It may sound like an intimidating term, but it really isn't once you know what it means. Here's a little secret: compound interest is a millionaire's best friend. It's really free money.
“Say you're going to average 10% a year on your investment return — you're going to need to save about $5,000 each month to save $1 million.” Moore recommends putting this money into an employer-sponsored retirement savings account if possible.
The Ben and Arthur chart is an illustration by personal finance guru, Dave Ramsey. It purportedly shows how important it is to invest early. The Ben and Arthur Chart Explained Image source The Ben and Arthur chart illustrates how investing early can be more powerful than putting in more money.
Consistency and strategic investing are key
The research found that almost 80% of millionaires did not inherit wealth, rather they made their money through consistency and strategic investing.
Andrew Carnegie, one of the wealthiest entrepreneurs of all time, once said that 90% of all millionaires. become so through owning real estate.
Below, we have outlined several key principles for building wealth, including setting goals and developing a plan, investing in education and skills, managing debt, saving and investing, protecting your assets, understanding the impact of taxes, and building a strong credit history.
A good return on investment is generally considered to be about 7% per year, based on the average historic return of the S&P 500 index, and adjusting for inflation.
Using the example of Ben and Arthur, Dave shows the incredible power of compound interest over time. Ben starts saving $2,000 a year at age 19, stops saving at age 26, and never saves another dime. His brother, Arthur, starts later—at age 27—but saves until age 65, almost his entire life.
So, can you retire at 60 with $1 million, and what would that look like? It's certainly possible to retire comfortably in this scenario. But it's wise to review your spending needs, taxes, health care, and other factors as you prepare for your retirement years.
Millionaires have many different investment philosophies. These can include investing in real estate, stock, commodities and hedge funds, among other types of financial investments. Generally, many seek to mitigate risk and therefore prefer diversified investment portfolios.
Millionaire Statistics by Age
The world's 100 richest individuals earned their first $1 million at age 37, on average. The average millionaire is 57 years old.
67.7% are self-made. 23.7% made their money from a combination of their own efforts and inheritance. 8.5% inherited their wealth entirely.
The financial service industry has created the most millionaires in modern times. The financial system manages the money of people worldwide. Behind the most successful ventures in the world are people developing and growing money.
High-quality bonds and fixed-indexed annuities are often considered the safest investments with the highest returns. However, there are many different types of bond funds and annuities, each with risks and rewards. For example, government bonds are generally more stable than corporate bonds based on past performance.
According to conventional wisdom, an annual ROI of approximately 7% or greater is considered a good ROI for an investment in stocks. This is also about the average annual return of the S&P 500, accounting for inflation. Because this is an average, some years your return may be higher; some years they may be lower.
The 3 Pillars: Everyday Money Management — Saving, Spending and Investing.
Having a plan is by far the most important secret of all. A goal without a plan is just a wish, so for you to achieve your financial goals, you need to plan out your investments. When you plan and map out your goals, it's easier to measure your results against your goals and hold yourself accountable.
"Your income is your greatest wealth-building tool," Ramsey has repeatedly said, including on the Ramsey Solutions blog as well as on Facebook. Ramsey believes that if you use your income wisely by investing 15% of it, you can build the financial security that you deserve and perhaps even become a millionaire one day.
The habits that worked against building wealth included overspending, engaging in negative self-talk, maintaining toxic relationships, and unhealthy eating and drinking behaviors.
Millionaires have more in common with each other than just their bank accounts—for some millionaires, striking it rich took courage, salesmanship, vision, and passion. Find out which traits are most common among the seven-figure bank account set and what you can do to build some of these skills yourself.