How do you go about getting rich? What’s the first step?
Surprisingly enough, the first step is to get a job. Preferably an hourly job, that grants overtime “OT”.
The second step is to pay yourself first from your job.
When you get a job, it must offer the opportunity to setup a 401K, many low wage companies offer these to their employees, It costs them very little, and sometimes they match a small % of the money you put in.
For example “Eligible Dollar Tree employees can participate in a 401(k) plan with up to a 4% match; vested immediately. “
Many people see this small % and don’t set it up, they think is not worth it to get free money. They are wrong 100% of the time. Free Money? The smart person takes all free money offered.
So setup your 401k as soon as allowed, set it up to take 10% out of your check, this is pretax.
Your take home will be a little smaller, and you will have to get used to living on less, it’s really not noticeable. Spend less on going out less or ask for more hours, OT.
Time flies while working, the years will roll by and you wont even notice it.
Say you’re making $10hr, that’s $20,000 a year and 10% is $2,000 being put into your 401k.
| Time | your 10% | company match | Total for this year | Average stock market return 10% |
|---|---|---|---|---|
| Year 1 | 2,000 | 800 | 2800 | 2800+280=3080 |
| Year 2 | 2,000 | 800 | 3080+2800=5880 | 5880+588=6468 |
| Year 3 | 2,000 | 800 | 6468+2800=9268 | 9268+926=10194 |
| Year 4 | 2,000 | 800 | 10194+2800=12994 | 12994+1299=14293 |
| Year 5 | 2,000 | 800 | 14295+2800=17093 | 17093+1709=18802 |
| at end of 5 years | 10,000 | $4000 (free money) | $10,000+8,802 | $4,802 (free money) |
Most companies 401k programs allow for loans against this amount, for purchases of cars and houses.
So after only 5 years you will have $18,000, is a good amount for a down payment on a house.
Typically you can do a loan again your 401k (the bank of you), you pay interest back on the loan to yourself, increasing the balance. The 401k people take the loan payments out of your paycheck automatically.
If you plan to leave that employer before you pay back the loan the amount will be considered a withdrawal and you will receive a 10% penalty. Which is still just $1,880, less than the free money ($8,802).
So now go see the posts about buying a house at a discount.
So 401k’s are always a good deal for the worker.
Plus The Government has increased the maximum yearly contribution, to $23,000 in 2024.
Which means for those making more than $20,000, you can put more in, up to $23,000.
If you’re willing to tighten your belt and live on less and put more into 401k, you can be rich very soon, just by working a regular job.
| Time | the max | no company match | Total | Average stock market return 10% |
|---|---|---|---|---|
| Year 1 | 23,000 | 0 | 23,000 | 2,300 |
| Year 2 | 23,000 | 0 | 48,300 | 4,830 |
| Year 3 | 23,000 | 0 | 76,130 | 7,613 |
| Year 4 | 23,000 | 0 | 99,130 | 9,913 |
| Year 5 | 23,000 | 0 | 132,043 | 13,204 |
| at the end of 5 years | 23,000 | 0 | 168,247 | 16,247 |
I know a couple of single guys at my last job, who did this for 10 years. Drove a 10year old paid off car, lived in a one room studio apartment, brought their lunch to work, never went out to the clubs, dated simply and cheaply. They income was $50,000 and they put $20,000 into the 401k, so it was like they only made $30,000 per year, which they could cheaply live on.
After 10 years, they took out a loan against their 401k balance and bought a duplex, a building with two apartments, one to live in and one to rent. The rental unit paid by their 401k loan. Which made their portion of the rent zero, so they increased their 401k contribution.
To me at $319,000 in their 401k, they were rich. But by buying the duplex, they became wealthy, because they were earning “passive income”. And they continued to work, because now with no money pressures, no one at work could cause they work stress. They bought a better newer car, took trips, traveled, and bought real estate in vacation areas, to AirBNB, to grow their wealth. Lived the good life, Wealthy.