Transcription
Have you ever dreamed of becoming a millionaire or having financial freedom, where you have complete control over your life and how you spend your time? Well, this video is for you. I've been there, chasing after financial freedom and hoping to break free from the cycle of living paycheck to paycheck. Despite always earning an average income—just your regular middle-class salary—I've ended up in the top 2 or 3% of net worth in the US, and you can achieve this too, with the steps outlined in this video and a little patience. You can put yourself on a path to financial freedom; it's not as hard as you think.
In a recent survey of 10,000 millionaires in the United States, 79% did not receive any inheritance at all, and most didn't even earn a big salary. Only 31% averaged $100,000 a year over the course of their career, and one-third never made $100,000 in any year of their entire career. In fact, of the top five careers that produce millionaires, one of them was teachers, and they only currently make a median income of $66,745 in the US. Most millionaires didn't grow up around money either; 8 out of 10 millionaires come from families that are at or below the middle-class income. So let's look at some examples of how easy it can be to achieve this. Towards the end of the video, I'll cover some important fundamental rules of money that you must follow to create wealth and have financial freedom.
For the calculations, I used an investment in a low-cost ETF for something like the S&P 500, which is averaged around a 10% compound annual growth rate over long periods of time. In fact, look at the rates of return with the dividends it pays for the periods ending in 2023: in the past 5 years, it's averaged 15.75%; in the past 10, it averaged 12.07%; in the past 20 years, it averaged 9.69%; in the past 30 years, 10.16%; and in the past 40 years, 11.37%. Those are some remarkable returns.
For our first example, this is for someone that has the luxury of time on their side and starts early in life. Take someone just earning $60,000 per year, and they get a 2% pay increase every year. If they started at the age of 25 and decided to just save 12.5% of their earnings, they will end up with $4.2 million at retirement by the time they retire at age 65. If this was done through a Roth IRA, that entire amount would be income tax-free. Think about that—that's only saving and investing 12.5 cents of every dollar you make. If this person was saving 12.5% through a 401k at work and the company matched the contributions up to just 5% of their salary, they would end up with $5.9 million. The crazy thing to think about here is you would have only contributed $453,000 of your own money over that entire 40-year working career, and your retirement balance is bigger than the entire amount of money that you earned over your entire lifetime.
Now, what if you didn't start until the age of 35? With pay increases by that time, their salary would have been $73,140. Now, if you start later, you must save more, so investing 20% of your salary alone would grow into slightly over $3 million, and if you include a 5% employer match, it would be over $3.7 million. If you waited until the age of 45, by that time this person would be making $89,100 per year, but you must be a little, a little bit more aggressive and serious about your saving because you put it off longer. So, if you're doing it without any employer match, investing 36% of your salary would get you to about $2.2 million, and with the 5% match, you would be slightly over $2.5 million. As you can see, the longer you wait to start thinking about your future, the more sacrifices you must make. Every year matters, so you have to start today. You don't have to make a lot of money to become wealthy either; you must get started investing as soon as you can and stick with it. Don't procrastinate and keep telling yourself you'll get started later.
People always find a reason they can't save. When you're in college, you feel broke; in your 20s, you're just starting out, paying rent, maybe have a car payment, and things seem tough. When you're in your 30s, maybe you have a first child, you're buying diapers and formula, things seem tight. When you're in your 40s or early 50s, you might be trying to help with college expenses and maybe have a mortgage; things seem tight. People are very good at always finding reasons why they can't save, but it must be a priority. The first thing that comes out of your paycheck, and then you must find a way to live on what's left without taking on debt.
Look at these savings rates you need by choosing to start at different ages in life if you want to hit the $3 million mark by the age of 65, with no employer match. These are based on someone that starts at the age of 22, right out of college and begins making $60,000 per year with a 2% pay increase each year. When we start that really matters. If a person starts right out of college, they would have only had to invest 6.6 cents of every dollar they made to hit the $3 million mark. If they wait until the age of 35, they would have to save 11.9 cents of every dollar they made in order to hit the $3 million mark. If they wait until the age of 40, they would have to save 29 cents of every dollar they made to become wealthy.
To achieve financial independence, you must first understand your reason why. Why do you want to have wealth? Simply dreaming of riches to buy expensive things probably won't lead to success. However, if you want financial independence for the freedom and control it offers, and that's truly important to you, you'll find a way to save and invest. Having a plan is key. You won't achieve your desired results by solely focusing on the destination; instead, concentrate on the habits and behaviors that produce the outcomes you desire. Find joy in the process of making those things happen; then it won't seem like you're constantly making sacrifices because you'll feel great about where you're headed in life. Once you understand your reason why and develop your plan, here are some money rules you must follow to help you get there. So here we go with the bullet points:
* Start now. Stop finding reasons to procrastinate.
* Make it your number one priority. Investing is the first thing out of your paycheck, and then you live on what's left within your means.
* Create a budget. Know where every dollar is going so you can find areas where you can cut back and invest more.
* Remember that money saved is worth more than money earned, why? Because you have already paid the Social Security tax, Medicare tax, income tax on it.
* Build an emergency fund so you have a cushion for life's unexpected expenses. It will prevent you from falling into debt when those things happen.
* If you have any debt, work hard to get out of it; pay it off unless it's a low-interest mortgage.
* Build a good credit score. It will save you money because all types of insurance will be cheaper, and you will get the best interest rates on auto and home loans.
* When your income does increase, don't increase your lifestyle at the same rate. Try taking 50% of every pay raise and diverting it to investing more.
* If your company offers a 401k, participate enough to get the full match if you qualify.
* Set up a Roth IRA at a discount broker like Fidelity or Schwab or Vanguard and invest in a low-cost ETF. Don't be too conservative either; try something like the S&P 500.
* If you max out your IRA and you can still invest more, go back to your 401k and add more to it.
* Remember that investing has nothing to do with intelligence. In fact, over a 15-year period, over 90% of professionally managed mutual funds do worse than their S&P 500 benchmarks. It's not hard to do better than professionals, and you don't have to know anything about picking stocks, so don't pay them a bunch of fees to do worse; just use a low-cost ETF for the S&P 500.
* If you want to talk to an advisor at any point in your life, make sure they are a fiduciary and look for one that is fee-based; just pay them by the hour for some advice. According to the Advisory Headquarters, the average fee for a $1 million portfolio is 1.02%, that's $10,200 you would be paying somebody every single year, and that's assuming they didn't put you in some toxic mutual fund like front-loaded funds. You must avoid unnecessary fees; just use a low-cost passively managed ETF for something that mimics the S&P 500 or the total US market ETF.
What you do need to do is control your emotions and have patience. Investing done right is rather boring. If you want excitement, go to a casino. Things like day trading or always switching up investments, trying to chase the highest returns, are more in line with gambling, not investing. Stay away from all the get-rich-quick schemes too. Work hard to not care about what other people think, and don't worry about keeping up with the spending of your friends and family. Chances are they have little to no net worth and plenty of debt, trying to maintain a lifestyle that they can't afford. Net worth is created by the money invested and not spent; thus, it's what you don't see in people's lives. Far too many people spend money to impress others. Big houses and nice cars won't create financial freedom. Ask yourself: do you want to live a life in debt trying to look rich, or do you actually want to be rich? Remember, it's not just about accumulating wealth; it's about gaining control over your life and having complete financial security, whether you choose to work or not. With the right mindset, discipline, and patience, you do have the power to shape your financial destiny, and you don't have to make a lot of money to do it either. Thank you for watching.