How To Retire A Millionaire

Summary

In this insightful video, Steve Winn shares personal financial wisdom aimed at helping viewers retire comfortably. He emphasizes the importance of saving early and consistently, paying oneself first, and investing for the long-term to benefit from compounding returns. Steve also discusses the pitfalls of not saving during his early career, highlighting the significant impact of time in the market over market timing. With practical advice and free financial planning templates from HubSpot, the video guides viewers to balance present enjoyment with future financial security, reminding them that money is a tool for life, not the end goal.

Takeaways

• 😀 The importance of saving for retirement early in one's career was emphasized, as the speaker shared their personal experience of missing out on significant savings due to not investing during their early years.
• 💰 The speaker highlighted the impact of the 'Great Recession' on their retirement savings and how it led to a loss of $2,000, reinforcing the idea that investing can be risky but necessary for long-term financial health.
• 🚫 The video dispels the misconception that investing is a scam, showing that despite short-term losses, the long-term benefits of investing in the market can be substantial.
• 🔑 The concept of 'paying yourself first' is introduced as a key strategy for saving, suggesting that a percentage of income should be automatically set aside for future savings before discretionary spending.
• 🔄 The 'lifestyle treadmill' is discussed as a phenomenon where increased spending on luxuries leads to a higher baseline of living expenses, which can erode savings over time.
• 📈 The power of compounding returns in investments is underscored, illustrating how even small savings can grow significantly over time due to the exponential nature of compound interest.
• 💼 The advice is tailored for wage earners in the private sector in the US, but the concepts are presented as universal, applicable to anyone looking to save for retirement.
• 📊 The script introduces financial planning templates provided by HubSpot, which can help individuals track and manage their personal finances like a business.
• 🕊 The video stresses the importance of not obsessing over money to the point of neglecting life's experiences and relationships, advocating for a balanced approach to saving and living.
• 🏠 The FIRE (Financial Independence, Retire Early) movement is mentioned, explaining the 4% rule and how it can be used to calculate the amount needed to achieve financial independence and early retirement.
• 🎯 The final takeaway is a reminder that money is a tool for life, not the end goal, encouraging viewers to live their lives to the fullest while still planning for the future.

Q & A

What is the main message of the video sponsored by HubSpot?

The main message of the video is the importance of saving for retirement early in one's career, understanding the long-term financial implications of not doing so, and providing actionable advice on how to effectively manage personal finances.

What mistake did Steve make in his early career regarding retirement savings?

Steve invested $4,500 in his early career but lost $2,000 of it due to the Great Recession. He then thought investing was a scam and stopped saving for retirement for several years, missing out on significant market growth.

How much money did Steve estimate he would lose by not investing during the early part of his career?

Steve estimated that not investing during the early part of his career would cost him close to $3 million by the time he retires.

What is the advice Steve gives about saving money after receiving a paycheck?

Steve advises to 'pay yourself first,' meaning one should save a percentage of their income for the future before spending on anything else.

What is the 'lifestyle treadmill' phenomenon mentioned by Steve?

The 'lifestyle treadmill' is a phenomenon where people get used to luxuries, which become their new baseline. Over time, these luxuries no longer provide the same satisfaction, leading them to spend more to maintain or increase their lifestyle, which can negatively impact their savings.

What percentage of gross pay does Steve suggest saving per month?

Steve suggests saving at least 25% of one's gross pay per month.

What is the 'time in the market' principle that Steve emphasizes?

The 'time in the market' principle emphasizes the importance of investing consistently over time rather than trying to time the market, as it is virtually impossible to consistently buy and sell investments at the optimal time.

What is the FIRE movement and how does it relate to the video's content?

The FIRE (Financial Independence, Retire Early) movement is a lifestyle focused on saving a significant portion of one's income to achieve financial independence and retire early. It relates to the video's content as Steve discusses the importance of saving and investing for the future.

What is the '4% rule' mentioned in the context of retirement savings?

The '4% rule' is a guideline that suggests if you withdraw 4% of your retirement savings each year, your money is likely to last for the rest of your life, assuming a certain rate of return on investments.

What advice does Steve give regarding the balance between saving for the future and enjoying the present?

Steve advises that while it's important to save for the future, one should not neglect the present. He emphasizes that money is a tool to help in life and should not be treated as the ultimate goal.

What are some of the investment vehicles Steve mentions for saving for retirement?

Steve mentions 401k contributions, IRA contributions, and a three-fund portfolio as some of the investment vehicles for saving for retirement.

Outlines

00:00

💼 Early Career and Financial Missteps

The speaker, Steve, reflects on his early career when he didn't prioritize saving for retirement. He spent his money on material possessions and entertainment, leading to a significant loss due to the Great Recession. This experience taught him the importance of investing early and not being swayed by short-term market fluctuations. He emphasizes the value of saving and investing a percentage of income automatically to avoid lifestyle inflation and the 'hedonic treadmill', where increasing luxuries become the new normal, reducing one's savings rate.

05:02

💹 The Power of Time in the Market and Financial Planning

Steve discusses the concept of 'time in the market' over 'timing the market', illustrating the long-term benefits of consistent investing despite market volatility. He shares his personal experience of missing out on substantial gains by not investing during a bull market. The speaker advocates for a structured approach to personal finance, suggesting the use of financial planning templates provided by HubSpot to manage one's finances like a business. He also highlights the importance of compounding returns and the exponential growth potential of early investments, recommending automatic contributions to retirement accounts like 401k and IRA.

10:04

🏠 Balancing Investments with Life Goals

In the final paragraph, Steve shares his journey with the FIRE (Financial Independence, Retire Early) movement, which initially led him to an obsession with saving and investing at the expense of enjoying life's present moments. He advises against treating money as the ultimate goal but rather as a tool to achieve life goals. Steve emphasizes the importance of finding a balance between saving for the future and living life fully in the present. He concludes by stating that if he were to retire today, he would focus on creating and sharing content to help others, indicating that he is already living his dream.

Keywords

💡Retirement

Retirement refers to the point in an individual's life when they stop working and begin to live off their savings or pension. In the video, the theme of retirement is central to the narrative, as the speaker discusses the importance of saving for retirement early and the potential financial consequences of not doing so. The video emphasizes the high cost of not investing early, with the speaker estimating a loss of close to $3 million due to missed investment opportunities.

💡Investing

Investing is the act of allocating money with the expectation of generating income or profit. The video script uses the concept of investing to illustrate the potential for financial growth over time, especially when done consistently over a long period. The speaker shares a personal anecdote about initially losing money in the market due to the Great Recession and then realizing the long-term benefits of investing despite short-term losses.

💡Great Recession

The Great Recession refers to a severe worldwide economic downturn that took place mostly in 2007-2009. In the video, the speaker mentions losing $2,000 shortly after investing $4,500 due to the onset of the Great Recession. This event initially led the speaker to view investing as a scam, highlighting the impact of economic events on individual investment decisions.

💡Pay Yourself First

The concept of 'paying yourself first' is a financial strategy where one prioritizes saving a portion of their income before spending on non-essential items. The video emphasizes this strategy as a key advice for achieving financial stability and retirement readiness. The speaker suggests setting up automatic deductions to facilitate this habit, reducing the cognitive load and helping to avoid the lifestyle inflation trap.

💡Lifestyle Inflation

Lifestyle inflation occurs when an individual's spending increases in response to higher income, often leading to a pattern of escalating consumption. The video warns against the honic treadmill, a term used to describe the cycle of increasing lifestyle expectations and spending. The speaker advises paying yourself first to naturally limit discretionary spending and avoid the trap of lifestyle inflation.

💡Compounding Returns

Compounding returns refer to the interest or profits earned on both the initial investment and the accumulated earnings. The video script highlights the power of compounding as a critical factor in growing wealth over time, especially when starting to invest at a young age. The speaker uses the example of saving $1,000 at age 21, which could turn into $21,000 by retirement, to illustrate the exponential growth potential of compounding.

💡401k Contributions

A 401k contribution is a type of retirement savings plan in the United States where employees can contribute a portion of their pre-tax salary to a retirement account. The video mentions maximizing 401k contributions, which is part of the speaker's strategy for saving for retirement. The speaker also mentions the backdoor Roth IRA as a method to save additional funds beyond the standard contribution limits.

💡Roth IRA

A Roth IRA is a type of individual retirement account in the United States that allows after-tax contributions to grow tax-free. The video script discusses the backdoor Roth IRA, a strategy used by the speaker to contribute to an IRA even if the income limits for a traditional Roth IRA do not apply. This strategy is part of the speaker's broader approach to maximizing retirement savings.

💡Three Fund Portfolio

A three fund portfolio is an investment strategy that involves allocating assets among three broad categories, typically stocks, bonds, and cash or cash equivalents. The video script mentions the speaker's use of a three fund portfolio for automatic investments in mutual funds, which provides diversification and simplifies the investment process without the need for constant rebalancing.

💡Financial Independence, Retire Early (FIRE)

FIRE is a movement focused on aggressively saving and investing to achieve financial independence and retire early. The video script describes the speaker's experience with the FIRE movement, initially adopting an extreme approach to saving that led to an obsession with finances and a neglect of the present. The speaker eventually realized the importance of balancing financial goals with enjoying life.

💡HubSpot

HubSpot is a company that provides software products for marketing, sales, and customer service. In the video, HubSpot is mentioned as the sponsor of the video and provider of free financial planning templates. These templates are designed to help individuals manage their personal finances more effectively, emphasizing the importance of tracking financial health in a structured manner.

Highlights

The video emphasizes the importance of saving for retirement early in one's career, using the narrator's personal experience as a cautionary tale.

The narrator shares a personal story of losing $2,000 due to the Great Recession, leading to a belief that investing was a scam, and the subsequent realization of the mistake of not saving for retirement.

The concept of 'paying yourself first' is introduced as a key strategy for saving, suggesting that a percentage of income should be saved before any discretionary spending.

The video discusses the 'lifestyle treadmill' phenomenon, where luxuries become the new baseline, leading to increased spending and reduced savings.

The narrator provides a detailed example of how much an Amazon intern might make and suggests saving at least 25% of gross pay per month.

The video introduces free financial planning templates from HubSpot to help viewers manage their personal finances more effectively.

The narrator explains the long-term impact of not investing early, using a calculation that shows the potential loss of millions due to missed investment opportunities.

The principle of 'time in the market beats timing the market' is highlighted, emphasizing the power of compounding returns over time.

The video discusses different investment strategies, including maxing out 401k contributions and using a 'three fund' portfolio for a diversified investment approach.

The narrator shares personal investment experiences, including successes with cryptocurrency and failures with other investments, illustrating the risks and rewards of market speculation.

The concept of financial independence and the FIRE movement is introduced, explaining the 4% rule and the idea of retiring early through aggressive saving.

The narrator reflects on the pitfalls of becoming overly obsessed with saving and the importance of balancing financial goals with life enjoyment.

The video concludes with a reminder that money is a tool for life, not the end goal, and the importance of living life to the fullest while being financially responsible.

Additional resources for further exploration of financial topics such as HSAs, 529 plans, and mega backdoor Roth 401ks are suggested for those interested in more detailed financial strategies.

The narrator's current approach to saving and investing is summarized, focusing on automatic contributions, market investments, and a content creation passion project as a retirement goal.

Transcripts

this video is brought to you by HubSpot

when I finally got my first full-time

gig nobody sat me down to talk about

saving for retirement stepen is 20s

wasn't worried about that he was more

worried about how to spend his money on

throwing parties going to the club and

buying toys when someone did suggest I

contribute to retirement I invested

$4,500 and I immediately lost 2,000 of

it because of the Great Recession I

thought investing was just a big scam

and so I stopped saving for my

retirement for several years and I

missed out on one of the biggest markets

in history by the time I retire this

mistake will cost me close to $3 million

$3 million can buy a lot of things I

don't think I still own anything I

bought back then my cousin just finished

his internship at Amazon and received a

return offer and despite the fact that

I'm an Asian father now I'm super proud

of him he asked me how he should save

and invest his money so instead of just

telling him I thought it would make a

video to help as many people as possible

in this video I'll share with you the

three things that if you keep in mind

will help you retire as one too if

you're new to theel Channel welcome my

name is Steve Winn your uncle Steve or

Steve and I'm an L7 principal software

engineer on this channel we take a

structured and Engineering approach to

your life and career it's basically all

of the advice I wish I could give the

younger version of myself if you want

more of this type of content make sure

to sign up to my newsletter and join my

Discord this type of video is a

departure from what I usually talk about

but I think it's important so here we

are before I get into it this advice is

only applicable to people that are

fortunate enough to have enough money at

the end of the month to save the way

this economy is going with inflation

eating away at our savings the amount of

people that can actually save is sadly

shrinking it's tough out there right now

feels like going to the grocery store to

pick up butter and flour and some other

small things cost you like 80 bucks if

you're not paying attention now if

you're living paycheck to paycheck or

your income is going towards taking care

of somebody else I'm sorry hopefully the

situation you're in is temporary and

things will turn around my advice is

tailored towards wage earners in the US

private sector because that's where I

live and the sector in which I work but

the concept Concepts I think are

Universal I'll use numbers based on what

my cousin is likely to make if you're

not in Tech or don't make that much this

advice will also work because it's based

off percentages it's not really about

how much you make but how much you can

save before I get into the first lesson

let's talk about Steve circuit 2006 when

I first got my job at Amazon I made

$75,000 a year plus I got a 10K signing

bonus the signing bonus was more money

than I'd ever seen before in my life so

I bought a new car and moved out by

myself into an apartment in a trendy

part of Seattle I built myself a

top-of-the-line computer for gaming and

I got the nicest Apple laptop money

could buy and new golf clubs and a new

camera and a new snowboard and a new

wardrobe luckily I didn't go into debt

for this stuff but I was living paycheck

to paycheck and today I have nothing to

show for the income I made in those

early years now I have great memories of

that time in my life good times come

from your perception attitude and

openness to experiences which come from

within from here not from what I spent

or what I bought which brings me to my

first piece of advice which is that you

need to pay your yourself first another

way to say it is that you need to pay

your future self first when you receive

your paycheck the first step is to save

a percentage off the top for the future

then after you've paid your bills

whatever is left can be used for

discretionary spending some people may

say things like the time to have a

sports car is when you're young not

during your midlife crisis or you can't

take it with you you could drop debt at

any moment and what I would say to you

is that's a bad attitude don't talk to

your uncle like that people are living

longer and healthier lives and you can

still have an amazing life and

experience es without spending every

penny you earn on things you don't need

when you're young you tend to think in

binary you either spend your money and

have fun or don't spend it and have a

boring life but it's not like that the

people I know who have the most fun in

life bring the fun with them they aren't

necessarily my wealthiest friends did I

really need a new car would I be a

different person today with a slightly

used car the answer is no paying

yourself first isn't hard and actually

the best way to do it is automatically

so it takes less cognitive load you can

set up most accounts to automatically

deduct from your take-home pay or

periodically withdraw from your bank

account then it's super simple you can

spend whatever is left the order of

operations is really important suppose

you switch up that order and save last

so you pay your bills then discretionary

spending and then save for the future

well what happens is that you're leaving

yourself open to What's called the honic

treadmill it's a phenomenon where you

get used to luxuries and that becomes

your new Baseline over time those

luxuries no longer give you the same

positive feeling they used to and you

start to expand your lifestyle so you

spend more money upgrading what you have

the upgrading has no bounds which ends

up affecting your savings rate I'm not a

monk mode stoic productivity Guru I

don't take cold showers every morning

eat only lentils because they have the

highest calorie to price ratio and deny

all pleasures in an attempt to make as

much money as I can before I die but the

honic treadmill is a real thing so pay

yourself first and that will put a

natural constraint or boundary on your

discretionary spending if you don't

you'll pay your bills and the treadmill

will eat up all of your savings in the

future so let's talk numbers so you can

understand what I mean the the total

compensation for an sd1 at Amazon is

around 150 to 170k advertised over 2

years this includes their signing bonus

and stock in the form of rsus over that

time period so let's just use 150k to

simplify things which brings their gross

monthly pay to

$12,500 the tax man takes their cut

first they definitely pay themselves

first his effective tax rate as a single

person will be around 25% and after

Social Security and Medicare withholding

and since there's no Washington state

income tax let's say his take-home pay

will be around $99,000 I'm going to

suggest saving at least 25% of his gross

pay per month if he can keep his living

expenses below $3,000 a month he'll have

nearly 3,000 left over each month to do

what he'd like to if he wants to get

aggressive he can save that as well and

get close to a 50% savings rate or he

can just have fun with it the choice is

his now if you want to be more

structured with your personal finances I

highly suggest that you check out these

free financial planning templates from

today's video sponsor HubSpot the link

to download them is in the description

below these templates help you trat

create your finances like a business

because they are the reports that every

business generates so they can

understand how their finances are

tracking there's a personal finance

template to help you track your net

worth funds and debts there's a

financial projection template to help

you track projections versus actuals

which is really useful to understand how

things are progressing over time there's

a profit and loss template and a cash

flow statement template to help you know

how much you're making and losing and

there's a balance sheet template to

track assets and liabilities I'm of the

opinion that everybody should be able to

read and understand these reports

because they all have the same form whe

whether it's a small to medium-sized

business or a mega Corporation they tell

the story about the health of a business

whether it's a corporation you work for

or a business that you're thinking about

investing in and there's no better way

to learn how to interpret these reports

than by creating them for your own

personal finances these templates were

made by HubSpot a big shout out to them

for creating them and making them

available for free and sponsoring

today's video before I get into the

second lesson it's important to

understand why not saving during the

early part of my career was so

detrimental when the Great Recession hit

I had just put $45 $500 into my IRA a

type of investment account and almost

immediately it dipped $2,000 and I

thought investing and saving for a

retirement was a scam so I stopped

saving for retirement for 4 years I went

back and calculated how much I would

miss out on and the number shocked me

assuming a real non-inflation adjusted

annual return of 9% and a retirement age

of 66 that period where I didn't invest

for the future cost me 2.75 million and

that's my second piece of advice time in

the market beats timing the market to

calculate the $2.75 million I simply

used the non-inflation adjusted

historical return for the S&P however

this number doesn't take into account

that during the time I wasn't investing

there was one of the biggest multi-year

bull runs in history so the actual

number is easily over 3 million that I

lost out on you might think to yourself

I'm not making that type of money right

now what's a couple thousand or $100

going to do in the long run and that's

partially true most people will retire

in the year they make the highest salary

of their lives but even then it's really

hard to compete with the compounding

returns young people have time on their

side compounding growth is exponential

and that's really powerful even a little

money can snowball into a large amount

so suppose you're 21 and you can only

save $1,000 for your retirement the

historical growth rate adjusted for

inflation is 7% after 45 years at

retirement that turns into $21,000

adjusted for inflation if my cousin

saves $36,000 in his first year as I'm

advocating for by the time he turns 66

it will turn into

$750,000 adjusted for inflation and

that's the secret of how to retire a

millionaire pay yourself first by

allocating a percentage of your income

and investing it in the market over time

this will help smooth out the bumps in

the road when the market is down and it

will provide exponential returns it may

be boring but boring is good it's

virtually impossible to time the market

to buy and sell Investments at the

optimal time if you could do that you

wouldn't have to work ever again but you

have a day job so it's best not to

strive for a perfect timing here here's

what I do and what my cousin should do

too I max out my 401k contributions

which is this year around $22,500 I also

max out my IRA contributions through a

maneuver called the backdoor Roth IRA

everything else I save goes into my

brokerage account this all happens

automatically for me except for the back

door which requires me to do some

paperwork once a year and because timing

the market is impossible the funds are

automatically invested in mutual funds

with what's known as a three fund

portfolio that's pretty much it if you

don't even want to re balance there are

mutual funds that have a Target

retirement date which balances your

Investments for you there's a certain

piece of Mind associated with not having

to worry too much about the future I

auto invest set up automatic payments

for my bills and whatever is left in my

bank account I know I can spend without

worrying but sometimes I do have an

inkling to play the market and make some

bets and that's okay I may take a small

percentage of what I have invested to

make individual stock picks or invest in

emerging Technologies I made an

investment in cryptocurrency in 2015

that gave me a ridiculous outsized

return on only a couple thousand

invested however there were a bunch of

other things that I invested in that

went to zero those side bets didn't

affect my retirement as I don't touch

the vast majority of my investments so

put a little bit away every paycheck and

don't touch it until you retire it'll be

hard not to retire a millionaire if you

start young now if you don't want to

invest in the market but rather real

estate or some other investment vehicle

that's totally cool too to each their

own in that case what I would do is at

least have a 401k to receive any

corporate match and use Surplus for

saving for a down payment or servicing

your debt I might also back door into a

Roth IRA because you can withdraw your

contributions penalty free before I get

into my last piece of advice let me tell

you what happened when I started saving

for retirement again in the early 2010s

when I realized how much money I was

throwing away I fell into the fire crowd

fire stands for financial Independence

retire early the idea is dead simple

there's a thing called the 4% rule which

states that if you spend 4% of what

you've saved over your life every year

the money will out lasts you in other

words you'll die before you run out of

money which means that if you have saved

25% of your yearly expenses you can

achieve Financial Independence and have

the option of retiring early so if your

yearly living expenses are $80,000

multiplying that number by 25 gives you

a target number of $2 million for fire

if you start young this number can be

achieved in a relatively short amount of

time the core idea is a good one but I

went off the deep end I saved every

penny I could to make up for lost time

stopped eating out I stopped buying

anything that could be considered luxury

and everything turned into a calculation

of how much it cost me in the future my

life turned into an obsession over my

finances and I was not a fun person to

hang out with if you had The Misfortune

of striking up a conversation with me at

a party you would get an earful about

the technicalities of effective tax loss

harvesting not super fun I know it was

starting to affect my relationships with

others money was the only thing I talked

about which leads to my last piece of

advice life isn't about money money is a

tool to help you in life don't treat

money as the goal what made me realize

this are some post on the fire

subreddits a Common Thread is about what

you're supposed to do after you retire

after you buy all your toys and you take

all the vacations you wanted to I asked

myself what I'd like to do after

retirement and I couldn't come up with

an answer I had confused my life goals

with a tool that was supposed to help me

in life and I'd become insufferable in

the process I went from not saving

anything for the future to

overcorrecting and turning everything in

my life into saving for the future to

the point where I was neglecting the

present there are many technical aspects

to saving for the future and I've only

briefly touched on some of them their

hsas 529 plans and mega backdoor Roth

401ks if you're interested there are

numerous online resources available to

explore these topics in Greater depth

but I don't think about it too much

anymore I just pay myself first

automatically invest in keep in the

market for as long as possible and try

to live my life to the fullest if I were

to retire today all I would do is create

online content and give it away for free

so that I can maximize the number of

people I can help and the good I can do

in the world so in a sense I'm already

living the dream if you found this video

useful here's another video on how I

manage my time effectively if you've

already seen that one here's a video on

three career killers that you might not

even be aware

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