Retire Rich: Become a millionaire by saving just $130 per month

May 4, 2023

Hello, Boarders! It's YB here.

I recently learnt about Ronald Read, and he has become one of my biggest personal finance heroes. You may not have heard of him, but I promise he'll inspire you.

Ronald Read was an unassuming man from Vermont who lived a simple life, working as a gas station attendant and janitor. After he passed at 92, it was discovered that he left behind an estate worth $8 million, which was a shock to many who knew him. What's remarkable about Ronald's story is that he didn't flaunt his wealth or live a lavish lifestyle. He continued to drive an old car and live in a small home.

As it turned out, Ronald was an investor who amassed his fortune through shrewd investments in blue-chip stocks and bonds. He would read discarded copies of the Wall Street Journal and Barron's from the library, educating himself on the market and making informed decisions on his investments. He invested in companies such as J.P. Morgan, General Electric, and Procter & Gamble.

The lesson here:

Ronald's story serves as a reminder that small and consistent investments over time can lead to significant wealth. It also highlights the fact that it's never too late to start investing. His legacy is a testament to the power of educating oneself about investing and making informed decisions.

He exemplified the power of frugality and long-term investing. His story is an inspiration to anyone who believes that only the rich and privileged can achieve financial success.

He proved that it’s possible for anyone, regardless of their background or income, to achieve financial freedom with patience, discipline, and the power of compounding interest. This serves as a reminder that true wealth is not about flashy cars or big houses, but rather the freedom to live life on your own terms.

The Power of Compounding:

Compounding is the process of earning interest on your original investment and then earning interest on the combined total of your original investment and initial interest earned, resulting in exponential growth over time.

It's the financial equivalent of a snowball rolling down a hill, gathering momentum and size as it goes.

The magic of compounding lies in its ability to turn small savings into substantial wealth over time. By reinvesting your earnings and allowing them to grow, you can take advantage of the power of compounding to achieve your financial goals.

The math behind becoming a millionaire:

If you had saved $130 every month for 40 years and had invested in the S&P 500 index, which is a widely used benchmark for the US stock market from 1975 to 2015, your ending balance would have been approximately $1,035,927.96. This calculation is based on the historical average annual return of the S&P 500 index from January 1975 to January 2015, which was approximately 11.3% per year.

This is only possible because of the power of compounding, which means that your returns earn returns, resulting in exponential growth over time. You would have only saved and invested $62,400 but would have earned an interest of $973,528 at the end of the 40-year period, becoming a millionaire by the end of the investment period.

If you invest regularly (even small amounts), you can grow significant wealth over time, thanks to the power of compounding. You can use this calculator here to see how your investment would grow over a 40-year period.

Here's a breakdown of how your investment would grow over a 40-year period:

After 10 years: $27,810.43
After 20 years: $108,936.28
After 30 years: $345,588.69
After 35 years: $600,519.03
After 36 years: $670,016.91
After 37 years: $747,368.05
After 38 years: $833,459.88
After 39 years: $929,280.08
After 40 years: $1,035,927.96

As you can see, the longer you allow your investment to compound, the greater the effect of compounding becomes, especially in the later years. In the last five years, the portfolio went from $670,016.91 to $1,035,928.96, which is 35% of the total amount.

Putting It All Together

So, how can you put these concepts into practice?

Firstly, live below your means - this allows you to save more of what you earn and increase what you can invest on a monthly basis
Start investing today and stay consistent - the best time to plant a tree is 10 years ago, the next best time is today.
Financial Freedom is about having the freedom to live life on your own terms.

While these concepts are easy to understand, putting them into practice is challenging. That's why we created Onboard, it’s more than just a financial app, we are building a membership community of modern Africans who are on their wealth-building journey and want to share, learn, and support one another. Becoming a member is easy: download the app and get onboard to take the first step in your journey.

DISCLAIMER: This newsletter is for educational purposes only and is not investment advice or a solicitation to buy or sell any assets. Please do your own research before making any investment decisions