means you have less money to save, less money to invest, and less money to spend. And that means it's harder for you to hit your $1 million goal. So in the example of making $100,000, ideally, you should be paying no more than $2,300 a month for all of your housing. That's not very realistic. We both know that. But what that really shows you is, number one, how expensive housing really is right now, and number two, how careful you have to be about your spending. Remember, that number includes everything. Mortgage or rent, utilities, taxes, fees, all of it. This is one of those reasons that I strongly encourage you to carefully evaluate whether buying makes sense or whether renting makes sense. Now, to reduce your housing costs, there are some options you have. You can downsize, get a roommate, skip unnecessary renovations, which is about 98% of all Americans who do these dumb renovations thinking they're going to make money from it. You will not. Most renovations do not make money. They're just a luxury. They're not an investment. Whatever. I'm not talking about that today or moving to a lower cost of living area. Basically, it's really tough. And if we want to get into a discussion of why housing is so expensive, then you can open up the stage for Ramit to rant about NIMBYs, but we're not doing that today. Now, let's look at the next biggest expense, which is cars. Now I know you and your best friend Chet the car salesman think that the only way to buy a car is to walk into the dealership and ask them how much you want to pay for this car every month. We don't buy things on monthly payments, okay? That's for people who don't know anything about money. For many Americans, their car payment is the second biggest expense they have after their housing. In fact, listen to this. The average car payment in the US today for new cars is $737 a month for an average of 68 months. I know you don't know what that means, but to me that's crazy. Okay? That is huge. Let's not forget, by the way, phantom costs like insurance, registration, gas, maintenance, which can take your monthly car payment over $1,000 easily. Now please remember when I used to have a $350 car payment for a V6 Honda Accord four door? My friends, the total monthly expense for me was over $1,000. And remember, $737 is the average car payment that there are a lot more people paying more than that. For example, I spoke to a couple of my podcast who had a total monthly car payment of $2,500. If you're paying that much for cars, the question is, what is it actually costing you? Probably means you can't travel as much, probably means you can't eat as much, and you definitely are not going to have a lot of money for retirement. The problem is the majority of people buy cars based on monthly payments. They don't look at the total cost of ownership or tco. And then after the loan finishes, you know what they do instead of keeping it for as long as they can, which is that golden period where you don't have a car payment. They literally go, oh, my car dashboard has a scratch. Time to get a new car, guys. What the hell is wrong with you? It doesn't make sense to pay interest on this depreciating asset and then keep replacing your car every four years if instead you invested that $737 monthly car payment for 20 years. Remember, I'm not even factoring in insurance, gas, etc, you'd have an extra $376,000. I don't mind nice cars. I don't. However, I do mind that the vast majority of Americans don't even know if they can afford it. So here's how you figure out how much car you can afford. Use my conscious spending plan template, which I will link for you in the description below. It's free. Fill in your numbers for everything in the fixed cost section except for the car. We're going to use an example of $100,000 salary. Let's say your take home pay each month is around $5,700. After adding in your fixed costs like housing, groceries, bills, etc, you've already allocated 50% of your paycheck for this category. To keep your fixed costs at 60% or lower, which is what I recommend. That means you can spend no more than $550 total on your car. That includes gas, maintenance, DMV registration, everything. That means your car payment has probably got to be way less than 550. Probably like 200 bucks. As you can see, most people don't know any of this. They just go out and buy a nice car. Oh, I like the paint. Purple. Get the car. Why am I getting so mad about cars? Because I see people throwing away their future for a freaking car. And when I ask them what is your rich life? They almost never say cars. They go, I like travel. I. I like family. I like freedom. Freedom. You're chained down to four tires, spending 78% of take home pay on fixed costs. Well, you know what, we're going to take a bet in the comments. At what age am I going to have my first heart attack? I'm 42 years old right now. Is it going to be 43 because I saw somebody making $56,000 a year driving a $187,000 Ford F450 or is it going to be 50? Which one is it? Place your bets, my friends. To reduce your car costs, here are some options I would consider. Number one, drive a reliable used car. No one's going to listen to me. What am I even doing on this video? Take public transportation. I know you hate it. You think it's scary. Oh, New York subway, so scary. Oh my God. Sell your car, get a rental. That's never going to happen. Or keep your paid off car for as long as possible. You know what? I need to find a silver lining in this completely meaningless piece of advice that I'm giving you. Which is awesome advice that nobody's going to follow. Let me just say this, okay, hold on, Ramit. How are you actually helping people right now and not wasting your time? I'll tell you how. If even one one of you decides that once our car is paid off, we're going to keep it for one additional year, just one, I will consider this a success. That's how low the bar is. For the car brain culture in America. Now listen up. For the three people who are still watching this video, I want to circle back to housing. But before I get to that, make sure you hit subscribe and turn on notifications so that I can get three new subscribers on my YouTube channel. Step number five, consider renting and investing the difference. Another piece of advice that no one is going to listen to. I love this video. Now this is the most controversial step. I also happen to be completely right, but nobody in America agrees with me. That's okay. I've gotten used to being right and having tons of right wing trolls get mad at me every single day online. This is my rich life. Now listen, if your goal is to become a millionaire by age 40, I would seriously recommend you carefully think about what your definition of the American dream is. And if your goal is to become a millionaire by 40, I will challenge you that owning a home might not fit into it. Especially not before 40. Why? Because in a lot of American cities right now, it is far cheaper to rent than to own. I'll give you an example. In this very apartment that I'm sitting in right now, if I were to buy this apartment, it would cost me more than 2.5 times more than what I'm paying for rent. Just as an example, let's say that I'm paying $1,000 a month in rent. It would cost over $2,500 per month to own this place once I factor in insurance, taxes, maintenance fees, and on and on and on. Now, please don't use the E word. Please don't just say to me equity. That's not an argument. A word is not an argument. I'm not getting into that. And guess what I'm doing with the money? I'm not throwing away on interest and maintenance. I'm investing it. Investing in index funds that give me an average 7% annual return. Now this is what people miss about renting versus buying. You don't compare homeownership to just renting and then blowing all the rest of the money on freaking cars. No, you compare it to investment. Investing the difference, or at least part of it, which I know most people do not do. Here's what I'm saying to you. Before you go out and make the biggest purchase of your life, carefully run the numbers. I want you to know the difference between buying and renting. You should run a buy versus rent calculation. That is the simplest thing you need to do. It's table stakes. Next, you need to look at an amortization chart. You need to know that if you buy a house right now, you're going to be paying more towards interest than the principal for 20 years. None of you knew that. Most people do not run a simple amortization calculation. And I want you to understand how this affects your own goal of having a million dollars by the age of 40. For example, on a national level, it costs about $1,000 more for a mortgage payment than rent. And I know real estate is local, but I'm just giving you an average number here. This doesn't even factor in the phantom cost of ownership. If instead you invested that theta thousand dollar difference over 20 years into simple low cost index funds, you'd have $510,000. That's already half your one million dollar goal. That is why I want you to understand these numbers. Renting and investing can be an incredibly smart decision for so many people, but it takes really rethinking your concept of the American dream. So if I wanted to become a millionaire by age 40, here's what I would do. I would run the numbers. I would compare the total cost of homeownership, mortgage, taxes, insurance, maintenance, utilities to renting, which makes more financial sense. To quickly run the numbers and see what makes sense for you, you can use the New York Times rent versus buy calculator. And this factors in lots of variables like rent increases and taxes and all kinds of fees. Makes it really easy to see if renting or buying is better for you. If renting is better for you, you have to invest the difference. You can't just rent and then spend all the rest of your money. If you do that, you're doomed. But if you are careful with the biggest purchase of your life, whether it is renting or buying, you can end up ahead. Step number six. Ask yourself why. Here's a very important question. Why do you want to be a millionaire by age 40? Is it just an arbitrary number? Are you trying to show off to somebody? What are you actually going to do with that money? What does a million dollars even mean? If you want to set such an aggressive goal of having a million dollars by 40, you better have a very compelling reason why some people really live on rice and beans to hit this huge goal. But then what? One day, age 40, they get there, they look at their bank account, it says a million dollars five cents. And the clouds don't open up. Nobody holds Simba up to the sun. Oh, congratulations. They don't do that. Nobody cares. You're sitting in your dark basement, you're eating Uncle Ben's rice beans from three days ago and you're going, I made it $1 million. You go to sleep and wake up the next morning and there you are. What kind of rich life is it to simply orient yourself for a number? My philosophy is a little different. It's to live a rich life today and a richer life tomorrow. That means you have to decide what truly matters to you. Travel, family, fitness. Get crystal clear on it and make sure your financial goals goals align with that vision. So for the one person who made it to the end of this depressing video, you might actually realize that setting a goal of $1 million at age 40 isn't actually the purpose of living a rich life. Now, becoming a millionaire before 40 is possible, but it's not just about numbers. It's about having a plan, staying disciplined, and knowing why you're doing it. To start investing today and to learn everything you need to know about investing, don't check out my Complete Investing Guide playbook right here.