Every Rich Person Does This 1 Thing to Accomplish Financial Freedom

People on welfare are investing in the stock market to be financially free and retire comfortably so do not tell me that you can not afford to invest. 

The rich have made it and every rich person will tell you that they invest in the stock market to work their money even while they sleep. Irrational fears, however, prohibit middle and lower class people from buying stocks. In a 2019 survey, 55% of Americans said they do not invest because they don’t have the money to do so. Combine that with a recent study in which 63% of non-investors thought that they need at least $1000 to invest and the result is a person who will probably retire in a minivan. 

There are no minimums to invest. You can start investing literally with a dollar and companies like Acorns, a fantastic mobile application in my opinion, takes pennies from your purchases and invests them for you. 

“I’ve had clients on welfare whom I’ve helped to find some extra money to put aside for investing, so if they can do it, so can you. The key is budgeting, honestly and diligently, and keeping to that budget as rigorously as you can,” revealed Kris Martin, managing partner of MT Wealth. 

People buy things that they do not need and can not afford wasting money away that could have been invested. Shark Tank investor Kevin O’Leary recommends that we take the ‘90-day test.’

“It is very simple, and doesn’t even require any technology. Look at everything you bring in, it could be a side hustle, a salary. All of the income, every single dime of it. Then you do the same thing for expenses. What you’ll find is many people are living above their means, and they’re spending more in a 90-day period than they’re taking in. Where you find it manifested is credit card debt, which is being charged at 18-21%. It puts people in a horrible place. You’re losing your net worth every year doing this.” 

Only 38% of Americans have enough money saved up to pay for urgent expenses like a $1,000 emergency room visit or a $500 car repair.

“I’m a big investor in the wedding industry. I have many companies that service weddings. Honeyfund is one of my companies and we do wedding registries, and we also have the data for years and years. You’ll find that most marriages fail, most unions fail, within seven years. Fifty percent of the time it has nothing to do with infidelity. It has to do with financial stress. One partner outspends the other, they don’t have a financial plan, they don’t have a goal,” added O’Leary who is the chairman of Beanstox, a mobile application that pulls small amounts into an automatically designed portfolio. 

Time in the market is more important than timing the market

A lot of people think they don’t have the knowledge to navigate the stock market. After all, the plethora of mostly negative news stories about the market can play with the emotions of seasoned investors so I can imagine what it would do to people who are on the fence. 

Your fear of staying away from investing is based on the very little history you know about the stock market: the crash of 2008 due to the subprime mortgage crisis and the crash last year at the onset of the coronavirus pandemic. 

Had you done your research, however, you would have found out that the S&P 500 Index, a collection of 500 popular stocks, has rewarded investors with an average 9% annualized returns between 1928 to 2016 in spite of the range of highs and lows you hear in the mainstream news media everyday. In other words, if you invest just $50 every month to buy a portion in each of the stock in the S&P 500 Index, you will walk away with close to $50,000 after 25 years. Double the amount of your monthly investment and you will find yourself sitting over $0.1 million. That is a lot better than leaving your money in a savings account with an average interest rate of a pathetic 0.1% and is also better than retiring with just social security. 

Average social security income is between $14,000 to $18,000 per year and a whopping two-thirds of Americans get more than half of their retirement income from Social Security.

Government retirement funds are designed to meet very basic human needs, “not to ensure everyone etires wealthy,” shared Martin. 

You may assume that by the time you retire your expenses will be much lower but ask any person who has reached that age and you will come to know that the cost of living actually increases: higher health insurance premiums, home maintenance, mobility aids, travel, inheritance for the kids, funeral expenses and nursing care to name but a few.

Billionaire investors recommend that people retire with one million dollars invested in the market. Why $1 million?

You need $50,000 to $60,000 to live off every year. If you have $1 million invested in the S&P 500 Index, the average annual return on investment, 9%, will give you the required yearly amount, after taxes, without dipping into your principal. But you have to start early. 

At age 30, you need to contribute only $5,000 every year to hit the million-dollar mark by age 65. At 45, you will need to invest $20,000 per year. A difference of $1,667 monthly for the 45-year-old versus only $416 per month for the 30-year-old. Man I wish I was 20! 

There is no substitute to starting early. It is tempting to wait for the prices to drop but the reality is that “people who do try to time the market tend to buy at or near market tops and sell at or near market lows.” A lot of professional investors do that and only a small margin of them succeed. 

Millennials have more time to recover their losses which allows them to take more risks but a stunning three out of four millennials do not invest. Last year, JP Morgan Chase spoke with 1,200 people and discovered that student loan debt is an inhibitor for 49% of non-investors

Should you pay off your student loan debt before going into the markets? No! Again, there is no substitute for time when it comes to investing.

Because student loan interest is quite low, 2-4%, and the average return in the stock market is at least 7%, you can make more money investing than you are paying in interest.

So what other excuses do you have to not invest?

It is amazing that we are not taught financial literacy in schools. I knew all about Charles Dickens by the time I finished middle school but frankly his world of fiction is nowhere remotely close to the real world. No prince charming or fairy godmother will come to alleviate our stresses. 

A user on reddit, inspired by the idea to help others reach financial independence, asked that “with the unprecedented inequality in this country, is it ignorant to think that the gap could tighten if a greater proportion of the 99% was invested?”

People like him are prompted by financial planning: A plumber who makes $50,000 per year can be more wealthier than a doctor making $250,000 per year as long as the plumber increases his net worth by saving and investing more over time. 

“On average, millionaires invest 20% of their household income each year. Their wealth isn’t measured by the amount they make each year, but by how they’ve saved and invested over time,” wrote Ramit Sethi in his New York Times bestseller, “I Will Teach You To Be Rich.”

Billionaire investors like Warren Buffet, Mark Cuban and Tony Robbins recommend that we take the safest route and begin with index funds like the S&P 500. This financial instrument has very low fees and most importantly the value of your portfolio is not hanging onto the fortunes of a single company. That strategy will help temper your fears that you will lose your money in the markets. 

Financial crises have happened and will continue to happen but they are only blips on the timeline of history. Consider this, a diversified portfolio of 70% stocks and 30% bonds, averaged 9.1% annual returns between 1929 to 2015. 

I know a lot of people who are storing money in their savings accounts in hopes to invest in real estate one day. Buying an investment property is fancy, for sure, but the returns are nowhere close to the amount of profit you can make in the stock market. A study from London Business School and Credit Suisse identified that, after adjusting for inflation, housing offered returns of only 1.3% per year from 1900 to 2011. 

And it is not as if you have to spend a lot of time researching. 

“Taking an active interest in your future and your finances can take as little as a few hours each year. There are certain investment strategies that allow you to go months without paying attention to them and require only a small amount of attention when you return,” wrote Martin. 

Market participation rate stood at 30% in 1963 and it has not significantly improved for those under 35: 37%. A lot of young adults dropped out of the market after the crash of 2008 and the volatility that followed. That is why I strongly recommend that you hire a financial advisor who will help diversify your portfolio so that it is far better protected from the swings in the market than it was under self management. 

You do not need to hire a professional for more than a few hours every six to twelve months and I know of worthy professionals that charge around $150 per hour so it is not like you will have to keep someone on retainer and spend thousands on them every few months.

The idea of hiring a professional, however, creates its own set of challenges. 

According to one report, one in 10 do not trust advisors because they can not differentiate between scammers and legit professionals. We know so little about financial concepts that we end up distrusting everything related to the industry when we see headlines like investors losing their hard earned money on derivatives trading due to collapse in the subprime mortgage securities.

Psychologist and career coach Kathy Caprino conducted an independent survey to identify the top reasons that people do not hire the help they need. She found out that those who have the money to invest worry about the return on investment or the lack of guarantees on the money spent. 

“Many of these (dare I say “excuses” in some cases) are outside of people's awareness – meaning, they actually have no idea the real reasons behind their reluctance and fear about getting help,” said Caprino.

“I’ve also seen that when we dig deeper to uncover core beliefs, there are numerous subconscious fears and worries that underlie the money concern that keep people from moving forward. Often, individuals suffer from a deep-rooted worthiness problem, and they lack the self-esteem, confidence, and internal commitment necessary to move forward towards their highest goals and dreams.”

Martin concurs with Caprino’s insights and says that the fear of missing out or FOMO can compel people to not put money aside because they will not be able to buy things they want today. 

“As children, we were taught that we must save our pocket money in order to purchase lollies or toys. We seem to lose sight of this notion as we age. People often find themselves in a mass of credit card debt from purchasing all the things they ‘need’ as soon as possible with no regard for the future.”