How to Retire as a Millionaire (On An Average Salary)

“Sharing the wealth management secrets of self-made millionaires with aspiring and established entrepreneurs and investors.”

By Ed Emerson

I’m going to share a few investing secrets of self-made millionaires today that I hope many of you will be able to action into your daily lives. And if you succeed at doing so, you’ll find over time that you’ve managed to grow a significant amount of money for your retirement and/or your own personal freedom.

Now, because you’re reading this you’re likely in amongst the vast majority of those who, despite their choice of career and respective earnings, have managed to stumble along well into their 40s or 50s without really thinking about what they’ve got for retirement.

Equally, you could be a very savvy 20-something (even better) or a mortgaged-to-the-hilt 30-something with that rare level of clarity about future finance that few obtain at such a young age. 

In either instance, if you adhere to the investing secrets from our self-made millionaires below they will change your life.

Lesson #1 – The Financial Awakening

Regardless of which age cohort you find yourself in, that inevitable financial awakening hits us all at some point or other, and usually only once you realise that you have effectively managed to spend to the level of your earnings at every stage of your life thus far.

In practical terms, there never seems to be enough left over each month to make a significant contribution, yet you find it for the down payment on your next holiday, car or house extension, or to go away for the weekend or for a night out on the town.

It’s been reported that over60% of American’s couldn’t afford an emergency $500 repair bill if it arrived tomorrow. And it’s only slightly different in the UK, according to recent research by YouGov, who found that:

“A third of middle-class people would have to borrow money to pay an unexpected bill of £500, according to a survey…31% of middle class workers including professionals, junior managers and those in administrative jobs would struggle to pay the surprise bill, while around one-in-ten of the so-called ABC1 group would have to borrow to pay off a £100 bill immediately. The survey of over 1,600 adults also found 46% of manual workers and the unemployed, classed as C2DE, would be unable to pay a £500 bill.”

Lesson #2 – Compound Interest

Sadly, the reason that most people will never become millionaires, or assemble anything even remotely close to that amount of wealth, is not because they necessarily need a thundering income to do it.

You don’t.

But what you do need – in fact, what you absolutely must learn – is a small amount of discipline, and a better understanding of how money grows through what’s called “compound interest.”

Now, you may have heard the term compound interest before. It was made famous in a quote by Einstein who described its power to exponentially grow your money as “The Eighth Wonder of the World.”

That’s quite an impressive accolade coming from the man who came up with the Theory of Relativity.

Compound Interest is simply the interest you earn each year that is then added to your principal. That way the balance grows at an increasing rate. 

compound interest

The picture above assumes you “invested” 1,000 and got a 10% “rate of return” or “interest applied” to your money, so at the end of the year you had 1,100 instead of just 1,000 (1,000 + 100 from the 10% interest you made on your money = 1,100). And so it follows and continues to grow over the years, getting increasingly bigger along the way.

Lesson #3 – How Does That Make Me a Millionaire?

By example, let’s assume that you’re 25 years old and you managed to invest $250 a month until you were 65 years old, and you received an average 7.5% return / interest on your money:


In the chart above, courtesy Longwave Advisor, it shows the value of that investment (the red line) approaches 800,000. That’s a lot of money.

Lesson #4 – You Need to Invest to be Wealthy

But the chart also tells us one of the most important investing secrets of self-made millionaires: A bank account is not a good investment.

The purple line above shows the value of contributions over time if put into a basic savings account. In short, you would have lost out on about 650,000. And that too is a lot of money.

The reason is that basic savings accounts give poor interest rates (right now it’s about 1% or less, and tat’s bad). The higher the interest rate, the better the return on your investment and the faster your money grows. 

Lesson #5 – Where Do I Get a 7.5% Return on my Money

Alan Steel of Alan Steel Asset Management writes: “…for the period 1950 to 2009, if you adjust the S&P 500 – a benchmark for US stocks – for inflation and account for dividends, the average annual return comes out to exactly 7.0%.

You can check that out for yourself here.

However, unless you are a very savvy investor, you won’t be able to deliver those types of returns on your own. 

Your best bet is always to get some good advice from an IFA who has only your best interests in mind.

Lesson #6 – The Money Triangle

Here is your “money triangle”:

Money Triangle

At any decent growth rate the amount you get to at 60 coming from the first five years contributions, is the same as the remaining fifteen years.

What that means is that the earlier you start taking investing seriously, the better. 

Lesson #7 – What If I’m In My 30s Already?

To put that into perspective, according to Prudential:

“…a 25-year-old who earns $40,000 a year and gets 2% annual raises can accumulate a $1 million retirement account by age 67 if he saves 11% of salary each year and earns 6% a year on his savings.

“But if that 25-year-old doesn’t get started until he reaches 30, he’ll have to save 13.5% of salary each year to hit the seven-figure mark.

“And if he waits until he’s 35, his annual savings target jumps to a much more daunting 17.5%.

“Another way to look at it: the longer you hold off, the less time there is for your savings to benefit from compounded investment returns, and the more of your own money you’ll have to kick in.

“Waiting until age 35, for example, forces our hypothetical 25-year-old to contribute almost another $100,000 to his retirement account to achieve that $1 million balance.”

Lesson #8 – What About If I’m In My 40s or 50s Already?

I won’t kid you that the ladder doesn’t get steeper the older you get. That’s not to say it’s impossible to get to that million mark, but it’s going to be more of a climb depending on when you plan to retire.

A basic calculation in US dollars suggests a person is making an average hourly wage of $20. 

So the concept is that you (and your spouse) must save one hour of your daily wage each day.

In practical terms that means you and your spouse each then keep back $20 each per day ($40). 

Compound Interest Calucaltor 1

Then using a compound interest calculator, assuming an average 7% rate of return on your money over 25 years, you will achieve the following:

Compound INterest calculator

Lesson #9 – Discipline & Planning

The biggest investing secret of self-made millionaires is that there is no substitute for discipline and planning in pursuit of becoming a millionaire.

And as shown above, this is realistically not beyond the means of most people at either the beginning, middle or even later in their careers. But it does take a rethink on whether you should buy a new car every year, purchase that additional holiday or simply rein in a bit on what goes out.

It all starts with sitting down and being honest, not just with yourself right now, but about what you want your future to look like.

The investing secrets of self-made millionaires are all within reach. You just have dedicate yourself to doing something about it.

Ed Emerson, Editor, HNW Magazine

Check out more of HNW Magazine’s  Investing Secrets here.


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