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How to Build a Big Retirement on a Small Salary

You could become a millionaire on a janitor’s salary. Or on any modest salary. Don’t believe me? Then ask Ronald Read.

Ronald was a Vermont gas station attendant and janitor. And he became a millionaire. Actually, a multimillionaire. He left behind more than $8 million at his death. He lived on less than he earned and saved as much as he could. He drove a used car and cut his own wood until late in his life. His daily trip to the café for coffee was his guilty pleasure.

Ronald’s story is both proof and motivation. Becoming wealthy on a small salary is possible if you’re willing to work hard and save consistently. So what does it take to hit that million-dollar mark? These actions can make it possible:

1. Start early. The earlier you begin to save for retirement, the more you take advantage of compound interest. Here’s what I mean:

  • $250 a month invested from age 25 to 65 at 9% interest = $1.1 million
  • $250 a month invested from age 30 to 65 at 9% interest = $705,000
  • $250 a month invested from age 35 to 65 at 9% interest = $445,725

If you delayed investing for just five years, you lost out on almost $400,000! That’s not okay! This example shows how important it is to invest early—even if it’s not a lot of money—because you need time and compound interest on your side.

2. Automate saving. If you participate in your company’s retirement savings plan, monthly payroll deductions can be taken out automatically and put into the plan. When you save automatically every month, you remove the temptation of using that money somewhere else. Also, make sure to take advantage of any matching plan from your employer. That’s free money, people!

If your company doesn’t offer a retirement savings plan, you’re not doomed. You can open an IRA and set up a monthly automatic transfer into that IRA. Keep in mind that the limit per year is $5,500 (or $6,500 if you’re age 50 or older).

3. Increase savings with raises. When you get a pay increase, don’t increase your lifestyle to match. A lot of people fall into that trap, buying a nicer car, a bigger house, or fancier clothes. Those clothes won’t pay the bills when you’re 72! Instead, put that money toward retirement. Your future self will thank you.

4. Prioritize. Every penny matters, especially when you’re living on a small salary. That means you need to be laser-focused on what’s most important money-wise. When you decide that retirement is a priority, working toward that goal will mean some sacrifices. You won’t retire a millionaire if you don’t learn to tell yourself no.

5. Budget. Whether you live on an engineer’s paycheck or a teacher’s salary, a budget is an absolute necessity. You need to create one every month and stick to it! Otherwise, you’ll lose track of where your money is going—and that means it’s not going toward your financial goals.

6. Open a Roth IRA. If you participate in a 401(k) plan (or something like it), you can still work with an investing professional to open a Roth IRA. This allows you to invest extra money you get throughout the year, like a tax refund or birthday money from grandma.

Why go with the Roth option? Because with your modest salary, you’re currently in a lower tax bracket. Pay the taxes on money now and you won’t have to pay them when you take the money out at retirement—when you’ll likely be in a higher tax bracket.

Now listen up: You can build a big retirement fund on a small salary, but you must stay focused! You can’t let anything distract you. You can’t let the Joneses or the Joneses’ kids distract you. You can’t worry about impressing others. Just keep your goal in front of you and work toward it relentlessly, even if you can only take small steps forward.

Those little actions multiplied over time will equal the retirement of your dreams.

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