We've all read one of the hundreds of blogs where people talk about having achieved financial freedom and became a millionaire. Those stories are encouraging, but are they realistic for people that are not dual income and/or earning more than 100k per year?
The following post is by MPFJ staff writer, Laurie Blank. Laurie is a wife, mother to 4 and homesteader who blogs about personal finance, self-sufficiency and life in general over at The Frugal Farmer. Part witty, part introspective and part silly, her goal in blogging is to help others find their way to financial freedom and to a simpler, more peaceful life.
If you read personal finance articles on any kind of a semi-regular basis, you’ve likely read one of the hundreds of blogs where people talk about having achieved financial freedom. Those stories are encouraging, but are they realistic?
What I mean is, are they realistic for “real” people? For the average Joe, Jane or Fred who doesn’t make six digits a year?
Many people who’ve achieved financial freedom have one or both of two great things going for them:
- They make some serious ka-ching, as in over $100k a year
- They have a dual income family
But, what if you don’t have a dual income family? What if you’re single? What if you choose to have one parent stay home with the kids as we did?
Or what if you make far less than $100k a year? Is millionaire status even possible without saving every dime and living under a rock?
How to Become a Millionaire for “Normal” People
I used to think that millionaire status was only for high-income earners – until I read the story of Ronald Read. Ronald Read died in 2016 at the age of 92. His net worth? 8 million dollars.
But what’s truly amazing about Read and his wealth is that he spent his life doing what some people would term “menial” jobs.
He was a gas station attendant. He was a janitor. The man-made far below six figures per year, yet he was able to amass a serious fortune. How? Three simple tips.
He Was Frugal
Nobody doubts Ronald Read was frugal. Read was married and the father of two step-children, but he still never spent money unless he had to. He cut his own firewood to heat his home (even in his 90’s).
Friends remembered that he was a hard worker and that at one point he used safety pins to hold his coat together. Read always drove smaller, second-hand cars.
Maybe he was too frugal, but the man did reach millionaire status 8 times over on a janitor’s salary, so we’ll cut him some slack.
He Educated Himself
Ronald Read may have never gotten a college degree, but he made a habit of studying stocks. He worked to follow a Buffett-like strategy of buying blue chip stocks in established companies.
Power companies and financial companies were among his long-term holdings. He knew which stocks tended to do best because he researched the subject.
Anyone can research investing strategies courtesy of their local bookstore or library.
He Bought and Held
Ronald Read’s third step? Buy and hold. I know investing in stocks can be scary. Up and down they go, and your perceived wealth with them.
People get into trouble when they buy, panic and then sell. If you’ve done your research and you’re confident you’re choosing good stocks, just buy them and walk away.
Wait for 20, 30 or 40 years to pass and then watch as you’ve increased your net worth.
How Can You Become a Millionaire?
So, this might all sound great to you, but it might leave you wondering how an average income earner can get rich. Let me propose a scenario.
Let’s say you make $65k a year. This is doable, even though you might have to do some side hustling to accomplish it. So, at $65k a year, your gross income is $5416 a month. Let’s say your net income is $4,000 a month.
If you put $1,000 a month away and earn a 7% annual rate of return, you’ll have 1.1 million dollars in 30 years.
If you earn a 9% average rate of return you’ll become a millionaire in just 25 years. While 25 years might seem far away, trust me when I tell you it’ll pass in no time.
25-year-olds who start saving now will be millionaires by the time they’re 50. And 40-year-olds who start saving now will be millionaires by the time they retire at 65.
Before you discount your chances of becoming a millionaire, play around with your budget and with the math. If it’s not possible for you to put away $1k a month, put away as much as you can. Or get a second job for a short period of time so you can increase your savings.
Commit to putting all unexpected cash (such as tax returns and birthday money) into your investment plans. Your net worth will rise faster than you think.
Conclusions
While I don’t necessarily recommend being as frugal as Mr. Read was purported to be, I’d be willing to bet you could probably find some wasteful spending in your budget. Reroute that waste into investments and see what you can accomplish over the long term as far as your net worth goes.
You might be surprised!
***Photo courtesy of https://www.flickr.com/photos/proby458/15038286491/in/
