Case Study: Yes, It IS Possible to Retire a Millionaire With a $30k Starting Salary

by | BiggerPockets.com

In a recent article, I made a bold statement. Readers completely ignored it. In the article, I stated:

“The reality is that it is completely achievable for the majority of households to build a net worth of $1,000,000 or more over the course of a working lifetime.”

If it’s so simple and obvious that nobody argued the point, then why doesn’t everybody do it?

The reality is that while it is actually very simple, it isn’t easy.

A recent study by Vanguard, How America Saves 2016, looked at savings in 401(k) retirement accounts in America. There were some interesting findings. While the average 401(k) balance in the US was $96,288, the median was much lower at $26,405. What does it mean when the average, or mean, is much higher than the median? It means that some people are doing really well, while most people are not. Those doing well pull the average value higher, away from the median.

This is the kind of data analysis that is usually used to support anti-inequality campaigns. As expected, the Time article goes on to demonstrate that people with higher incomes have higher average and median balances. This is to be expected: Income and wealth are correlated. But what is overlooked in the analysis is that the discrepancy between the average and median balances is not only significant, it is also spread across all of the income ranges.

So, while people with higher incomes will tend to end up with higher balances, nevertheless every income level has a percentage of people who do a great job of investing for the future — and many who do not. It is not just a function of income; those on low incomes can build up a worthy nest egg. What the data suggests is that, given your income, you can personally have a huge impact on your financial future.

Related: 4 Retirement Account Horror Stories That’ll Keep Investors Up at Night

Obviously, a retirement savings plan like the 401(k) in the United States is not the only approach to wealth-building. Net worth can be built through equity in your own home, businesses, and, of course, rental property. Savings and other valuables will also contribute. Interestingly, many business owners and real estate investors will forego contributions to retirement savings plans in favor of a more “all-in” approach. Yet, as of 2013, less than 10% of American households had a net worth of $1,000,000 or more. Why is it so hard?

In this article, I first want to demonstrate that attaining a net worth of $1M is possible even on a low income by walking through an example. Then I want to consider some of the challenges that people face, especially at lower income levels. Finally, I will consider some of the opportunities that this knowledge opens up.

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Pay Yourself First

In the classic book The Richest Man in Babylon, author George S. Clason exposes this timeless and foundational principle of wealth building: Pay yourself first.

The principle is that, no matter how much you make, if you take a portion of your earnings and set them aside for investment — never touching them for your day-to-day living expenses — then you will eventually wind up wealthy. Clason’s recommendation is to set aside at least 10%, living on no more than 90% of your income.

Now, BiggerPockets is a website about real estate investing. However, to keep things very simple, and to drive home the point, I am going to use the very accessible example of simply using a standard retirement fund investment to achieve the goal.

In this scenario, Amelia is the sole income earner for her household. She begins with nothing saved for retirement at the age of 25. Contributing regularly and consistently to her generic retirement fund for 40 years, she eventually retires at the age of 65.

Assumptions

The retirement fund for our example is very generic. It is not modeled on anything specific such as a 401(k). However, it does ignore taxes and fees; the percentages discussed would need to represent the net return.

Salary

Amelia starts at the age of 25 with an annual salary of $30,000. This puts her household income just below the 29th percentile in 2014 numbers. In making the claim that “the majority of households” can achieve a million-dollar net worth by retirement, I must at least show that more than 50% of households can do it. This example suggests that it is available to about 70% of households at face value.

Inflation

I assume that Amelia works hard and benefits from a modest annual pay increase, at least partially offsetting inflation. The model applies a 2% increase to Amelia’s salary each year for 40 years. Long-term average inflation in the United States is 3.22%; since 1990 the number is between 2.5-3.0%. Giving Amelia a 2% raise each year is slightly under inflation and therefore relatively conservative.

As a result, in Amelia’s final year in the work force, just prior to retirement, she earns $64,942.34. This would put Amelia’s household at about the 55th percentile for income. So, while Amelia has had an increase over time, she has never earned “great money.”

Contribution

For the purposes of our scenario, Amelia has read The Richest Man in Babylon but doesn’t have a lot of money, so she decides to set aside exactly 10% of her gross income for investment. She never increases that percentage.

Interest

Amelia invests in an S&P 500 index fund. Some sources will quote that the S&P 500 has averaged around 12% per annum since its inception in 1970. While this may be true, real world markets do not provide a smooth return. In fact, the S&P 500 has fluctuated wildly from year to year. In the chart below, you can see the results of investing in the S&P 500 from 1976 through 2015 inclusive, following the same scenario. This represents the most recent 40-year period available at the time of writing. As the chart demonstrates, the investment returns very closely mirror a smooth 8% annual return. The example uses 8% as a reasonable long-term expectation.

Meet Amelia, the Millionaire

So, is Amelia successful?

The chart below demonstrates the cumulative value of Amelia’s retirement fund over her 40-year working career.

As you can see from the chart, over time, the S&P 500 has tended toward very similar results to an 8% annualized return. It is absolutely true that there are fluctuations, so there would have been better and worse times to retire. However, both result in a retirement account balance of just over $1,000,000.

Challenges

If it was so easy for Amelia, why doesn’t everybody do it? To quote Jim Rohn: “Because it’s easy not to do.” But let’s take a look at some of the specific challenges that people face while trying to achieve financial goals.

Cost of Living

The lower the initial salary, the more difficult it is going to feel to set aside 10% of income. Everybody has basic living costs that will take up the bulk of the earnings. Most tax systems account for this with a graduated or progressive income tax. In other words, people are charged less tax on the first several thousand dollars earned. That’s because this money is essential to meeting basic needs.

Related: Out of College, Should I Invest in Real Estate or Retirement Accounts?

Using 2016 U.S. federal tax rates, if Amelia earns $30,000, she will pay $4,036.25 in federal income tax, leaving $25,963.75 per year or $2,163.65 per month to live on. If Amelia sets aside $3,000 per year (10% of gross income) for investments, this will reduce her monthly budget to $1,913.65. She will be acutely aware of that $150 per month which would really help her family’s lifestyle. (Depending where you live, there may also be state/local taxes).

Thus, Amelia will find it harder to set aside 10% of her income for investment than someone who earns $100,000 annually. However, it is also true that the majority of people expand their lifestyle to match their income — and therefore find it difficult to reduce their expenses to free up 10% of their income for investing. While it will be harder with lower income, most people will find it difficult unless they start very early establishing good habits.

Location

That $30,000 will buy you a very different lifestyle in different parts of the country or around the world. In particular, cities are notoriously more expensive, and accommodation alone could consume a very large percentage of that budget. Living in an expensive city puts further pressure on Amelia to spend a higher percentage — maybe even every penny — of her income every month.

Persistence

Does Amelia lack the will to stick to the plan? Do you? It gets especially difficult when big “unexpected” expenses pop up out of the blue. This is the main reason that, while it’s simple to become a millionaire on paper, the difficulty lies in the execution. It is easy to justify anything to ourselves, but if you are not working toward your goal consistently, it will become more difficult to achieve over time.

Lack of Control

For many investments, you have no control over the returns. Generally, the greater the expected return, the greater volatility there is. For example, you can probably get a fixed term investment with your bank for 3.5-4.0%. This return is very reliable. But it’s also well below the long-term returns you can expect from other investment classes. Meanwhile, investing in an S&P 500 index fund, your investment could lose 20% of its value or more in a single year.

Time

The above example assumes that you actually have 40 years available to you before you want to retire and start cashing in on your investments. If you are older and have less time to retirement, then you will need to contribute more. This will either mean a greater percentage or if you happen to earn a higher income than our example, then at least more dollars. The same applies if you want to retire young and live off of your investments. It’s important to note that many government-controlled retirement plans like 401(k) have restrictions on when you can draw down the funds. Most of these are at or around a government-determined retirement age; generally, this is around age 65 but may increase over time as expected life spans increase.

Opportunities

Now that we’ve seen Amelia — who started with a salary of $30,000 per year and only got modest increases throughout her life — retire as a millionaire, let’s consider some ways in which your situation and choices may give you some advantages that Amelia didn’t have.

Contribution

First, it’s important that you begin investing immediately. This is the one thing that Amelia did well, and look where it got her. Take charge of your finances, get on a budget, and start paying yourself first. Put aside at least 10% of your income for investments. It’s pretty clear that if you don’t invest anything for the future, in the future you won’t have anything. You can contribute to a retirement fund as described above, or you can look for more lucrative investments.

Education

Learn about money and investing. What options are available? How does it work? What are the risks? What are the expected rewards? BiggerPockets is a fantastic place to learn about real estate investing as one option for your future. For example, if you learn how to invest in real estate using time tested and proven methods, you should be able to significantly outperform Amelia.

Income

If you are not earning enough, take charge of your situation. What can you do to get a promotion? What about starting a small business on the side to earn extra income? If you are earning more than our example, then run your own numbers and see what you have available to you.

If Amelia’s starting salary had been $50,000 per year rather than $30,000 per year, then she would have retired with more than $1.8M.

Play Great Defense

If you are on a low income, you can still achieve impressive results financially. But you will need to play excellent defense (i.e. budgeting and investing consistently) to meet long-term financial goals.

Related: The Average Retirement Account Has Less Than $100k: Here’s How Real Estate Can Help

If Amelia had set aside 15% of her gross income instead of 10%, she would have retired with more than $1.6M. This may not have been easy for Amelia, but what about you?

Opportunities

Take advantage of opportunities, such as company matching contributions, if they are available to you. Find out about tax breaks or advantages of any retirement plans available in your area. (Different countries have very different plans available, so it’s important to get localized information on this.)

If Amelia’s company matched her contributions up to 5% of her gross income, that would have been the same as if she’d contributed 15% herself. This means that she would have retired with more than $1.6M. She would have gained more than $500,000 in bonus money from her employer!

Time

If you are young, time is on your side. But only if you take action. The longer you wait, the more time will shift its loyalties and begin to work against you.

Conclusion

Now, imagine if Amelia had combined all of these options. What if Amelia worked hard in school and landed a great job with a starting salary of $50,000, contributed 15% of her gross income, received a match of 5% from her employer and started investing at age 25? Amelia would have retired with more than $3.6 million dollars. And if she’d invested in real estate? The sky’s the limit.

That’s retiring in style.

[Editor’s Note: We are republishing this article to help out readers newer to our blog.]

What does YOUR retirement plan look like? Any factors we didn’t take into account in this case study?

Let me know your thoughts and opinions in the comments section below!

About Author

Brad Lohnes

In 2013 Brad awoke from lifelong financial slumber and took responsibility for his family’s financial future. His primary vehicle for wealth-building is buy-and-hold real estate. He is passionate about financial education and helping others learn the tools they need to take control of their money. Brad believes there is nothing more empowering than self-reliance.

58 Comments

  1. Scott Wang

    Like you pointed out, and I would like to re-emphasize, THE most important aspect of this is TIME.

    When I give people this example I like to assume 7% annual returns because 1) it’s conservative and 2) at that rate your money doubles every 10 years.

    $10,000 invested during your 20’s becomes $160,000 in your 60’s
    $10,000 invested during your 30’s becomes $80,000 in your 60’s
    $10,000 invested during your 40’s becomes $40,000 in your 60’s
    $10,000 invested during your 50’s becomes $20,000 in your 60’s

    This helps showcase how money invested while you’re young is worth 8x more than money invested when you’re near retirement. Putting it off until later significantly hurts retirement saving.

    • Brad Lohnes

      Hi, Scott. Thanks for reading and thanks for your comment. That’s a great way to think about it. The Rule of 72, which you’re using here, can be very helpful for these types of quick calculations. Investing young is definitely the way to go, but you can recover, you just might need to be more resourceful!

    • James Free

      Dave Ramsey is cheering and Robert Kiyosaki is dying inside.

      Time is money, and you can certainly trade time for money, but time is your most limited resource. Planning to be rich in 40 years is a plan doomed by either your own lack of discipline or an unfortunate early death.

      Those who truly live well do not wait for time to make them rich. They take more active, immediate action.

      • Brad Lohnes

        Haha! Hi, James. Thanks for your comments.

        I don’t disagree with you. I am a fan of the works of both Dave Ramsey and Robert Kiyosaki. I personally think that you need some of both.

        What Dave Ramsey’s approach teaches us is discipline in daily living and the proper way to prioritize our finances. The wisdom of the ages is behind him. Getting rich slowly is the more certain way of ensuring that a life of productivity translates into comfort and enjoyment in the golden years.

        Even Robert Kiyosaki states that you have to live within your means in order to get ahead. You just can’t stop there. That’s where Robert Kiyosaki urges us to expand our means.

        My personal philosophy is to combine the two. We use long-term, consistent “saving” in a retirement plan as a “Plan B” – something that will reward us for striking the balance over the long-term. Then we use our brains to come up with a better plan for the shorter term. That’s where real estate comes in. As well as looking at other business opportunities.

        The reality is that some people will never strike out on their own and take a risk like investing in real estate or starting a business. I think that both of these things are worthwhile endeavors. The purpose of the article was to demonstrate that all is not lost if you are on a low income. All of these approaches require taking charge.

  2. Peter Mckernan

    Brad,

    Great article! It is the point that people really don’t even think or want to save. It’s the mentality, well, I cannot take it with me when I die; however, everyone needs to have some type of retirement setup that will get them by for those high medical bills/costs when they are old. Also, “cat food,” we hear bad stories about older people that are retired that did not save and are living on a very, very small income and they are eating cat or dog food.

    It is something that people cannot sacrifice for the now to rep the benefits of later. That also ties into what was explained up above. The time it takes to just sacrifice people do not want to take the time to do.

    • Marcin Nurek

      Peter, just a side note. I really disagree with the myth of pet food for dinner. Preparing your own meal from scratch instead of a ready one from a can, saves a lot more and has health benefits that will pay off in a long run. It’s a lame excuse and attempt to feel sorry for someone’s ignorance. Anyway, I’m done here 🙂

    • Brad Lohnes

      Hi, Peter. Thanks for reading – glad you liked the article. In fact, it’s exactly what I’m wanting to point out – that the whole investing thing is more within reach than most people think, and it doesn’t make sense to just throw our hands up and say it’s not possible.

      I’m not sure about the cat food thing – I personally haven’t see that! But I do know that many retirees end up having not much more than just a government pension to live on. If you have to pay rent out of that money as well, it’s really not going to be a particularly comfortable retirement. I really just want people to understand that more is achievable.

  3. So what you’re saying is everyone can become a millionaire by waiting on inflation? Re do the math with 1 million in today’s dollars and trying to get there in 40 years.

    If you want to do long term analysis like this, don’t say Amelia is in the 55th percentile at retirement. By definition she will have dropped because her raises don’t match inflation, so her income in today’s dollars will actually have dropped.

    • Brad Lohnes

      Hi, Flynn. Thanks for your comments. I agree with your point about Amelia being in the 55th percentile after 40 years – of course household incomes would have moved on so your point is valid. (Though incomes don’t necessarily go up by inflation.) I was really just trying to compare back to those same numbers to demonstrate that I haven’t given her ridiculous raises each year and through sleight of hand tried to cheat the math in some way. Thanks for pointing that out.

      I’m less sure what you mean about redoing the math based on today’s dollars. The math works no matter which year it is. If your question is whether a million dollars will be worth as much after 40 years, I agree that it won’t! BUT, there’s another whole discussion to be had there. Because regardless of what a million dollars buys you, most people never accumulate that much wealth. I’d like to check the stats to see whether people are actually doing worse, after adjusting for inflation, than they used to.

      Finally, I’m definitely not suggesting that we all sit around waiting for inflation! I used this in my example for a couple of reasons. The first is that I didn’t want to leave Amelia making the same income for 40 years because that’s also unrealistic. Second, I know that a lot of people only get small raises each year – a 2% raise is fairly common in my experience (without promotion, etc.) but I don’t have the wider stats on that. As I mentioned in the article, I definitely recommend taking charge and outpacing inflation!

      Most importantly, everyone can do this type of analysis plugging in their own numbers – I stated my assumptions for transparency.

      Thanks again.

      • Phillip Wilson

        I know lots of people who haven’t gotten a raise in many years. They are either topped out at their position’s pay scale or were overpaid based on industry standards. So it’s not all that uncommon to work for many years (10+ years) making the exact same amount you made when you started.

        • Brad Lohnes

          Hi, Phillip. Thanks for your comment.

          It’s certainly possible to not get a raise, and I have been in that situation before just after the “dotcom bubble burst” in 2000-2001. My company at the time was laying people off – six rounds over two years. For those of us “lucky” enough to stick around, it was tough on morale and nobody got a pay increase for about 3 years. (It may have been longer – I don’t know because I left of my own accord.)

          It’s important to note that if you don’t get a pay raise then in most cases you are making less than you were the previous year in real terms due to inflation.

          In any case, from a career perspective, it’s not a good place to remain over the long-term. Feeling as though you can’t earn any more and there’s nothing you can do about it is bad for morale. If a person is happy, fine, not my place to get involved. 🙂 But nobody is forced to stay in such a situation. At the very least, starting a side business could start to turn things around.

        • Phillip Wilson

          I think a lot of it has to do with the fear of the unknown. Plus for a good number of them they are not likely to match income at another job with their current credentials. It’s definitely a choice they make to stay at a job with no raises, one that I’m a couple years away from making myself (unless payscales change, I’ll top out in 2 years). Even once I reach the top out pay for my position, I doubt I’ll look for higher income opportunities because I’m less than a decade away from Financial Independence and 75% of the time I’m working, I have the luxury of doing “non-working” things like reading BP blogs 🙂

        • James Free

          People need to get away from this idea that what you “are paid” is some passive thing. It is the value for which you are selling your labor. If you’re unhappy with it, either increase your labor’s value or find someone willing to pay more for what it already is (or both!).

          Acting helpless is a self-fulfilling prophecy.

  4. Susan Maneck

    Hold on here. What your figures presume is a 30K salary of thirty years ago! If you have a family and earn only 30K today, chances are, that far from putting away 10% of your salary you are probably having to take out pay day loans to make ends meet. Let’s run the numbers based on what you actually need to live on instead of some theoretical figure of what you can safe. I will rent houses to people whose income is three times the rent. I person making 30K has a monthly income of $2500. That means anything over $800 is out of their range. My 3 bdrm 2ba houses in a neighborhood where schools are rated at 2 or 3 rent for $825-865 and I never advertise them. As soon as a moving truck pulls up to move out one tenant another is at my door. The net pay for a married person with a family making that much is less than 1K per two weeks. So after rent this family has lesss

    • Scott Wang

      Location matters. Here in rural Wisconsin $30k is a decent income and you can find rentals for $500 or less (granted they won’t be huge or newly renovated, but they’re decent). Even I make less than that.

      For families, you have the potential for a two-income household.

    • Susan Maneck

      Sorry, my last post got away from me. In any case, what I was saying was that if you make 30K and pay $800 a month rent for your family you have $1200 left to live on. $600 of that will go for food for a family of four if they are thrifty.Another $300 goes for utilities if the weather is not too bad that month. That gives you $300 for clothing, car payments etc. Nothing left for medical insurance let alone retirement. And yes, both parents might well work assuming you have two-parent family. But since most of my tenants make about $8-10 an hour that means their combined income if both are working they make maybe 32-35K. They might just make it if they can keep their ObamaCare. But extra money to put away for retirement? Not going to happen!
      I get so mad when I see these Faux News talking heads saying our poor are not really poor because they all have refrigerators. No they don’t! But I have eight or nine refrigerators.

    • Brad Lohnes

      Hi, Susan. Thanks for your feedback. I am not assuming a salary from 30 years ago. I am basing it on 2014 numbers. I definitely don’t disagree that it will be difficult. I think I pointed that out clearly. Cost of living, location, etc. are all going to make this much more difficult.

      I didn’t start on $30k, but I did start my career on $37k. I was sharing an apartment and splitting the $1600 / mo. rent with a roommate. I was working in New York City. Certainly, the cost of living would have been lower then, but I’m just pointing out the math. At the time I was putting money into my 401(k). I will be honest, I don’t remember exactly what percentage I was putting away, but it was definitely something significant. I also had to pay off my student loans which I did as quickly as I could – finished in under 4 years (was only about $32k plus interest).

      I was single, so no family to look after at that point. I also didn’t hang around for 2% raises – I pushed for better jobs and more pay.

      I am really just trying to show the math here – that it’s possible. Certainly, each individual has to decide what they think that they can achieve.

      Thanks again for your feedback.

  5. Chris Field

    The average person has no money because they waste it on stuff. I see it all the time screening tenants.

    $200 a month for fancy phones
    $180 for fancy cable
    $499 is the average car payment
    $300 for CC debt
    $500 for student loans
    Throw in some nice cloths, dinners out and a cruise.

    That’s why the average person has nothing.

    • Susan Maneck

      Student loans are a waste?
      Yes, their car payments are generally higher than mine, but that’s because they are paying higher interests rates not necessarily because they have better cars. My tenants don’t even have bank accounts, let alone credit cards. But granted my tenants are poorer than average.

      • Joshua U.

        Student Loans are a waste if you don’t do your due diligence when choosing what your course of study is. Spending $50K on student loans to have a job that pays $25K/year doesn’t make good financial sense. Also you need to look at the job market. There are too many people getting degrees that make no sense. ie Liberal Studies, etc. What good is that degree? Unless you plan to be a professor teaching it, but in that case you need a Masters or PhD. I work with a guy who’s son spent close to $60K on a degree in Japanese studies. You know what he’s doing now? Working part time for $13/hr because his degree is basically useless. The problem with society is that parents are pushing their kids to go to college with no direction and now they have huge student loan bills and no way to pay them back. And that assumes they even graduate. There is a high percentage of people that never graduate, but guess what, they still have to pay back those student loans!

        So yes, college is a waste and a huge burden if you don’t do your due diligence. However if you get a degree in a thriving field and a career that has a starting salary that can support the cost of your student loans, then yes, college is a great “investment” in your future. But that is what it needs to be thought of. An investment just like any other investment. If the numbers don’t jive, then you’re wasting time and money!

    • Brad Lohnes

      Hi, Chris. Thanks for your feedback. I don’t want to say that people are poor because they all waste money. Certainly, it can be difficult out there for people on a low income.

      However, I do know that a lot of people on middle and even high incomes waste money all over the place. Bad debt is rampant. We definitely don’t have car loans, credit card debt, cable (we do have Netflix…not very expensive!), neither my wife nor myself have a phone plan – we pay as we go – and we have to buy our phones from our personal spending money allowance which isn’t much so it takes a long time to save up! (I still have a Samsung SIII). 🙂 We eat out maybe once every 2 months and always use a coupon! All of these things take discipline and required us to change habits. But now we’re on a role and we can start to afford some things.

      Most importantly, this has allowed us to start building wealth.

    • I’m in agreement with you there. I tell my children that too! If they want a fancy phone etc as adults, then that will cost them long term. I tell them the new fancy car is a thing for working class people – not rich people. Hopefully they’ll learn from their parents mistakes!!

  6. Jacob Pereira

    Probably the best article I’ve ever read on the BP blog. You don’t shy away from real numbers and put your assumptions out there for the reader to assess. I think a lot of bloggers are afraid of giving real numbers because people pick them apart (as evidenced by other commentors), but we need more brave people on this site giving real, data-driven advice. Bravo.

    • Brad Lohnes

      Hi, Jacob. Thanks for your comment. I’m glad you liked the article! For better or worse, I’m not really worried about “getting it wrong”. I believe in honest analysis and I do this type of thing all the time on my own time, for my own family’s finances. Any feedback is good feedback as it helps me to improve my thought processes. Models can be as complicated as you like, but sometimes for these articles it’s good to keep them relatively simple in order to ensure that the main point is clear. Thanks again for your feedback.

  7. Chris Field

    I think the average person being broke fits into your article quite well.

    People even higher income ones struggle to come up with cash which is why we have a generation of renters instead of home owners. I see it constantly in all areas of my business and do quite well catering to it. But it’s a long term disturbing trend none the less.

    The average income in the US is what about $52k? I believe the average new car transaction price is in the low $30k range, and judging by the number of $40k trucks I see that’s conservative.

    That’s insane, that car payment alone would fund a nice Roth IRA..

    • Brad Lohnes

      Hi, Chris. Thanks for your comment.

      I’m not sure whether you’ve read my other articles, but I basically was that person. In my 20’s, I earned good money and spent it all with not much to show for it. Even in my early-mid 30’s after getting married, it wasn’t much better, and was only slightly better because my wife stopped the truly inane spending. But we still weren’t good at investing. We had a bit in retirement funds and a little home equity, and that’s it. Cash and cash flow were mysteries. Anyway, I agree with you. I am not here to ridicule people – I’m here to help people because I actually know what it’s like to do it completely wrong. 🙂

  8. Jon Tudor

    It’s all about priorities and focus. This not only determines your savings rate but also your salary and bad debt. Do you want to retire early, with a lot of wealth? Then you will make it your focus. Do you want a high salary? Then you will focus on a field that pays well or start your own business to make money.

    Anyone can make a million dollars. Me? I want to make it with some significant passive income so I get my time back because that is what I value. Retiring early is worth way more than multi-millions if you ask me. Even if I don’t hit my goals exactly I’ll be closer because I prioritized and focused on them.

    • Brad Lohnes

      Hi, Jon. Thanks for your comment.

      I agree that “retiring” early, i.e. achieving financial independence, is a very worthy goal. Some people claim to be able to do it quickly, and that’s great. We’re working on a more medium-speed plan. In the article, I really just wanted to demonstrate that, at the very least, people who never really earn that much can retire comfortably. Really, this is to your point: “Anyone can make a million dollars.” I don’t think most people believe that.

      For us, the “retirement fund” plan is really “Plan B”. We only put in the amount that we need to capture all company matching and government tax benefits. The rest we are setting aside for property investing – how we do at this will determine whether we are able to achieve financial freedom early.

      Thanks for your input.

  9. richard willis

    I believe strongly about learning early to save for the future. Many circumstances can alter the goals, but not trying or doing anything leaves nothing in the end. My primary concern is these lessons on savings are not taught in schools or early enough. Once young people get into the workforce they get distracted by the desire to “need” everything ” now”. Teach your children at a very early stage to save the 10%. When out of school and working, the principle will be easier to follow.

    • Brad Lohnes

      Hi, Richard. Thanks for your comments. I’m 100% with you. As an adult, I am shocked at how little of what is taught in school is actually what is needed to live in the world. Meanwhile, schools focus on minutiae that won’t be useful to 99% of students. I think that should be flipped – teach everyone the information that everyone will need, and then teach the silly details to those particularly interested. But I’m not (currently) on a crusade against the school system – just trying to help others with what I’ve learned since leaving school. 🙂

    • Brad Lohnes

      Hi, Marshall. Absolutely – I think a lot of people don’t know what to do, which is what BP is here for – to help people know what to do. But once you know, the key is to actually do it. That seems to be the harder part.

  10. Michael Begley

    I enjoyed the article for its reinforcement of the lessons we have heard as tribal knowledge, but perhaps more as tribal legend as so few appear to be exercising it. I find myself and my spouse on the backside of this story, having fed 401ks for 30 years. Now the challenge we have is to see if lessons we have offered actually stick for our children (one post-college, two in college, one in high school). Will parental wisdom become ingrained in their life plan, or will it be ignored, or more likely deferred with varying rationale over the course of time?

    • Brad Lohnes

      Hi, Michael. Yes, some of us do learn this as “tribal knowledge” as you put it. But interestingly, many DO NOT learn it or at least do not believe it. I did a quick straw poll of friends and colleagues and found that most did not believe that they would be millionaires other than potentially through eventual home equity, and many didn’t know how to calculate or forecast their net worth.

      I agree that passing stuff down to kids is hard – I knew about the time value of money in university but still made bad decisions for years. 🙂

  11. Delia Lopez

    Great article Brad. I agree with Chris as well, people remain poor because they spend on crap they don’t need with money they don’t have to impress people they don’t like. The “I deserve it” mentality. I get sick of bleeding hearts saying they can’t put money away to change their financial situation. That is absolute BS!

    We started out with less that $30,000 per year. I handled the money, well my husband wanted to take his check to the bank to deposit it so he knew he was actually getting paid. I packed his lunches, he had the same $20 in his pocket, for an emergency, for months. I paid us first and used that $3000 as a down payment on a house. Owner carry, fixer upper. The article leaves out the tax advantages of buying a house per year! With depreciation and deductions on each house you “save” enough in taxes to go toward another house! Rinse, repeat. If you look at it a certain way we ended up with over a dozen “free” houses!

    We always qualified for “free lunches” and other crap I would not take. Imagine my surprise at the HUD office as the landlord that we qualified for low income housing! Another rip off to create more well paid government busy bodies to suck the life out of the economy. Those gov agencies treat people who really need help horrible! I took a tenant to the HUD office for her appt. she had no car and was disabled. I was on crutches and they thought we were both tenants. I was embarrassed for her. I got one inspector fired.

    I remember going grocery shopping with $27 for a week of meals for five people. My first financial goal was to be able to go grocery shopping without a calculator! My husband jokes we ate hamburger helper without the hamburger, but we couldn’t afford hamburger helper it was too expensive! Beans, rice, noodles with hamburger and spices. While our “poor”tenants had Schwans deliveries, using paper diapers, I used cloth hung on the clothes line, and smoking Marlboro Reds. Shopping at “La Boutique” aka second hand stores for just like new Levi’s 501’s etc. My husband wouldn’t wear any “cheap” jeans.
    Now I am lazy and order them from JCPenneys when they have the 12 miles per dollar spent to get us our next International trip. I am still parsimonious!

    Car payment? If you can not write a check to buy a car buy a cheaper car until you can save up enough to buy a better one. Only after we had substantial assets and improved cash flow did we buy new and then for the tax advantages IF the numbers worked better.

    When people commented to my husband he was “always working” ie going after he got off work to a rental, he’d tell them “When you are still working I will be sitting on my porch drinking mint juleps”. His brother, who had heard the line, bought us our first mint juleps at Oak Alley Plantation.

    Changing your financial situation is about determination and sacrifice. Not how much you earn, it is how much you keep. I had a “friend” comment to me how lucky I was my husband “made so much money”. Her husband was a school teacher so I asked what he earned? He earned $5,000 per year almost 17% more than mine.

    People do not plan to fail they fail to plan. Old saying and true. Ours was a 15 year plan, aoausa.com has landlording seminars and informational DVD’s I wish I had when I was young.They have a lot of great information and if any of you, like me, are cursed with rental property in Los Angeles gov. made hell it is a necessity.

    • Brad Lohnes

      Hi, Delia.

      I love free houses! Well done – you’ve achieved more with less than most people including us.

      I agree 100% on car purchases – just buy a cheaper car. We’ve actually never owned a new car. We have earmarked that as one of our little rewards reserved for once we’ve achieved financial independence – pay cash for a new car. Until then, my used Suzuki Swift will do just fine. 🙂

      I love the food stories. When we got our finances under control, our diet was something that changed significantly. And not necessarily less healthy – we still have plenty of fruits and vegetables in our diet. But we were eating fillet steak and rack of lamb regularly. Now I just can’t believe it when I see the prices. We have a set food budget, and if we run out before the next budget period, then we’re eating beans on toast for dinner (or whatever else is in the pantry). Guess what? We’re surviving just fine.

      Well done. Thanks for reading and leaving your comments!

  12. Barry O.

    Great article.
    My grandfather who never made more than 12K a year(in 1980 dollars) Died leaving a multi-million dollar will. He saved and invested his whole life. He made money in the stock market, but believed the system was rigged against the little guy and invested in real estate! So it is possible with as you said Discipline and commitment.

    • Brad Lohnes

      Hi, Barry. Thanks for your comment and sharing your grandfather’s story. That’s incredible! I have a colleague who mentioned a similar story. When his father passed away, the family was stunned to find that he was worth millions. Nobody had a clue! Nor even thought it was possible for that matter. Cheers!

  13. Senthil N.

    At 2% inflation over 40 years, the target of $1 million is actually about $450,000 assuming the average inflation was 2%. (Math: 1,000,000 / (1.02)^40). So effectively she will have to make more than $2 million in savings. If this money is in a before tax investment (such as 401k), then of course there is a taxation component. Once you have a large investment pot you can make or lose a lot more depending on your risk tolerance.

  14. Daniel Chinh

    Excellent article. It insane to see how many people live paycheck to paycheck regardless of if they make $50k of $150k. If you are not saving and letting your money work for you in the market or real estate, you will be working until you are 65 and will never have a nest egg to comfortably retire on. I put 40% of my current paycheck towards 401k after maxing out my ROTH IRA. I am lucky in that I own a few rental properties that help subsidize those accounts, but thats why this article is great. It shows that the power of compound growth even for someone not making much money at all, and that they still have the resources and ability to have a very comfortable nest egg in their older years if they are disciplined with their money year over year.

  15. Balencia E.

    While this article has merit in its analogy and that if a person can have that kind of life, where jobs were secure and could be counted on, and that companies gave automatic raises and do not discriminate against age, and that assuming a person grew up with encouragement and self-worth, then one could follow the 10% rule of saving and all would be well and those who had that same life but do not chose to follow the 10% rule, could be counted as it being their free choice (or laziness) to fail.

    But that is not what life is like for everyone. Many things in life halt progression and life keeps pushing them down until they see no future and are convinced of it by their experiences. Without the correct training, mentoring, help, and encouragement, a person doing it all alone could not possibly make correct choices to make them millionaires. They would read this article as not for them.

    What I would like to see is a more realistic analogy for those who are poor (earning less than $9K a year), can be elderly and single, and have nothing to live for, as they see it. How can we use this same platform of living to show them they can do it too (and I know it can be done).

    Here is what I see. Change that 10% savings rule to 1% in the beginning. Increasing it a little at a time as funds become available (a temp job, selling things, collecting cans and turn them into the recycling center, anything that will make them a bit of money to save). As they are saving, learn all about real estate (because as I see it, it is the ONLY way they can pull through and out of their misery in a short period of time of 5 to 7 years).

    Yes, live by a budget, cut back into survival mode, meaning no frivolous expenses, and make money anywhere you can get it (except that which is illegal). Make sure in that budget you include your survival necessities, your savings (pay you first), cut back to cheaper things like cell phone (a prepaid cell phone can be as little as $15 a month), bank accounts (or none at all which saves $10- $15 per month), no credit cards (can save up to 26% a year per credit card), no smoking cigarettes (can save up to $5 a day), etc, (you get my drift). And follow Brandon Turner and BiggerPockets to gain the encouragement to carry forward. They are the only ones I see are honest, down to earth, and genuine helpful to the rest of us.

    It will take longer to accomplish that first sale but once that happens then everything will move faster. How can I believe that? Because about 2 years ago I created a complex budget with that 10% savings “pay yourself first” idea (starting at 1%) and saw my room mate (as I made it for her) go from zero money to having a cash flow of $700 and a savings of $900 in 5 months with her job (she lost her job after 5 months and all savings had to be used to survive-she is now starting all over again).

    My room mate and I are now going to do the Real Estate Investing together. I have been a pro-member since November (took me 3 months to save money for that membership). Our goal is to buy our first property by June of this year (the 90 days challenge).

    • Brad Lohnes

      Hi, Balencia.

      Thank you for reading and taking the time to leave your thoughtful comments.

      You make some excellent points. Life is certainly not smooth and simple. And many things happen.

      You’re right that people can find themselves, for whatever reason, in a difficult situation and might want some advice on how to get out of it. Unfortunately, the format of an article makes it impossible to cover all possible scenarios and issues. The purpose of the article was to demonstrate that, even on a relatively low (30th percentile) starting income, and yes, making a few assumptions, it’s actually possible to achieve some financial success. While I didn’t account for every possible negative event, I also didn’t account for innumerable positive events. Promotion and out-of-band pay increases, investing in education and skills development to jump to a more lucrative career path, starting a side hustle to generate additional income, the list goes on. I started on $37k per year but certainly haven’t relied on a 2% raise every year.

      You mention advice for people earning $9k per year. I have to be completely honest – I have no idea how to do that. I couldn’t possibly instruct someone how to live on $9k per year and maintain integrity. I think that this requires specialized knowledge, either from someone professionally trained in helping people on extremely low budgets or someone who has done it themselves. It sounds like you have some experience in this area perhaps? 🙂

      Your advice of setting the savings goal to 1% to begin with is very good. It is effective particularly when you can’t seem to cut 10% but want to get started. The amount can increase as you start to earn more.

      In any event, I’m glad to hear that you are making a start and getting things sorted for your future. I wish you the best of luck!

  16. Dustin Brown

    First time on this site that I saw a name listed I know. Robert T. Kiyosaki’s Rich Dad Poor Dad is what first got me into the investing side, while Richest Man in Babylon is what sparked the desire I had to live on less into action. Both were assigned reading in high school Economics class and I appreciate the refresher here. I have heard this many times, and thankfully I started the first year that I started receiving a paycheck. Yes, riding the market may not be the best investment, but it was the start and the fallback if for whatever reason real estate or other avenues fall through.

    I just needed the reminder about budget even living on so little for now to remind me not to wait to set $ aside for investing. Thanks Brad!

  17. Steve B.

    Very informative article on how to save for retirement, starting early. I wish this along with other financial education would be included in our children’s schools at an early age. Too many kids get out of high school with no idea of how finances work in real life. I agree that a 2 pronged approach is probably the wisest, saving and leverage, but you have to balance it and be as educated as possible. I was fortunate enough to start in my 401k at an early age with company match, however I just recently started leveraging my equity to purchase buy and hold rentals thanks to reading Rich Dad Poor Dad. Every high school senior should be required to read this article. Thanks

  18. Jonathan Jaime Velarde

    I wish high schools across the United States would focus more on teaching finances and how to invest consistently to reap the benefits in our later years.

    I just got my significant other and brother to start contributing monthly (automatically) into their Vanguard Retirement accounts. They say “it’s so easy I don’t even have to do anything”. I agree with them. I’m currently active duty in the military and saving more than 15% of my income, with no debt, and school paid for when I get out next summer. It’s so easy to build wealth, but people want to make excuses and go out to eat an extra 3-4 times per month.

    I try my hardest to share my knowledge with my peers and some take the advice while others go buy a new Dodge Charger (true story) and are married to a car payment for the next 6 years.

    The book that immediately got me hooked on Real Estate was The Art of the Deal by Donald J. Trump. Immediately after that I read the Rich Dad Poor Dad series, and then all the BP books etc.

    If you took the time to read this you obviously care about your future so do something about it! Quit making excuses and start watching your bank account grow by contributing consistently. You can read every book in the library and talk to dozens of financial wizards, but at the end of the day it comes down to you and your ability to make things happen.

    I hope this motivates people who are wanting to start investing and I hope to see a massive amount of millionaires when I retire!

    Jonathan Velarde
    Cpl/USMC

  19. Ken H.

    I was a cool to buy a C class turnkey SFR around $50k…6 months later blew another $25k to evict the tenant and repair their damages. Now I’m hurting, taking out 401k hardship withdrawals to get by. Sometimes it doesn’t work like you hope so tread carefully to all the new guys or you’ll end up like me.

  20. Jessica Merrill

    I’m glad I’m reading this as a 24-year-old! I don’t have a lot of income yet, but I’ve been saving consistently for the last 6 months since I graduated and started my career. I need to learn more about investing and get started!

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