Dave Ramsey: 3 Keys To Becoming a Millionaire In 20 Years
If you currently feel burdened with debt and have little money saved, getting on track to becoming a millionaire might seem unrealistic without a large windfall. But the money guru Dave Ramsey believes that you could reach this goal within 20 years by using the principles he calls his “7 Baby Steps.” In a Ramsey Solutions post, he explained these three keys to building substantial wealth.
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1. Don’t Use Debt
A big part of Ramsey’s principles is breaking free from and avoiding debt. He sees debt as a roadblock to becoming a millionaire since you’ll be stuck giving lenders part of your income until you’re free. When you account for your monthly payments, you likely have a large sum that would better go toward investments that earn money rather than cost you interest.
Aim to wipe out any existing debts, except your mortgage, using Ramsey’s suggested snowball method. Find the smallest one, pay it off as fast as possible and then target the next-smallest debt.
Additionally, make a plan to stay away from future debt. This includes having a savings account with emergency cash and following a budget that encourages living within your means.
2. Prioritize Investing in Your Retirement
That extra income you will have after paying off your non-mortgage debt will be key to your wealth goal. Ramsey’s advice is to get a tax-advantaged retirement account and regularly deposit 15% of your earnings there. This specific percentage is designed to provide sufficient money for reaching close to $1 million in two decades but still leave cash for other goals.
To show the impact of investing, Ramsey gave an example based on a $843-per month contribution. He wrote, “The historical average rate of return for the stock market is between 10-12%, so after 20 years of investing you could have around $730,000 in your nest egg.” Keep in mind that factors such as the investment type and market conditions will affect returns.
3. Pay Your Mortgage Off Early
Your home’s value could fill the gap between the money in your retirement account and your 20-year $1 million goal. But you’ll need to wipe out the rest of your mortgage to enjoy 100% equity and stop losing money to interest. Besides getting you closer to becoming a millionaire, this move sets you up to eventually put your former mortgage payment amount toward investments and other savings goals.
While continuing your 15% retirement contribution and budgeting wisely, put leftover income and windfalls toward your mortgage’s principal. You can contribute large amounts or tack on something extra to each payment. Refinancing could also be wise if it will save you significantly, but don’t forget the upfront costs.
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