How to Become a Millionaire with a Low Salary

Today we are gonna talk about a man named Ronald Read.

After he died in June 2014, his face was plastered all over the media because of one secret he hid from everyone, including his own family.

Ronald had amassed an 8 million dollar fortune.

Yes, so what?

Millionaires die every other day.

But Ronald, you see, was different.

He grew up on a poor farm, finished only high school and worked as a janitor for minimum wage for most of his life.

Check this out, it was reported that the average wage for a janitor was $22,000 dollars a year in the 2000s, which is around $1800 dollars a month.

Ronald was able to transform this into 8 million dollars and I know how he did it.

Secret Number #1

The first secret that Ronald knew was the wealth formula that was not taught in school.

This is how much money you have coming in versus how much money you have going out, so income minus expenses equal cash flow.

If you have a positive cash flow, you would have money left over;
If you have a negative cash flow, then you are falling into debt.

In the book: ‘The Psychology of Money’, Morgan Housel states that wealth is measured by the amount of money that you have not spent.

For every 5% of extra income that you save, you can retire multiple years earlier.

Let’s assume your monthly income is $5,000 dollars, if your cash flow is zero or negative, in other words, if your expenses are $5,000 dollars or more, then you will never be financially free, you will need to work until the day you die unless you were born rich or whatever.

Hypothetically speaking, if your expenses are zero dollars, then you can retire right away, but who the heck has zero dollars in expenses, that’s practically impossible.

Here’s where it gets fascinating, if you have expenses between zero dollars and $5,000 dollars, so a positive cash flow, after saving enough you can make your money work for you and snowball it into future income and when that future income can cover your living expenses, you're golden!

Take a look at this, assuming you have an annual income of $65,000 dollars and you can save 10% or $6,500 dollars, you can be financially free in 51.4 years.

But if you can just save 5% more, that’s 15%, you can be financially free in 42.8 years.

For just 5% more, you can shave off more than eight years that you need to work.

The average American spends nearly $18,000 dollars every year on non-essential items.

Come on, do you really need to spend $173 dollars on takeout every month?

Secret Number #2

Crunching the numbers is important as well.

You need to measure the money you’ve saved up by your current age, as this would be key to being financially on track to retire as a millionaire by 65.

So, if you started saving at 20 years old, you need to save $204 dollars per month to retire as a millionaire by 65.
If you start saving at 30, you need to save $443 dollars a month.
At 40, it’s $1,030 dollars a month.
And at 50, it’s $2,795 dollars per month, and so on.

Like most things in life, the earlier you start, the easier it will be because of time, but since I don't know your personal financial situation, these calculations are based on a few assumptions.

You're starting with zero dollars in savings.
You can grow your investments by 7% every year.
You're increasing your monthly contributions each year by 2% to keep up with inflation.

So if you're depositing $100 dollars per month in one year, you will be depositing $102 dollars per month in year two and so on.

Of course this math changes depending on many variables but the earlier you start saving, the better off you'll be.

What's the best way to save money then, here's how I do it and I'll probably get a lot of hate for this.

Stop budgeting and stop tracking everything.

Alright, now hear me out, do you think that wealthy people have excel spreadsheets where they record this:

On May 20th, I bought an avocado toast for $6.78.

No, they don't, I still budget but in a very unique way that makes it easier and saves me a bunch of time but hey, don't get me wrong, detailed budgeting could still be a good idea if you have a spending problem or if you're not financially stable.

Here's what I do instead, and a better example of what the rich actually do — it’s called Budget Automation.

I automatically deposit my paychecks into my checking account and each month, a portion of the money that I want to save is transferred automatically into a savings account and another portion for spending is transferred automatically to a spending account.

This includes my fixed monthly bills, like rent and car payments.

Here's the trick, since I know my fixed monthly spend, I can set spending targets for food, entertainment, travel, shopping, and at the end of the month I automatically know what I didn't use because that's the money left over in my spending account which I can either invest, save or roll over to the next spending month.

This Budget Automation strategy isn't for everyone but my goal is to simplify personal finance as much as possible, because psychologically speaking, the more obstacles we have in the way the less likely we are gonna do it.

Secret Number #3

Now, the third point relates back to your income.

From the book: ‘Rich Habits’ by Tom Corley.

He states that more than 75% of millionaires come from a poor background and were self-made just like Ronald Read, but there is one thing that he noticed all millionaires have in common.

And the Internal Revenue Service, or the IRS also verified this fact, it's that nearly all of them had multiple income streams anywhere from three to seven.

Ronald Read had two main ones, his janitor job and the second one which I will dive into a bit later on.

The two main benefits of having multiple income streams is:

Benefit #1

One, you would be less dependant on any single one including your full-time job, and you might think your full-time job is safe and secure but it’s actually much riskier than you think.

Because the moment your boss decides one day to fire you, then you're financially ruined.

Benefit #2

Two, you can supercharge your monthly cash flow.

If your monthly expenses are $3,000 dollars you can try and live more frugally, maybe reduce your spending to $2,400 but there will always be a limit to how little you can live off of.

Even eating nothing but instant noodles and drinking water requires money but if you manage to earn just a little bit more, even $100 dollars a week, your cash flow will increase substantially.

To earn more money you could do the traditional thing:

do a bit of overtime,
ask for a raise,
get extra qualifications and do a better job,
or do what I did when I was working full-time, start a side hustle.

Side hustles are a great way to make extra money.

Depending on the side hustle you start, it will require you to work a couple extra hours every few days, but trust me it'll be worth it in the end.

Secret Number #4

Moving on beyond just the wealth formula, Ronald didn't become a multi-millionaire from just perfecting this cash flow formula.

He had one other secret up his sleeve.

When he died, the truth finally came out, and no one, not even his family knew about this.

Ronald had been investing in about 95 different stocks throughout his life and after going through all of his stock picks, I found one common theme throughout all of them and this is where it gets interesting.

Investing your positive cash flow is the key ingredient to building wealth but it's vital you do it correctly, I'll show you the easiest way to get started but first here's the mistake that you absolutely need to avoid.

You've probably heard a lot about day trading before, you see it on Tik Tok, and on Instagram, and on YouTube with people analyzing charts buying and selling 30 different times a day, hoping it goes up, thinking it's really exciting and is the key to getting rich, but here's what they don't tell you.

90% of day traders lose money, Ronald in all his wisdom didn't day trade instead he was an investor who focused on the fundamentals of a company which meant he analyzed the company's intrinsic value and made sure the investment made sense both quantitatively and qualitatively.

So no, he wouldn't have yolo-ed his life savings away on meme stocks like Gamestop and AMC.

Secret Number #5

Lesson five, rice and chess.

There is one single investing mistake that everyone commits that costs them hundreds, if not thousands of dollars but first i want to tell you a story.

Centuries ago, there was an emperor in China who learned about chess and was so impressed by this game that he offered the game's inventor one wish, anything he wanted.

The inventor humbly said that he just wanted rice:

one grain of rice on the first square of the chessboard,
then two grains on the second,
four on the third,
and doubling all the way through to the 64th black and white square.

The emperor quickly agreed, smirking, thinking that this was such a silly and simple request but this single promise led to the collapse of his entire dynasty.

By the 30th square alone, the emperor's debt had amounted to over one billion grains of rice.

And by the time he reached the 64th square, the emperor owed him 18 quintillion grains of rice, bankrupting the entire kingdom and this is exactly what Ronald Read did.

His plan was to invest for the long term where his money compounded for decades and every two weeks when he got his janitor’s paycheck, he would keep adding to his investments.

Let's say you save $1,000 dollars in year one and you get 10% interest on it, you'd make $100 dollars.

In year two, you'd make $110 dollars because your investment is no longer just $1,000 dollars.

With your year one interest, it's now worth $1,100 dollars.

After year two, your investment is worth $1,210 dollars, so your interest made after three years will be $121 dollars.

Over time, you earn interest on the money you originally saved and the interest you received for that original amount.

Now, if we graph this out, we can see an exponential growth curve which is why Albert Einstein said compound interest is the eighth wonder of the world and this is exactly how 99% of Warren Buffet's wealth was actually earned after his 50th birthday according to the book: ‘The Psychology of Money’.

When the book was written, Buffett's wealth was 84.5 billion dollars, but 84.2 billion dollars was achieved after his 50th birthday and it's because of the magic of compounding.

Buffett started investing when he was 10 years old, and by the time he was 30, he already had a million dollars.

Secret Number #6

This is fine and all that, but what would you do if you see the stock market crash 50% tomorrow?

Obviously I'm gonna sell, I don't want to lose any money.

Throughout Ronald's life, he witnessed 11 stock market crashes and bear markets and yet he still held on to his investments because he knew this one secret.

You can't time the market and your best bet is to just continue investing for the long term regardless of whether the market goes up or down.

Bullcrap!

This Instagram trader I follow says the market's going to crash in one month and five days, and I'm not touching the market until then, oof good luck then, when you think you can time the market you're making two bold guesses.

One, that you know when the market has reached the bottom and you got out exactly at the same time and two, you know when the market is going back up and you buy in at or very near the bottom.

And according to my calculations when it comes to predicting the future, the odds aren’t really in your favor.

One of the top equity analysts in the world, Andrew Stotz observed a 10-year period from 2005 to 2015 and ran the data through multiple simulations 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 layman’s terms, when the market moves up, it will move up very quickly and if your money is on the sidelines, you'll risk missing out on some of the best days the market has to offer, so stop trying to time the market and stop panicking.

Secret Number #7

What interested me the most about Ronald Read was how much he learned about investing and the answer I found out was pretty simple — he actively sought out knowledge.

Ronald went to his local library, read the Wall Street Journal and other things for free, he talked to his neighbors that worked at banks to learn more about money and how everything works.

And one thing you need to realize is that no one, nothing deserves to get a chunk of your money more than you do.

The wealthy love to educate themselves to gain information because of the value they get down the line and thankfully you're doing the same thing right now by watching this free video.

Even when it comes to reading a book that you have to buy for $8, you're essentially downloading decades worth of knowledge from the author for just a few bucks.

Nobody Is Perfect

Nobody is perfect, though, not even Ronald Read.

As intelligent as he was, some of his investments failed miserably such as Lehman Brothers when the company collapsed during the 2008 financial crisis, but despite this setback he still continued to invest and he was able to get through this because his investments were diversified with other stocks.

Look, we all make mistakes, maybe you made a bad investment in the past, you think you're starting too late or you bought something really unnecessary, but I'm here to tell you that it's okay.

Don't give up and keep going!

Now, if you enjoyed this article, then make sure to share it with your family and friends!

Cheers and stay invested!

- Ivan