A financial advice expert has shared his advice on how anyone can accumulate enough money to become a millionaire in retirement – no matter how much they currently earn.
Ramit Sethi, 41, provides financial advice on his YouTube channel, where he boasts nearly 500,000 subscribers.
In a new post, he shared three strategies that could help someone ‘become a millionaire’ on a ‘low salary’ and described three ‘leverages’ that you can ‘pull and push to wealth’: including time (or ‘where long you invest) for’), ‘how much you invest’ and ‘investment return.’
The core of the first three recommendations was to utilize ‘time’ given the principle of compound interest on investment accounts.
Ramit Sethi, 41, provides financial advice on his YouTube channel, where he boasts nearly 500,000 subscribers.
For example, on a salary of $50,000, putting aside 15 percent for 30 years, which is $7,500 annually, would add up to $743,849 assuming a seven percent return and a low 0.1% fee .
Doing that for just four extra years, 34 years in total, would push the total up to $1,006,939.
“The real gains come at the end, not the beginning,” Ramit emphasized.
‘The lesson here: Don’t delay investments.
‘In fact, every single day you don’t invest aggressively, you’re losing a huge amount of money because time and compounding are on your side.’
As for the second lever, it is ‘how much you invest’ on a regular basis, the more frequent the better.
“If you invest $425 a month, or basically $14 a day, starting at age 25, you’ll easily be a millionaire by the time you’re 65,” he pointed out.
He also proposed increasing the investment rate by one percent each year; year one would see five percent of one’s income invested, the next year would see six percent and so on.
He also emphasized, ‘because it’s a percentage’, when you earn more money, you will also invest more money.
‘It’s a beautiful rule to have in your financial life.’
He also recommended keeping housing and car costs low ‘so you can invest more’.
A second income stream from a spouse would also help push that “lever” further — as would taking most of the pay increase from any pay raise and investing it instead of spending the extra money, he added.
With that, on the assumption that one’s salary will be higher in one’s thirties and forties, people should get into the ‘habit’ of saving their money in investment accounts in their twenties.
He emphasized that people have three “handles” in their control when it comes to investing: time, amount of money over time, and return on investment
For the third and final lever, Ramit emphasized ‘return on investment.’
He went on to explain that the ‘real return’ on market investments since the introduction of the Standard & Poor’s index in 1957 averages about eight percent when inflation is taken into account.
“There’s one thing that’s going to change yours, and that’s paying fees,” he continued, like when you pay a financial advisor a percentage annually of your returns.
Ramit instead recommended paying a fixed fee or an hourly rate – but ‘never a percentage’ to a financial adviser.
When managing your own investments, “look for low management fees or expense ratios and you’ll be in a pretty good place,” Ramit said.
Numerically, a ‘good management fee’ is 0.2% or lower.
After reviewing the ‘three levers’, Ramit went on to illustrate a point that will ‘make or break your financial journey’.
That factor is basically what the math doesn’t show.
“Money is deeply emotional,” he admitted.
‘We learn about domesticity from our parents. We hear phrases in our head that they said 30 years ago: “We can’t afford it.”
“Even when people start making more money, they often still play small.
‘Now it’s okay for money to be emotional. But I want you to understand your attitude and behavior towards money.
“A lot of times people are frustrated that they’re not making a lot of money — or they’re making a lot of money, they can’t figure out where it’s going,” he continued.
Ramit admitted that there are ‘many reasons’ why people still fall short when it comes to finding money to invest in one’s long-term future.
‘We’re often taught that to get rich, we have to have 30 screens with all these ratios running down the screen and we have to pick stocks.
‘It’s just not real investment. It’s day trading, it’s gambling.
‘Investing is boring. It’s not entertainment. Do you want to be entertained? Get a dog,’ he stressed.
“Real investment is like watching paint dry. That’s why when I realized I had a million dollars, or even more than that… I didn’t feel it here,” he said, touching his heart.
‘But I felt this when I was able to be super generous. When I was able to buy something I really love. When I could take a trip with my loved ones and experience a moment of awe.
“That’s when a million dollars matters.”