How to Become a Millionaire on a Low Salary – A true story!

Why becoming a millionaire on a low salary is not a dream

Who doesn’t dream to become a millionaire on a low salary?

Retiring a millionaire on a low salary sounds like a contradiction. But still it is possible and with the right strategy almost mathematically inevitable to retire with millions of dollars in the bank, even if you work on a low salary. To do that you just need to follow some simple steps that many people before you applied successfully. 

One of them was the famous Ronald Read, that you might have heard about.

As a kid, Ronald grew up on a poor farm and after high school he worked as a janitor for minimum wage for most of his life. But still, after dying in june 2014 at the age of 92, Ronald became famous because of a secret he hid from everyone including his own family: they found out he was able to amass a 8 million dollar fortune, and all this from a janitor job that, in the 2000s, made only about $22,000 a year. 

And since I know how he did it I want to give you a blueprint that you can simply follow, and I’m also following, that is almost mathematically guaranteed to make you a millionaire before retiring.

All you need is a little patience, discipline, and a small google spreadsheet that I created and that I will make available to you for free.

Part 1: The Cash Flow

The most important thing that nobody ever teaches at school and that all people that managed to amass fortunes knew, is the wealth formula. This formula simply states that the money you have coming in minus the money you spend, income minus expenses, equal your Cash Flow. If you have a negative cash flow then you’re falling into debt.

And believe it or not, this is much more important than how much money you make because you’ve probably heard of boxers like Mike Tyson, that at the peak of his powers was earning approximately $30 million per fight and still he had to file for bankruptcy in 2003, having squandered the money due to “reckless spending”.

Now, no matter how much income Tyson was making, h e was spending more than that, so in a financial sense he wasn’t wealthy. In fact, in the book the psychology of money morgan housel writes that “true wealth is actually the money that you have NOT spent”. 

The good thing is, even just a small amount saved changes your financial future dramatically, but still, the average American spends nearly eighteen thousand dollars every year on non-essential costs. So the question is, do you really need to spend so much on amazon and restaurants every month?

Part 2: Automate, mate!

Part 2 is: automate. Think about it: how many times you’ve said to yourself “I really need to start saving. You know what? This month I’m going to save 100$ from my paycheck” and then, when the paycheck comes you either forget that you said you wanted to save or you procrastinate and tell yourself that you can start saving next month and you get back to Amazon Prime to find the next thing to buy.

So what I found to be a great way to avoid the spending problem and it works great with me and with my wife is to automate money transfers. What I do is I automatically deposit my paychecks into my main account and each month I automatically transfer the amount I want to save into a savings account or my investment brokerage account.

This way I protect the saved money from being spent and I know exactly that only what’s left in my spending account can be used for my fixed expenses and for my wants. In the same way, I automate my investments so that the money gets invested right away and starts working for me 24/7. 

Now it’s become really easy to set up automatic transfers. You can do that so that the money is transferred one day after you usually get your paycheck. This way you bypass the psychological obstacle of spending money when you have it, because it all happens in the background and you have no control over it.

Automating means basically forgetting that you ever had the money in the first place. You’re not really going to miss it because it’s easier to give up on buying something if you don’t have the money at all.

And in the background, even if you don’t think about it, the money that this automated process is taking from your salary is growing every month and is building wealth without you even knowing it. 

Part 3 – Know the numbers

Part 3 of this Blueprint is determining how much you need to save. Let me show you a breakdown that I layed down that shows the amount that you need to save every month depending on your current age.

So for example if you are 20 years old now you just need to save 78$ per month until retirement to be able to retire a millionaire, assuming you do with the money what I’ll tell you later in this video.

What you can notice right away is that you actually don’t need so much savings in order to retire as a millionaire. And the younger you are the easier it’s going to be. 

For example if you are between 20 and 30 years old right now you are going to need to invest between 78 and 193$ per month until the age of retirement and you will become a millionaire, assuming that the market is going to grow as it did so far.

So now you’re probably wondering “Rick, where exactly do these numbers come from?” and this is part 4 of this Blueprint. 

Part 4: Make your savings profitable

Ok, part 4 of this blueprint is making your savings profitable. You didn’t think we were leaving your savings in a bank account to die a slow death because of inflation, right? And in fact, Ronald Read didn’t become a millionaire just putting money aside but instead he knew that investing your money in the stock market is the best and only way to retire a millionaire on a low salary, but only if you do it in the right way.

Don’t worry, I got you covered.

Suggestion number 1: consider Day Trading like the plague.

You probably know what day trading is, you see it on TikTok, Instagram and Youtube. People analyzing charts, buying and selling 50 different times a day hoping it goes up but they never tell you that they all lose money and therefore they are desperately trying to sell you a course to earn something. 95% of day traders lose money, Ronald knew it, Buffett knows it, everybody should know it. So please no day trading.

But here’s the good thing: it doesn’t matter if you don’t know much about the stock market. Even if you don’t even want to make the effort to know, the best way to achieve a great return in the long term is by investing in broadly diversified index funds or ETFs. ETFs are just a great invention and they allow the average investor to get amazing returns in the stock market even if you don’t know much about it.

This is because you don’t invest in individual stocks but instead in a fund that contains many companies in a particular sector or area. And the best choice that you can make according to most investors including Buffett is to invest in the so-called S&P500, which is an index that includes 500 of the biggest companies of the US Economy.

Now, let’s get back to the table for a second because I want to clarify where the numbers come from. This table is based on a 10% Return if you save and invest every month in the S&P500, for example using the Vanguard S&P500 ETF (VOO).

The historical average return of the S&P500 has been around 12% since its 1928 inception through the end of 2021. And in the last 10 years it even had a higher return of 13%. But since we want to be conservative, I took 10% as average growth in the long term.

Now, some people criticize that this calculation doesn’t take into account inflation, and therefore, a million dollar when you are 67 is not going to be worth as much as a million dollar now.

This is true, and in fact if you want to take inflation into account you should take 8.5% instead of 10% as Investopedia states, but, in the same way we didn’t take a positive thing into account. And that is, that even your investing power grows over time.

So say you are 25 and from the table you see that you should invest 129$. This amount has a certain value now, but in 20, 30 years 129$ is going to be worth much less even for you, so in reality, you are also going to be able to invest more and more every year instead of staying by the same sum and you will get to much more than a million when you are 67.

Part 5: A free gift

Now, as I promised, by clicking here you’ll find a google tble that I created and that will allow you to calculate the amount you need to save and invest based on your age and your financial goal.

You can insert the initial capital that you have and the rate of return – the 10% that we said before. In case you want to consider inflation you can use 8.5%, that is the average return adjusted for inflation using historical inflation. Then you add your current age and the age in which you want to achieve your financial goal, and finally what is your final goal. In our case it was 1,000,000$.

The result that this table gives you is the amount that you need to invest every month from now on to get to that final goal at the age of retirement that you set. And by scrolling down you can even see how much your wealth is going to grow each year by investing that sum.

Part 6: Let compounding take over

A Legend narrates that, centuries ago, a sage introduced the emperor of India to the game of chess. The emperor was so impressed, that he granted the sage any reward he wanted. The man humbly responded that he had a very simple wish.

“One grain of rice for the first square of the chessboard, two grains for the next square, four for the next, eight for the next and so on doubling all the way through to the 64th square.”

The emperor agreed, amazed that the man had asked for such a small reward.

But this single promise led to the collapse of his entire dynasty. By the 30th square the emperor’s debt had amounted to over one billion grains of rice and by the time he reached the 64th square, he owed the old sage over 18 quintillion grains of rice, bankrupting the entire kingdom and making the humble man the richest man on earth.

This is exactly what a good investor like Ronald Read knew: he understood that the real power of investing is not in guessing the right time to buy or to sell, but in letting compound interest take its course over the years. 

Invest your money in a safe and sound ETF like the S&P500 and over the decades your money will compound to incredible sums. The growth given by keeping your investment grow over the decades is very slow at the beginning but it starts growing dramatically after a certain point.

This is why Albert Einstein said “compound interest is the eighth wonder of the world” and this is exactly how according to the book “The psychology of money” even Warren Buffett, which is considered the best investor of all time and started investing at the age of 10, actually made 99% of his money after the age of 50.

Yes, the magic of compounding.

Part 7: The most important advice to become a millionaire on a low salary

Now, what would you do if you invest for 10 years and then a huge crisis comes and all you invested is suddenly worth half? You sell, obviously, to contain the losses. Well, not really.

Throughout life Ronald Read witnessed 11 stock market crashes and bear markets, most of which saw the market crash for over 50% and yet he still held on to his investments because he knew that you can’t time the market and your best bet is to just continue investing for the long term regardless if the market goes up or down.

And if you think you can sell before a crash, even though all big investors like Buffett or Peter Lynch tell you even they can’t, know this: the university of michigan conducted a study that measured returns from 1963 to 2004 and found that 96% of the positive returns over that period came from just zero point 85 percent of trading days.

Coming to a similar conclusion, one of the top equity analysts in the world, Andrew Stotz, observed a 10-year period from november 2005 through october 2015 and concluded that if you missed the 10 best market days over this specified 10-year period you would stand to lose on average 66% of the gains you would have captured by staying in the market. 

In other words, my dear friend: save as much money as possible, invest consistently over time in solid index funds like the S&P500 and automate the whole process so that you won’t have the impulse to sell during market crashes.

This is the magic secret to become a millionaire on a low salary.