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How You Can Become A Millionaire On Minimum Wage

The best way to explain how someone can become a millionaire on minimum wage is through a story. This story you truly are not going to want to miss...

This story is about Joe. Joe just finished high school and was what many people like to call a "very poor student." He passed all of his classes, but never got anything better than a C-. He's determined that for the rest of his life, he is going to work for minimum wage. Having no intentions of ever getting paid a penny more.

What do you think? Could Joe, about as worthless as you can get, become a millionaire in his lifetime? Let's find out...

Joe might be worthless, but he has one good thing going for him. And that is a dream to one day say he has a million dollars in his bank account. He doesn't want to work hard though. He still only wants to work for minimum wage and that's it.

The current minimum wage in the United States at the time of this writing is $6.75 per hour. Joe has decided that each and every day, he is going to put aside $6.75 to help pay for his dream of becoming a millionaire.

So without trying to get too caught up in the numbers, $6.75 per day amounts to about $203 per month, which then amounts to about $2,436 per year.

With all of this being said, could Joe turn his $2,436 a year contribution into a million dollars?

If all Joe did was put this money in a bank, he would have $102,312 when he retired at age 60. Not a bad chunk of change for a complete idiot like Joe. But it's certainly nowhere close to reaching his million dollar goal.

Fortunately, Joe's grandpa is a little smarter than he is. So Joe asked his grandpa if he had any advice on how to become a millionaire. This is what his grandpa said...

"Take your $6.75 each day and don't put it in the bank. Instead, put it in a Roth IRA retirement account and invest it in an index fund."

Without having a clue what his grandpa was talking about, Joe picked up the phone and called Vanguard (an investing company). This is the company that his grandpa recommended that he call. Joe told the Vanguard representative that he wanted a Roth IRA and an index fund. With eager anticipation, he was hoping that they had some clue as to what he was talking about.

Fortunately, they did.

They set him up with one of their best index funds. They said it was called the VTSMX. Joe didn't really care what it was called. All Joe was concerned about was how he could put his $6.75 into the account daily.

Fortunately, they set it up so it was all automated. Joe could just sit back and relax from now on and all of his contributions were being taken care of for him.

Well, 42 years past. Joe is now 60 and ready to retire. He didn't pay any attention whatsoever to his retirement account over he years. If Joe was being perfectly honest, he would have to admit that there was a 20 year stretch where he completely forgot he even had it!

But nevertheless, Joe was ready to check the figures and see if he reached his millionaire goal.

Here is how his account grew over time. Remember, the $2,436 yearly is investment is how much Joe puts in each year when he places $6.75 per day into his account...

Investment balance by year

Year Investment Earnings Balance
Start $0   $0
1 $2,436 $117 $2,553
2 $2,436 $347 $5,336
3 $2,436 $597 $8,370
4 $2,436 $870 $11,676
5 $2,436 $1,168 $15,280
6 $2,436 $1,492 $19,209
7 $2,436 $1,846 $23,490
8 $2,436 $2,231 $28,158
9 $2,436 $2,651 $33,245
10 $2,436 $3,109 $38,790
11 $2,436 $3,608 $44,835
12 $2,436 $4,152 $51,423
13 $2,436 $4,745 $58,604
14 $2,436 $5,392 $66,432
15 $2,436 $6,096 $74,964
16 $2,436 $6,864 $84,264
17 $2,436 $7,701 $94,401
18 $2,436 $8,613 $105,450
19 $2,436 $9,608 $117,494
20 $2,436 $10,692 $130,622
21 $2,436 $11,873 $144,931
22 $2,436 $13,161 $160,528
23 $2,436 $14,565 $177,528
24 $2,436 $16,095 $196,059
25 $2,436 $17,763 $216,258
26 $2,436 $19,580 $238,274
27 $2,436 $21,562 $262,272
28 $2,436 $23,722 $288,430
29 $2,436 $26,076 $316,941
30 $2,436 $28,642 $348,019
31 $2,436 $31,439 $381,894
32 $2,436 $34,488 $418,818
33 $2,436 $37,811 $459,065
34 $2,436 $41,433 $502,934
35 $2,436 $45,381 $550,751
36 $2,436 $49,685 $602,872
37 $2,436 $54,376 $659,683
38 $2,436 $59,489 $721,608
39 $2,436 $65,062 $789,106
40 $2,436 $71,137 $862,679
41 $2,436 $77,758 $942,873
42 $2,436 $84,976 $1,030,285

Joe did it!

He became a millionaire! Over his entire career of working minimum wage, he managed to acquire $1,030,285.

I know this may not seem possible, but it is. Joe's a complete idiot and he  became a millionaire. He did this by making some really smart choices early on. And despite whether Joe realized it or not, he was very patience and disciplined over the years. These two qualities are extremely important when it comes to investing!

Here's a little more of the nitty gritty of how Joe did what he did...

Joe's Million Further Explained

What Joe didn't know is that by putting his money into a Roth IRA, he was actually doing a very smart thing. That's because with a Roth IRA, his money was growing tax-free over time. In other words, all of the money that was in his account when he retired was rightfully his. The government doesn't get a penny of it.

Joe also made another wise decision by electing to invest in an index fund. In particular, the VTSMX.

This index fund, by Vanguard, invests Joe's money into all of the stocks in the United States. This is good because if one company happens to go bankrupt, it won't really hurt Joe because he has invested in thousands of other companies at the same time!

Over a long history, the entire United States stock market has grown on average somewhere between 9-10% annually. Now, that doesn't mean that every year it goes up by that much. Some years it will be much less. Some years it will be much more. But overall, in the long term, the average has equalled out to about 9-10%.

With that being said, the numbers in the chart above were figured with the United States stock market going up by an average of 9% each year. If the market went up by 10% each year, Joe would have had $1,379,592 at age 60.

Here's a quick breakdown of the results of Joe's retirement plan...

Starting amount: $0
Years to invest: 42
Additional contributions: $203 per month
Hypothetical annual rate of return: 9.00% compounded annually
Total amount invested: $102,312
Ending investment balance: $1,030,285

You have to admit, this is pretty exciting stuff! After all, you are way smarter than Joe is. I bet you probably already make more than minimum wage.

The numbers can get pretty astounding when you factor in daily contributions of more than just an hour of minimum wage.

If you can have the patience and discipline that Joe had over the years, you can easily build a retirement nest egg worth far more than what Joe's is. An important tip is to have everything automated and forget about it. You can set it up to where money will be taken from your account, whether it's weekly or monthly, and then place that money into your retirement account.

Despite how it sounds, it's incredibly simple to do. Once you have it set up, forget about it!

Go about your life as you normally would. You will notice that nothing changes and everything seems to be exactly the way it was before. The only difference is when it comes retirement time, you and Joe will have built up a huge fortune from your savings.

You and Joe might even become neighbors. Downing margaritas. Staying up until 9:30. And doing everything you've always wanted to do when you retire.

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