Can a person become a millionaire solely on a low income? Before you answer “impossible,” have you heard of the story of Ronald Read, a janitor?
Ronald Read, who lived in Vermont, USA, came from a poor farming family and was the first in his family to complete high school. He did not inherit any assets, did not attend college, and never held a high-ranking job or earned above-average wages.
He served during World War II and then worked as a gas station attendant for decades. After retiring and finding it difficult to adapt to a leisurely life, he worked as a cleaner and maintenance worker at a department store for over ten years.
Despite living frugally all his life, at the age of 92 in 2014, when he passed away, his safe deposit box contained a stack of stocks five inches thick, worth about $8 million.
He donated $6 million to his hometown hospital and library, and the rest was left to stepchildren, caregivers, and friends.
Ronald Read did not have exceptional intelligence, a prestigious family background, an Ivy League education, or a high-paying job. He never won the lottery or received any windfalls, yet at the time of his death, his net worth exceeded that of 98% of American families.
So, can a person become a millionaire on a low income? Absolutely!
Personal finance expert George Kamel recently mentioned in his own media channel that by following certain methods, individuals with low incomes can also become millionaires after retirement. Moreover, a six-figure salary does not guarantee a problem-free life or millionaire status.
According to a 2023 survey by the personal finance website PYMNTS, 44% of households with an annual income of over $100,000 claimed to be living paycheck to paycheck.
Kamel emphasized, “Feeling strapped for cash is sometimes an income issue, but often it is a behavioral issue.”
Whether your annual income is over $100,000 or less than $50,000, if you spend all your money each month, none will be allocated for savings or investments, and your salary figure won’t change much.
The key to accumulating wealth lies in financial margin, which is the difference between income and expenses. Therefore, even with a $50,000 annual income, there are smart actions you can take to become a millionaire after retirement.
If you want room for savings and investments, you must have a clear understanding of your income and expenses. If your job pays relatively low, it means cutting costs to live within your means.
As mentioned earlier, Mr. Read lived a frugal life. According to reports from The Wall Street Journal and CNBC, Mr. Read drove a used Toyota throughout his life, sometimes used safety pins to fix his coat, and would park his car far from his destination to avoid parking fees. Even in his nineties, he persisted in chopping wood to save on expenses.
A friend described him as someone who would save every penny he could. Another friend said, “I am certain that if he made $50 in a week, he might invest $40 of it.”
Mr. Read never flaunted his wealth and quietly persisted in investing any extra money he had.
With a low income, debt can swallow up any surplus you may have. Therefore, once you have debt, do everything in your power to pay it off as quickly as possible, including significantly reducing expenses or considering taking on additional jobs.
Your income is your most important tool for wealth accumulation. In the short term, you can dedicate several evenings a week to working for services like DoorDash, Uber, and Amazon Flex, delivering meals, giving rides, or transporting packages.
In the long run, you need to figure out how to advance or negotiate a raise in your current full-time job. If there is no foreseeable advancement, it might be time to seek further education, learn new skills, switch jobs, or pursue a different career path.
However, one thing to be mindful of is that after an increase in income, avoid increasing expenses and falling into the trap of lifestyle inflation.
Once you have cleared your debt, established a surplus, and saved for emergencies, you are ready to start accumulating wealth. The next step is to automate your investments, with the simplest method being having your employer direct a portion of your income into a retirement account, which is managed by professional institutions.
Kamel suggests automatically saving 15% of your monthly income into a retirement account and living off the rest.
He mentions that the compounded growth of retirement funds requires time. Starting early and staying consistent with investments can lead to becoming a millionaire or even a multi-millionaire after retirement.
Kamel gives an example – if you are 25 years old this year and plan to retire at 62, putting $166 per month into your retirement account until retirement could potentially result in $1.02 million, based on an average return rate of 11% from the S&P 500 index over the past few decades.
Even $166 per month is less than 5% of an annual income of $44,000. By increasing the proportion as recommended by Kamel to 15%, you could have millions in retirement savings.
If you start late, you need to sacrifice more and invest more money into your retirement account each month.
This is the path laid out by Kamel for turning a low income into millionaire status. With determination and perseverance, the vast majority of people can achieve it.
However, his suggestions do not cover stock investments. Let’s now explore how janitor Read became wealthy through stocks.
The modest and frugal Ronald Read left behind a substantial fortune upon his passing, shocking those around him and piquing the interest of experts.
They analyzed his investment portfolio and strategy, discovering that Read built wealth through several fundamental steps.
First is the aforementioned diligence and thriftiness, living within his means. Throughout his life, including the years when he became affluent, he led a modest lifestyle and worked diligently without complaint.
Second is his cautious and astute investments. Read had a knack for stock selection. The stocks he chose delivered profits over an extended period, a strategy endorsed even by investing legend Warren Buffett.
After his passing, The Wall Street Journal analyzed his personal investment portfolio and found he owned stocks from at least 95 companies. These stocks encompassed various industries like banking, consumer goods, railways, telecommunications, and utilities. He avoided tech stocks.
Long-standing companies in his portfolio included Dow Chemical, General Electric, J.P. Morgan Chase, Procter & Gamble, J.M. Smucker, CVS Health, and Johnson & Johnson.
Read did not always hit the jackpot. For example, his portfolio included stocks from Lehman Brothers Holdings, which collapsed in 2008. However, he was willing to hold onto his investments for many years, and most of them performed well.
Chris Leithner, Managing Director at private investment company Leithner & Co, mentioned in his analysis that Read did not blindly invest – his focus was concentrated, not haphazardly diversified. At the time of his death, ten stocks constituted a quarter of his total net worth, mainly in financial services and consumer goods.
He usually purchased stocks after thorough research and opted for companies that steadily paid substantial dividends. When dividend checks arrived, he reinvested the earnings into buying more stocks, not necessarily from the same company.
Third, Read had great patience in his investments. Unlike many today seeking quick gains, he held onto many stocks for decades, with compounded growth securing him handsome returns.
For investors like Read, time was their best friend; conversely, for most people, time poses their greatest challenge.
Fourthly, Read was a lifelong learner. He graduated from Brattleboro High School in 1940 but continued to engage in extensive reading and research, seeking advice when needed but also independently formulating his conclusions to make investment decisions. He subscribed to The Wall Street Journal, regularly visited the local library, and sought advice from professionals when necessary.
Leithner concluded that Read’s remarkable feat demonstrates that successful investing is not a matter of luck. Cultivating investment acumen, achieving financial independence, leaving a legacy for society – ultimately, these stem from specific values and virtues: living within means, diligent saving, hard work, independent thinking, careful investing, and patient awaiting. Virtually anyone, regardless of their living circumstances, can cultivate these values and qualities.
In his high school yearbook, there was a prescient evaluation of Read: “Only the calm and quiet can achieve great things.”