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Our most recent show was all about how to build wealth with a low-paying job. Of course, the lower your income the more difficult it is; the amount of money you make determines how much you can save every month. We discovered on the show that you don’t really need to save much to “get rich.” Dollars saved at a young age have decades of exponential growth ahead of them, so a little bit goes a long way.

A look at the numbers

We wanted to see what the average person would have to save to become a millionaire. The average annual income for a 20-24 year old is $31,000, per the Bureau of Labor Statistics. To become a millionaire by age 65, a 20-year old making $31,000 would need to save just 3.7% of their income, or $95, every month (assuming a 10% annualized return). To retire with $3 million, they would need to save 11.1% of their income, or $286 per month.

That savings rate assumes the 20-year old will make $31,000 a year for the rest of their life. They will almost certainly start making more money as they get older, and if they keep saving at the same rate (percentage of income), they’ll end up accumulating even more wealth.

If you start investing young, you can build wealth by only saving a fraction of your income, even if you don’t make much money. If it’s so easy, though, why are so few people retiring as millionaires? The average retirement savings for those about to enter retirement (age 56-61) is a measly $163,577. That’s a far cry from a wealthy retirement. What mistakes are they making, and, more importantly, how can we learn from them?

Not starting young

Nobody is ever going to say “man, I wish I wouldn’t have saved so much money when I was younger.” Your future self will thank you for every dollar you save now, and no matter where you’re at in life, it’s almost never too late to start saving money. There’s a popular Chinese proverb that goes like this: “The best time to plant a tree was 20 years ago. The second best time is now.” There is no better time than the present to start down the path of building wealth.

Making unwise financial decisions

Those with lower incomes are more likely to make poor financial decisions than people with higher incomes. People with lower incomes are more likely to buy lottery tickets, shop more often at rent-to-own stores, visit payday lenders, and have lower credit scores. When someone has an average or lower income and is making poor financial decisions, it’s extremely difficult to save money.

It is possible to build wealth with an average or even a low income, and if you start at a young age you only need to save a small fraction of your income. It’s important to make it as easy on yourself as possible, which means making the best financial decisions you can.

Lifestyle inflation

It can be really hard to wait until we can afford something to purchase it. Credit card companies are more than willing to fund your lifestyle, and it can be hard to resist the temptation of debt. In today’s world, we’re used to instant gratification; when you want to talk to your friends, you can reach them in seconds. If you want to watch a television show, you can watch it instantly instead of waiting for the next episode to air.

Whenever there’s something you want, you can buy it on Amazon and have it at your doorstep in 1-2 days. Waiting to purchase something you want can feel almost archaic; patience is now a lost art.

Deferred gratification

Deferred gratification is a practice that has the potential to not only greatly improve your financial life, but your overall happiness as well. We mention deferred gratification on almost every show, and for good reason; we truly believe it is one of the pillars of building wealth and living a fulfilling life.

Getting into the habit of sacrificing a little bit of happiness today for much greater happiness in the future is the key to building wealth. Saving money is deferring gratification. You don’t need to make a certain amount of money to practice deferred gratification, and wealth can be built even with an average income or a lower income.

We have a full show that’s all about how to build wealth with an average income. The format of the show is by age, and we have some great statistics to show where you can be (or where you should be) at every age.