This Is How You Become a Millionaire

[Music] brought to you by the every dooll app start budgeting for free today I saw this sitting on our desk and I think it's worth talking about because we hear so much Doom and Gloom about Americans not ready to retire or it's the American dream is dying you know here in America when it comes to money and this is really cool uh from CNN number of 401k millionaire reaches new high yes I actually just talked about this this morning on good day Orlando we did a media hit with the with the nice people over there and this is exactly what we talked about because there's so much hope stealing going on out there all you hear is there's a retirement crisis and the next president's going to screw this up and cause us to all be broke and here's Fidelity saying actually we're at record highs in across our 401K accounts they have half a million people who have balances of a million dollars or more in that one account wow wow in just one 401k account which is very encouraging average balance hit 1 .6 million that's great that's that's encouraging so the question is good for them George what about me and my 41k I don't have a million well that's true the average 401K out there is more like 126 Grand yeah so it's like a tenth so how do you get there Jade well it takes consistent investing over a long period of time so if you sporadically put 3% to get the employer match yeah it's going to take a bazillion years to get a million but if you follow the Ramsey plan you get out of Deb as soon as you can two years or less you get the emergency fund in place you begin investing 15% of your household income into that retirement account you will see that it doesn't take long for compound growth to to work its magic that's right and we all all the time around here we're talking about 10% returns and any time I talk about 10% returns especially if it goes on social media there's always somebody popping into the comments saying something like well where are you going to get that or how could you get that or that's impossible and I always have to explain the idea that this is an annualized term number one it's not to say that every single year you're going to get 10% but over the lifetime of your investing uh that is what you're getting that's the average of all the years you've been investing so if it was up 30 down 12% up 20% down 6% if you take into account all of those years you're looking at 10 to 12% on average in the stock market that's right and when you look at them by year most of the years are up years you know you have those years that tank because something catastrophic has happened whether in politics or you know International but it always recovers and it always recovers really in in our favor I just looked at the S&P 500 which represents the total US Stock Market I looked at the numbers Jade this morning and in 2004 so 20 years ago MH we have five xed since then yes so if you had 10 grand now you're talking 50 Grand and even if you started investing 10 years ago your money would have went 2 and a2x that's right and so it's it's not a rocket science analogy here you just need savings rate how much money you're putting in plus time that's the formul to become a 401k millionaire yeah that's what we're looking at here so your 401k is a great place to start we say all the time uh you know we sometimes here we talk about baby step four and we kind of push past it but it's worth talking about George um because a lot of people have questions a lot of people don't realize okay when I invest in my 401k at work what does that mean and where does that get me so let's take a moment and kind of explain that because I posted a video on Instagram last week about baby step 4 and I was overloaded with questions on okay what does that mean where do I go what if it's Roth what if I get a match so let's take a moment and teach the people when we say baby step 4 what are we talking about I'll start with the first part so here we teach that you're not ready to invest until after you've paid off your debt which is baby step two and after you've invested three to or and after you've saved three to six months of expenses that's baby step three from there we then teach okay now you take 15% of the gross that you're making every single month this is before insurance comes out before taxes comes out you take that money and you're investing it and we say let's start with an employer sponsored account if there's a match yes so if you make 100 Grand a year you should see $155,000 in contributions in that retirement account that's 15% yes and the strategy here is simple match beats Roth beats traditional we go for the match first because it's a 100% return on our investment I put in 4% the employer puts in 4% great next we can move to all the Roth options available all that means is that the money is is uh put in after tax and grows taxfree so you're not going to be able to deduct it from your taxable income for the year like it's traditional but you never have to pay taxes again if you have $2 million in a Roth 401k at retirement Uncle Sam doesn't touch it that's like 2 million of net income take-home pay so I love that then beyond the Roth options like a Roth IRA or Roth 401k you can move to any traditional options you have that's right and one one of the other things I love about investing is if I can set it and forget it like if you can if you're doing the 401K right now and you can go to HR and set it up and it happens like clock worth that's wonderful cuz you don't even have to think about it it's just happening monthly it's money you can almost pretend like it's never happened right you're not thinking about it and same thing if you have a Roth IRA you could probably set it up to where that's coming out automatically conts on payday because here's the thing once if you don't do it on payday good luck to you it's Happ it's not happening if you see that money in your bank account it's hard to go you know what I should do invest for the future you're going to go oo I'm going to buy me some stuff I love the idea of picturing like you never had that money and then future you it's going to feel like you found like a $20 bill in your coat pocket except it's going to be like a $2 million bill in your Co pocket so let's talk about George briefly because we got some time let's talk about for the people who say well I make too much to invest in a Roth IRA well the IRA does have limits but there's ways around it with the Roth where you can do a back door Roth yeah and all this means is you're going to use after tax money to fund an IRA and then you can immediately conver convert it to a Roth and it's legal it's a legal loophole total this is not like a life hack that's going to get you in trouble and I would recommend working with a pro on all this you can connect with one at ramsy solutions.com to help that's what I did when I came to Ramsey I had an old 401k I rolled it over to the IRA uh from from my Apple career my my short one year and three Monon Apple career I had some some 401K money in there that's great so whether you're rolling over or you want to do a backd door Roth there's a lot of options for high income earners on top of that there's the mega backdoor Roth like it feels like a seven-year-old Nam to this the mega mega back door and then for the people who are like Okay Jade George great I'm maxing out my 401k I'm doing well and maxing out a Roth IRA what else can I do we love the HSA health savings account if you have a high deductible insurance plan that's a great way to go I mean obviously when you put the money in at first you're thinking this is for my health savings but beyond $1,000 you're able to invest that money and uh by the time you turn 65 it doesn't have to just go to medical costs you can use that for it acts like a 401k ESS which is really cool what if you're really doing well George and you're like I did it all I did the HSA the the Roth the Roth IRA the 401K what am I going to do next I would just invest in a general investing brokerage account this is not connected to retirement but and the you don't get tax advantages well let's run it back a little simpler because some people are going when you say brokerage account George what do you mean what is that what is a brokerage account what's a brokerage well it's simply an account for investing that you work with you know firm like youve we've all heard of Vanguard or Fidelity or Schwab so you can work with the pro on this you can open these yourself and you just simply invest in you know this is what Dave does he gets a big check that's not non-retirement he goes I'm going to put it in Index Fund inside of one of these accounts it's not connected to it's not connected to your employer it's not connected to your retirement it's simply and you pay taxes on the money on the growth of that money and you don't get any tax deductions when you put it in so there's no tax benefit but the benefit is you don't have to wait till 60 to tap into it I like you can use it for anything at any time okay so let's take it a step further when we talk about investing that money what are we talking about we're talking about cuz a lot of people go oh I'm investing in single stocks Apple Nvidia right and we're saying no no no that's super risky let's invest in mutual funds right so this is like betting on a single horse versus betting on the racetrack yeah I'd rather just enjoy the game and go we're all going to be winners if we put money into the race track itself that's right we're going to get all the horses in that race and that's what you're doing when you invest in a mutual fund which is like 90 to 200 plus sometimes more and so that's what you're betting on and you can see the return is a lot less Rocky than a single stock of one company instead we're going here's the top 500 companies we're all rooting for the top 500 horses in the race and that way you get the benefit of all of that growth and there's different types of funds that he's talking about we talk about growth Funds growth and income funds aggressive growth funds International those are the four that we teach you're spreading your eggs out you're not putting them in one basket so if your International fund is not doing very well probably your growth and income fund is Trucking along and doing just fine as it should and so that's how this works that is baby step four in a nutshell George a genius I wouldn't go that far I would but you know what you don't have to be a an genius investor to make money in the stock market you just got to ride it out don't jump off the coaster man stay put stay put create your free every dollar budget today the simplest way to budget for your life