Ramit Sethi: How To Become a Millionaire If You Weren’t Born Into Wealth
Not all of us will follow Steve Ballmer’s pathway in moving from $50K a year to billionaire status, but his story does affirm that we can become wealthy even if we weren’t born into it (or didn’t win the lottery). Finance guru Ramit Sethi puts it this way: “You can become a millionaire even if you weren’t born to wealthy parents, go to an elite college and didn’t make $500,000 a year.”
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According to Sethi, there are three main levers you can adjust to hit the $1 million mark.
How Long Do You Invest For?
The value of investing is proportional with time because of compounding interest. Time is the most important thing if you’re looking to become a millionaire through investing. For instance, if you earn $50K annually and invest 15% of this income, you’ll become a millionaire in 30 years without a salary increase or other sources of income.
The real gains always come over long periods of time with investing — not at the beginning — because of compound interest. If you don’t have a large sum of money to invest now, you’ll have to be patient to see gains. This is why Sethi said, “Every single year you’re not investing, you’re losing a huge amount of money because you have time and compounding on your side.”
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How Much Do You Invest?
The amount you budget for investments also defines your journey of becoming a millionaire. The more money you invest, the more money you’ll earn. Investing more money will also reduce the number of years it’ll take you to attain millionaire status.
The great thing is you don’t need to make huge increases on your investment amount. If you invest $425 per month, in 40 years you’ll earn a little over a million dollars assuming a 7% return and 0.1% fee. Sethi advises to increase investment by 1% every year so that it doesn’t become a burden. This way if you invest 5% this year, you can invest 6% next year and more as the years come.
“The single 1% increase every year will earn you hundreds of thousands in returns which will go toward your goal,” Sethi said.
What’s the Value of the Investment Returns?
The internet is full of tech bros who promise you 25% returns on investments or more through cryptocurrency or stock trading platforms. But investment returns are something you have little to no control over, so you shouldn’t rely on the idea of exceptionally high returns to fund your millionaire journey.
According to Sethi, the average investment return is 7% which can go higher or lower with fees. “Paying fees can alter your investment returns,” he said. So his advice is to pay a flat fee or hourly fee instead of a percentage if someone like a financial advisor is helping you manage your investment portfolio. Even a 1% fee can translate to about 25%-28% of your life returns so pay the fee upfront.
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This article originally appeared on GOBankingRates.com: Ramit Sethi: How To Become a Millionaire If You Weren’t Born Into Wealth
