How do we determine what makes someone rich? This may be subjective, depending on various factors such as an individual’s perspective, geographical location, environment, and financial situation. However, I believe a wealthy person is one who has such financial security that the loss of their regular income would not jeopardize their family’s financial stability.
After migrating from India and working, living, and saving in the USA for the past 15 years, we’ve acquired sufficient funds to retire comfortably in India. Familiar with both landscapes, we’re considered rich in India but would struggle to retire in the US with our current savings.
Having defined what wealth means in our context, let’s delve into today’s article. Wealth can be amassed in several ways: winning the lottery, holding down multiple jobs, marrying into wealth, garnering an inheritance, and so on. However, the most reliable way is gradually increasing your wealth over time. With time and discipline, you can achieve financial success.
Here, discipline reflects the habit of putting away a part of your income regularly. It also involves steadily boosting your earnings and investing in valuable assets over time.
Let’s talk about how you can grow your wealth by saving just one hour of your income every day. Spend the remainder as you please. I’d like to thank David Bach for this simple yet powerful financial principle.
Imagine your hourly wage is $20, though the average American hourly wage is $18.5. If you and your spouse each save $20 per day, it amounts to $40 per day, or $14,600 in a year.
Next, we’ll use a compound interest calculator. This handy tool calculates your future wealth and allows you to form an effective savings strategy. By continuously reinvesting your earned interest, you increase your total capital, hence augmenting the interest earned on it.
Assuming a conservative, historical 7% yearly gain in the stock market, you can become millionaires in 25 years. If your wage increases by 2% annually, you’ll reach millionaire status in just 22 years. Moreover, if you invest this money into a 401(k) retirement plan, and your company matches a 2% contribution, you can become a millionaire in a mere 17 years!
To ensure you save $40 per day, set up an auto-withdrawal of $600 each month from both you and your spouse’s checking accounts. This amount should go into a pre-tax (401k) plan, or into an IRA/Roth IRA if you’ve hit your contribution limit.
David Bach suggests saving 10% of your income by setting up auto-withdrawal. This money goes into investments as soon as it arrives in your bank account, preventing unnecessary spending.
It may seem challenging to become wealthy, but a disciplined lifestyle, combined with controlled spending, can make the journey easier. Your progress largely depends on your determination. If saving an hour of wage daily seems unfeasible, consider working an extra hour daily, or picking up a part-time job. Starting a home-based business is another viable option.
If you’re unsure of your hourly wage, simply divide your gross pay by 2080 (for a 40-hour workweek). Should your hours vary, multiply your weekly hours by 52 to calculate yearly hours.
Auto-investing from your checking account is a great way to save. It may require an adjustment to live on the remaining income, which should be discussed and agreed upon with all family members involved. At times, conversations around finances can be challenging, but always remember the end goal.
Lastly, consider working a second job or side gig in your spare time. Extra income can provide breathing room in your budget.