Dave Ramsey Reveals How Millennials Can Become Millionaires
These days, it feels like everything’s just a little more expensive — making it harder for millennials like you to build savings or invest in future retirement. While there’s no doubt that you face some obstacles, you can overcome them with the right strategies. Money expert Dave Ramsey covers some strategic tips to help you attain millionaire status by age 65.
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Understand Your Purpose in Building Wealth
First things first — why do you want to build wealth? Are you hoping to retire early or provide your family a comfortable lifestyle? Do you want to use the money to start a new business or pay for your kid’s college education? Knowing your goals can help you stay motivated as you work toward them.
As you probably know, building wealth usually doesn’t happen overnight. It takes time to accumulate a considerable nest egg — sometimes even decades. And if you’re starting later in life, say in your mid-30s or 40s, you may need to make more sacrifices than someone just out of college. Focusing on your end goal, even when you have to give up a few things you’d like to have, is essential for maintaining your motivation.
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The Best Time To Start Building Wealth Is Now
It’s all too easy to put your investment and savings goals off in favor of what’s happening around you now. Maybe you think your employer will boost your salary next year or you’ll start saving money once you have finally paid off your car loan. When those things happen, you can put cash into your savings or 401(k) account.
However, things rarely go according to plan — even when you have the best intentions. Instead of assuming things will be better a year or five years from now, do what you can today. Remember, the longer your money has to accumulate gains or interest, the quicker you’ll reach your financial objectives. If you wait too long, you may need to make even more sacrifices to meet your goals.
Here’s an example. Assume you want to have $1,000,000 saved for retirement by the time you reach age 65. Your investments have an average return of 10%. This is how much you’d need to invest each month to meet your goals if your return holds steady at every age:
Age You Began Investing | Monthly Contribution | Savings at Age 65 |
|---|---|---|
25 | $186.58 | $1,000,000 |
35 | $504.84 | $1,000,000 |
45 | $1,453.01 | $1,000,000 |
55 | $5,226.07 | $1,000,000 |
As you can see, investing early means you won’t have to part with as much of your salary to achieve millionaire status by the time you turn 65. The longer you wait, the higher your contributions will need to be.
Pick Your Investment Options Wisely
There are many ways to invest your money, from savings and money market accounts to stocks and bonds. However, not all of them offer the same returns. In fact, the average money market account offers just 0.59% APY, according to CNN. That means for every $1,000 invested, you’d earn just $6.00 per year.
Stocks offer higher return opportunities but can also be quite volatile — especially if you invest in just a handful of companies. Instead, Ramsey advises millennials to invest only in growth stock mutual funds with a history of generating solid returns. That way, you get exposure to a broad range of stocks and other investments, which may reduce your risk while enhancing your gains.
Here’s a look at what you could accumulate by age 65, using an average growth rate between 10 and 12%.
Age You Began Investing | Monthly Contribution | Estimated Investment Worth by Age 65 | Total Out-of-Pocket Contributions |
|---|---|---|---|
25 | $200 | $1.1 — $1.9 million | $96,000 |
35 | $500 | $1 — $1.5 million | $180,000 |
45 | $1,400 | $1 — $1.3 million | $336,000 |
55 | $5,250 | $ — $1.2 million | $630,000 |
Roll Over Your Retirement Plan If You Change Jobs
A Gallup study shows millennials tend to change jobs more frequently than their older counterparts. In fact, nearly 60% of millennials will consider a new job opportunity if it arises and 21% changed employers within the past year. If you’re planning a future job change or recently underwent one, Ramsey advises you not to forget about your company-sponsored retirement account.
He recommends rolling over your employer-sponsored retirement plan into an individual retirement account (IRA). If you have a traditional 401(k), you can roll it into a traditional IRA. Roth 401(k)s roll into Roth IRAs. When you roll your retirement savings into a new account, you can control your investments rather than letting them languish in your old employer’s plan.
Monitor Your Wealth-Building Progress
Once you establish a plan, it’s easy to adopt a set-it-and-forget-about-it mindset — especially if you’re investing the same amount of money into a specific mutual fund or other investment. However, that’s a mistake you want to avoid. Instead, track your progress toward your goals regularly. That way, you can see the fruits of your labor, which can help you stay motivated.
Also, remember that retirement planning is just one part of healthy finances. Minimizing debt and setting up an emergency fund are also essential. If you don’t have any savings or have several high-interest loans, it’s usually best to tackle those issues before starting an investment strategy.
Typical Money Obstacles Millennials Face
While the mechanics of the millionaire millennial strategy are easy to understand, they’re not necessarily simple to implement. Many millennials struggle with problems that make it harder to reach their money goals, including lifestyle expectations, reliance on digital spending and crushing debt.
Ramsey said that millennials should take a fine tooth comb to their spending habits and identify areas where they can cut back. Some examples include forgoing expensive clothing and lavish vacations in favor of cheaper options. If you have debt, make a plan to pay it off. You might also seek help from a financial advisor who can assist you in your money decisions.
Even if you’ve made a few money mistakes in the past, you can overcome them with effort and a plan. Start by defining your financial objectives and establishing a few strategies, such as participating in a retirement plan and making monthly contributions. Monitor your progress as you work toward your goals to keep up your motivation.
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