Are you going to become a millionaire?
I’m guessing that a lot of people feel financial freedom is out of their reach.
Well, I beg to differ with them. I believe it is possible to save one’s income to become rich.
You don’t even have to make a ton of money to become a millionaire. All you need is the desire to do well with your finances and a little creativity.
Believe you can save your income for financial freedom
Does this already sound like a late-night television infomercial? Well, it’s not. However, it is hard to write about becoming wealthy without starting to sound that way.
Stick with me here and I’ll show you that my plan for achieving financial freedom is not a fly-by-night scheme. In fact, it is very realistic for most of us.
Becoming a millionaire is relatively simple. It isn’t altogether easy, but it is simple.
Take a look at the chart below. It assumes a 10% rate of return on your investments.
If you save $500 per month for 30 years earning an average return of 10%, then you will become a millionaire. It is as simple as that.
So, what if you plan to retire in less than 30 years or what if you don’t have $500 a month to save? Well, as the chart above illustrates, you can still build a respectable nest egg.
For example, if you invest just $300 per month for 25 years, you will have almost $400,000!
Of course, the earlier you start the better. Look at the figures in the 30-year column compared to the 25-year column. Waiting an extra five years makes a big difference.
If you are in your 20s or 30s, I implore you to start a regular investment plan now!
Two critical components to achieve financial freedom
The two most important things you have to understand in order to become rich are:
- You have to pay yourself first and
- You have to make your savings automatic
Paying yourself first means you budget an amount to save every month and live on what’s left over. Most people do the opposite and wind up broke.
When savings is your top priority, you schedule to have money automatically deducted from your paycheck or checking account every month to be invested.
This strategy for savings ensures that you follow your plan which guarantees that you will become rich.
Okay, let me add one caveat to my guarantee. There are always exceptions, aren’t there? You have to wisely invest your money to earn your planned rate of return.
How to invest to save income for financial freedom
I believe growth stock mutual funds are a good way to invest for retirement. I know that the stock market has taken a beating lately, but historically, over the long haul, the market has performed very well earning around 10%.
Of course, as many are quick to point out, past performance is not necessarily an indicator of future returns.
I invest my money in mutual funds for a few reasons:
- By definition, they are diversified.
- Good mutual funds, have a long track record of solid earnings
- They are easy to understand and purchase
A good investment strategy for getting rich is boring. It grows slowly, but steadily. This is not exciting, but it is dependable. I believe in the K.I.S.S. principle.
Things to point out about saving income for financial freedom
I hope you will take a few moments and study the chart above. Again, it is simple, but very revealing. Look at it carefully and absorb all it tells you.
Let me point out a few things to observe:
1. The savings scale stays between $100 to $500
I kept the monthly investment low on purpose. I wanted to illustrate that even a modest amount of money can grow into a big result. Let me reiterate that it does not take a six-figure income to get rich. You just have to practice some basic financial principles and then let compound interest do the rest!
2. The years scale shows an investment horizon of 20 to 30 years
Investing for wealth is a long-term proposition. The longer you have to invest, the easier it will be to become a millionaire. Of course, it is possible to save a lot of money in a short time, but you would likely need to significantly increase the amount you were saving monthly. Hopefully, you are in your 30s or 40s and still have time to easily get rich.
3. The chart doesn’t lie.
The chart is the whole reason that I wrote this post. It is a reminder to me and hopefully to you too that it is possible to get rich. If you believe you can, you will. Yes, it takes some discipline and a plan, but with just a little effort, time and money you can become a millionaire! Isn’t that encouraging? It is to me. The chart is my vision for the future.
Are you going to become a millionaire?
I end with the question I asked in the beginning. Becoming wealthy is a decision you can make. What do you choose?
For many, they will continue a consumption lifestyle, pass that legacy on to their children and end up in the poor house (i.e. a facility that accepts Medicaid).
I have chosen to finish my life better than that and to help my kids get off to a better start in handling their money. My plan isn’t glamorous, but it will work. I will be a millionaire!
What say you? Are you going to become a millionaire?
Photo by UKDevon
Oh, the simple science of compounding… how I love thee.
Now is a great time to take some long-term savings and pump it into a well rounded, dividend paying mutual fund.
Read Marc and Angel Hack Life´s latest article – A Miracle Cure for Stress
Jeff you are so right. I’ve been using this plan for many years. Recently I have decided to go for the big time and expand my horizons, but I have a very comfortable fall back because I have saved and invested 10% of my income for 25 years. After a while the contribution you make becomes irrelevant. The earnings make it almost meaningless by comparison.
“Paying yourself first means you budget an amount to save every month and live on what’s left over. Most people do the opposite and wind up broke.”
A very simple but incredibly effective approach. If only people would get out of their short-term massive consumption approach, they would realize that they would end up with a whole lot more in the end.
Read Stephen – Rat Race Trap´s latest article – How to Be Successful by Developing Killer Habits
Respectfully this sounds like really dangerous advice in today’s economy. First off, it took the stock market 25 years to recover from the Great Depression. We’ve already seen a dip of a similar magnitude and I think the worst is yet to come.
Second, even during the happy boom times that preceded this crisis, the real inflation rate was almost as high as the returns you expect. The government conveniently decided to eliminate food and energy costs from the inflation measures, so their figures are not reliable. Simply using the old US formula, we were averaging 9% for the better part of this decade. Of course, with trillion dollar bailouts, that level of inflation will soon seem like a happy memory.
So even if you could assume 10% growth (which you can’t anymore), you would be making 1% real earnings, which means it would take about 70 years for your investments to double.
The reality is that growth will almost certainly be lower and inflation will almost certainly be higher. This means your savings plan will actually cause those who follow it to lose real value, not gain it. When government ruins the money supply it is irrational to save money… you are penalized with every day you stay in. This is why Americans’ savings rate has long been close to zero, and why the middle class has been disappearing despite their use of the formula you describe. Once this deflationary period is over, I think trying to maintain any significant savings will not be in your best interest.
@Marc – It is simple math and I too love it.
@Stephen – Thanks so much for confirming that this works! There is nothing better than a real life testimonial to validate a recommendation. It sounds like you have done very well for yourself and now plan to do even better!
@Chase – I’d refer you to Stephen’s comment. This does work. It has worked for a lot of people for a long time. You paint a picture of doom and gloom where we are all victims of the government. I don’t buy that model. It is possible to save to become wealthy. I have talked to people that have done it. You seem to offer a lot of problems, but I didn’t notice any solutions. What would you recommend we do?
Thanks for adding your two cents!
Jeff, thanks for your response. I guess my concern is that people will not realize that things have changed. Not to put too fine a point on it, the last 30 years have been literally the longest uninterrupted boom time in modern history. It truly was a time when people of average means (or even less) could become rich by investing. That time is over. There are a couple reasons to believe this. One is Peak Oil. Our entire way of life is based on abundant oil… it’s the true source of all money and wealth over the last 70 years or so. That party is over, and prices will now rise in general. Every recession of the last 40 years has been preceded immediately by a spike in oil prices… what do you think a permanent spike and a shrinkage in supply after 70 years of growth will do?
Secondly, our government has abused the money supply to the point that it can never recover. There is no way out, no way to even maintain paying the interest on our debts, other than to continue the abuse… printing more dollars so they are worse less, so that creditors can be “satisfied” Hyperinflation (think post-WWII Germany, as there are a lot of parallels in terms of monetary policy… except that our abuses are now worse) is inevitable, the only question is the exact timing. I honestly don’t want to be insulting when I say this, but if you continue living in the past I fear a lot of pain will result for you.
I don’t like to be negative either, but I don’t see wishful thinking as a reason to be cheery. Facing the ugly reality could make you rich – see Nassim Taleb’s work.
You asked me what I would recommend we do. Here is my advice.
0. Get the hell out of stocks, bonds,etc. now. Except for energy stocks if you can wait 10 years or so.
1. Be ready for the end of this deflationary period – it could last for a few years, see Irving Fisher’s Debt-Deflationary theory. Fisher, an economics professor, believed much as you to until he lost millions in the Great Depression and then wrote a seminal paper. The Fed hates him because he puts the blame on the Fed. Before it ends you need to be out of T-bills and cash and into investments that mitigate inflation. Normally real estate would be in this category, but since we spend the last 30 years building too many houses due to misplaced government and bank incentives be careful there too. And before making inflation-protected investments make sure you invest in your self, by becoming as self-sufficient as possible and buying stuff that may be inaccessible to you in a few years.
3. There is no potential to change the economic path of destruction that were on, unless we embrace serious monetary reform. Monetary policy is at the root of our problems. Unfortunately, there is very little difference between Democrats and Republicans on this.
3. As far as I know the only movement that has enough size and momentum to have a chance at changing our course is the Campaign for Liberty. Check it out, and consider joining – http://www.campaignforliberty.com/
4. If you have been listening to mainstream news sources or relying on the principles that worked 10 or 20 years ago, reeducate yourself. Here are some good places to start…
http://www.lewrockwell.com/
http://mises.org/
http://conspiracyoftherich.com/ by best-selling author of Rich Dad Poor Dad
@Chase – We obviously see things very differently and I doubt we will ever come to any sort of agreement.
I totally disagree with your tactic of spreading fear and doubt. Panic is the only thing that might lead us to the doom and gloom scenario you seem to think is coming.
It sounds like you believe our economy is heading for total failure and our country is destined for chaos. Your statements about becoming self-sufficient seem to indicate this.
I don’t generally buy into these “sky is falling” theories. People that make these claims usually wind up eating their words. Look at Y2K as an example.
I think people that are jumping out of the market right now are the ones making a big mistake. They are selling when the market is at a historical low and will therefore never recover their losses.
On the contrary, I believe this may the best time to invest because you can actually buy low. I believe the economy will recover. It might take awhile, but in the meantime we are investing while everything is on sale which gives us the best chance of regaining our money.
You mentioned the Great Depression. Didn’t we recover from that catastrophe? Yes, it was bad for awhile, but the country and the markets survived and eventually thrived. I feel confident that the same will happen again. The economy is cyclical. It has taken many downturns, but has always bounced back.
I implore you to stop inciting fear, uncertainty and doubt!
I would encourage my readers to visit http://www.townhallforhope.com/ for a positive message of hope about the economy.
Jeff, you may be right that we are just going to disagree and that is okay! I’d like to take one more stab at convincing you, which really is my aim even though I can get a little rapid when I start debating sometimes
First, you seem to have argued that history supports your position. This is only true if you use the period since 1971, the largest economic boom (I would say bubble) in recorded history. Do you know the term “fiat currency”? It’s what we’ve had since 1913, 1933, or 1971 depending exactly where you draw the line. It means a currency that really is based on nothing but psychology. No fiat currency has every survived more than 100 years, and most haven’t lasted 50.
You asked, didn’t we recover from the Great Depression? Yes, but that was merely the tremors of the beginning of our fiat currency (it’s not a coincidence that the G.D. occurred a mere 16 years AFTER we created the Federal Reserve). And it took 25 years just for the market to regain it’s former value in real dollars. You have just posted a chart telling people they can expect long term 10%, which means doubling their money every 7 years or so. If you had “bought cheap” as you are advocating, just before the Great Depression I think it would have taken over 40 years to double your money ONCE… not a good retirement plan for most people. Maybe for people in their early 20′s, but the difference is that then the dollar still had some fundamental value.
Based on your posts from Jan 2008-May 2008, you didn’t see this crisis coming. It looks like you started writing about it about when the mainstream press picked it up, starting with the sub-prime mortgage events. I’m not trying to beat you up here, but I do want you to consider the wisdom of people, smarter than me, who have a better track record. Are you sure that…
– with long-term inflation guaranteed, by insane level of debt spending now underway, to exceed the 10% rate you need to get these kind of results, meaning even if you achieved 10% growth your savings would still be losing purchasing power; and
– a recent historical precedent for growth far lower than the 10% you need to make this strategy work,
That you want to advise your readers to save cash long term and invest in the stock market?
There are basically two main schools of thought when it comes to how money should be regulated and where its value comes from: the Keynsian school and the Austrian school. The Keynsians dominate today’s universities and governments – liberal and conservative. They believe that central banking is sustainable, and that, as you have indicated, the health of the economy and the value of assets is largely driven by public trust. If people trust in and feel positive about the economy and investments, things will be good, and vice versa… under this school of thought, it would really be dangerous, as you say, for me to share my point of view.
The problem is that the predictions of the Keynsians have been wrong since the beginning. Their philosophy is ultimately too aligned with big government and creeping socialism to work. And they failed to see this mess coming. The only Keysnian I know who sounded the alarm in time for people to avoid being ruined was Krugman.. and he seems to be wrong about the bailout remedy.
The Austrians on the other hand (mises.org) predicted exactly how things would unfold, several years in advance and with increasing intensity. But no one was listening. Thinking about different economic theories and how they relate to what most of our founding fathers wanted bores the crap out of most people, who don’t even realize that we are basing everything on a historically new “progressive” philosophy or that our officials and teachers abandoned the policies that led to America’s greatest periods of financial stability and sustainable growth.
In the Austrian school, psychology and public confidence causes short term up and downs but the real health of the economy and the value of investments depends on their fundamental value, whether or not people spread positivity or “doom and gloom”. To borrow a quote from Gerald Weinberg, “It may look like a crisis, but it’s only the end of an illusion.”
Austrians want true monetary reform and Keynsians want fiat currency. Since 1971, when Nixon broke the Bretton Woods agreement and took us off the gold standard, you should understand that banks who make loans do not hold any currency to back those loans. They literally make funny money (fiat currency) out of thin air. In the beginning they could only create 12 times more funny money than they actually had on their balance books, but Clinton got rid of that pesky barrier to sound banking. Even Keynes, who wanted the government to manipulate currency and spending, would have been appalled by our position now. I quote him: “Lenin is said to have declared that the best way to destroy the Capitalistic System was to debauch the currency… Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million can diagnose.”
In truth the debate between Keynsian and Austrian economics goes back to a much older debate. In America there was a famous battle between Hamilton and Jefferson. Hamilton created our first central bank, claiming that it would make our currency more secure. Since it has lost 96% of its purchasing power I guess he was wrong.
Jefferson, the great capitalist, feared the kind of funny money and central banking system we have now. He said, “If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered…I believe that banking institutions are more dangerous to our liberties than standing armies… The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”
Jeff, I can just see you telling Thomas Jefferson, who wrote most of our constitution, “Panic is the only thing that might lead us to the doom and gloom scenario you seem to think is coming.” To me Jefferson looks like he prophesied the destruction of American capitalism pretty much right on the money…
Unless Americans take back control of our money system (http://www.campaignforliberty.com/) I’m afraid the investment strategy you recommend will fail. Doesn’t it make sense that panics are temporary, but that good investments are ultimately good because they have real value and bad investments are bad because they don’t? What we have learned in this crisis is that our system has become totally unaccountable for booking assets at their true value. If the stock market is a bad investment because significant economic growth will be impossible for the foreseeable future, and if our currency is in trouble, then spreading the word is ultimately going to help, not hurt. In fact only by spreading the word can we protect our assets as a society.
I totally respect you for putting a different point of view out there, Jeff. If you really want to put your point of view to the test, I’d encourage you to read up on Nassim Taleb – economist, professor, hedge fund manager, and author of The Black Sawn. A lot of people thought he was a downright batty – until his hedge fund continued 150% annualized gains through the current crisis. He predicted the current situation and explained why and roughly when we would get there… don’t believe me? Here is is on Charlie Rose in 2007 (http://bit.ly/taleb2007) and you can find articles published much earlier saying the same stuff.
Here is is on Charlie Rose in Dec 2008 (http://bit.ly/taleb2008). I can’t imagine watching this and not being scared out the stock market. But if you come out of watching this without changing your mind I’d guess it will give you some good strategies for debating doom and gloomers like me
Regardless, how many people adopt this view will not affect the truth of whether Taleb is right or wrong. If he is right, those who invest in stocks will mostly be wiped out. If he is wrong, those who invest in stocks can get rich as you describe. Given his track record and the fact that his arguments really sink home with me, I am inclined to think he is right… although I hope not. I really hope I am wrong about this… but no one has shown me the facts that would convince me otherwise.
In closing, I want to reiterate that it shows real class and confidence to incorporate real debate into your blog. I’ve visited it several times in the past and I think there’s a lot we can agree on! But isn’t it more fun to debate the big important questions?
Great post – not enough people really grasp the idea that the best strategy is the most boring!
Read Christopher´s latest article – The Sublime Goodness Mixtape
Im totally with you on this one, Jeff. I HATE panic just for the panic.
everyones goal in life is to have Financial Freedom that is why i am doing affiliate marketing and blog monetizing. i hope i could earn more money online.
my goal in life is to achieve Financial Freedom through making money online. I monetize my websites and blogs using Adsense and Adbrite. Hopefully, with more work and time i might just achieve financial freedom.
Financial Freedom is the goal of most people. i also work so hard and look for oppurtunities like make money online to attain my own personal financial freedom.
@Mark – Excellent comment – I love thee too!
The right investment channels are so pivotal – research research research them! I’ve turned it into a keen interest, and make sure my accounts dont take more than what they give. Unfortunately compounding works in reverse too – credit interest and account keeping fees add up etc…and rates change frequently too. Check out sites like ( http://mozo.com.au/savings-accounts ), it saves the precious commodity of time too. Hope it helps – Happy saving!
I’m impressed furthermore you treated this subject. It isn’t often I encounter a weblog with intriguing articles like yours. I’ll be aware your feed to remain informed with your hereafter updates. I like it and do maintain up the complete work.
I’m glad I found a Blog that deals with the same thing I’m dealing with. I always read the whole post and keep an eye on other comments too before commenting myself. In this way i have found some good homepage that I now follow beyond the purpose of getting links from them. For example, this is my fifth visiting your site. I always love the content and the way you write .