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HOW CAN I GET RICH ON A SMALL SALARY? Decoding the Life of Ronald Read
Have you ever been taught about the ways to generate wealth?
Do you think it is impossible to accumulate wealth due to low income?
The answer to this is no. Hopefully, there are ways in which you could accumulate wealth despite earning low wages.
Table of Contents:
How to Build and Accumulate Wealth on a Low-Income?
Ronald Read (1921-2014) – Janitor to Millionaire
Decoding the investment strategies
How to Build and Accumulate Wealth on a Low-Income?
Here is a real-life example of a person who turned out to be a millionaire by earning below average salary throughout his lifetime.
He has lived in such a way to showcase to us “How to Become Rich with Less Salary?”
This article is all about the story of Ronald Read, a successful investor whose paycheck was $1,800 per month & his estate was about $8 Million.
Generally, we as investors look for role models or just follow some legendary investors like Warren Buffet or Rakesh Jhunjhunwala.
But there is a myth that says only people having high disposable income can follow these successful investors.
However, even people from low-income households who want to climb up the ladder can surely follow in the footsteps of Ronald Read and acquire wealth. Let us find out how.
Who is Ronald Read?
Why did he receive high media coverage after his death?
The financial lessons to be decoded from his life are numerous.
Let us look in detail.
- Ronald Read – Janitor to Millionaire
- Decoding the Investment strategies
- Savings percentage
- Starting early
- Reinvesting
- Diversification
- Key Takeaways
Ronald Read (1921-2014) – Janitor to Millionaire
Ronald Read served in The United States Army during World War II. He was discharged from his duties in the year 1945. Then, he worked as a Gas Station attendant (Automobile Mechanic) for 25 years. Even in his 60’s he took a part-time job where he worked as a Janitor (Caretaker/Security) at a retail store for 17 years.
He worked for a minimum wage for most of his life. Yet Ronald was able to transform it into a sizable sum of money.
It was quite surprising to his friends & family who had no clue as he was quietly holding on to wealth worth $8 million.
Out of the wealth he has donated $1.2 Million to a local library & $4.8 Million to a Local hospital. People seemed astounded when they came to know about the fortune he left behind when he died at the age of 92.
Are you astonished?
Then, let us take a closer look at Ronald’s investing strategies & pick up a few tips to improve our investing skills.
Decoding the investment strategies
1. Savings Percentage
Ronald Read lived frugally but not poorly. He led a minimalistic lifestyle. A minimalistic lifestyle is a process rather than a simple decision. It will be easier to save money because you will be spending less.
“And since you can build wealth without a high income, but
have no chance of building wealth without a high savings rate,
it’s clear which one matters more.”
― Morgan Housel, The Psychology of Money.
Most people with the low-income struggle to save or do not have the habit of saving.
The fact is everyone can save irrespective of how much they earn if they have discipline in savings. The more you save, the early you retire / the more you accumulate money.
Here is an example to help you understand better.
Let us assume a 30-year-old who earns Rs.30, 000 per month & saves 10% of his income. The assumed rate of return is 7%. Let us also assume that he has a salary growth of 3% per year till the age of 60.
| Savings percentage | Total corpus at the age of 60 |
| 10% of Income | 48,41,602 |
| 15% of Income | 72,62,404 |
| 30% of Income | 1,45,24,807 |
From the above table we can say that if he saves just 10%, he would have accumulated around 48 lakhs. Whereas if he saves 30% then he would have accumulated around 1.45 crores.
This clearly shows that the savings percentage has a higher impact.
The discipline of savings can be achieved either by the old age method of jotting down all your expense in a note/excel sheet or use the expense tracker mobile apps.
One more way is to budget your expense & transfer the budgeted amount from your salary account to a separate bank account & limit your expense within that.
The discipline of savings can be inculcated by setting up a Systematic Investment Plan (SIP). Here, you are committing to invest a fixed amount every month.
As the name suggests it is a systematic method of investing a fixed amount of money. If you continue to do this for a longer period, then it helps you to beat inflation.
How to Build Wealth and Become Rich with Low-Income?
“REGULAR Savings & Investing is the key to Financial Success”
This is 95 % of the advice that anyone needs for serious wealth building.
Again, read the statement, it says regularly.
The answer to the question “How to save money to get rich?” lies in that one word “Regularly”.
You will think that what a simple statement it is. I want to be a millionaire; I want to be a crorepati and you are talking about savings?
Unfortunately, savings & investing is a residual activity and this is the 90% amount for future financial worries.
What we are doing is, getting a fat paycheck, we do expenses, we pay bills out of it, we pay debts, we pay credit card bills, we pay enjoyment expenses.
So, what happens?
At the end of the month, you have nothing left for savings and investing. Am I right?
Or sometimes we can save some amount from our paychecks, then what happens? According to the above statement, we can’t maintain REGULARITY in savings and investing. So it’s worthless.
This simple piece of advice is at the heart of the money mystery to be a millionaire is “You don’t have to do large businesses or fat paychecks. Yeah, it’s true! You just need “Regular Savings & Investing”
2. Starting early
Ronald Reed started his employment in the year 1945 at the age of 24. He worked for almost 42 years & retired in his late 60s. Since he started saving at a young age, he was able to acquire a substantial fortune.
“Compound Interest is the 8th Wonder of the World.”
― Albert Einstein.
Let us now work out what should be the monthly savings, if a person wants to accumulate wealth worth Rs. 1 crore at the age of 60. The assumed rate of return is 7%. Let us also assume that he has a salary growth of 3% per year till the age of 60.
| Start Saving (Age) | Retirement Age | Tenure (Years) | Monthly saving |
| 25 | 60 | 35 | 4086 |
| 30 | 60 | 30 | 6196 |
| 35 | 60 | 25 | 9637 |
| 40 | 60 | 20 | 15568 |
| 45 | 60 | 15 | 26750 |
As the table suggests If he starts saving at the age of 25, the monthly savings required is just Rs.4000 to accumulate Rs. 1 crore at the age of 60. Instead of starting at 25, if he starts at 45, then he needs to contribute Rs. 26,750 to accumulate Rs. 1 crore at the age of 60.
The reason being when you delay your investment, the more you need to contribute. The following table depicts how a person can accumulate wealth by investing in a mutual fund. And also the difference between the final corpus achieved under each scenario shows the importance of starting early.
| UTI Master Share fund (Growth) – Monthly SIP Rs.25000 | |||
| Tenure (Years) | Monthly Investment | Total Investment | Final Corpus |
| 5 | 25000 | 15,00,000 | 20,81,010 |
| 10 | 25000 | 30,00,000 | 57,18,720 |
| 15 | 25000 | 45,00,000 | 1,22,04,290 |
Can we become billionaires by investing in mutual funds?
The above example explains how to get rich by investing in mutual funds.
In the long run, no other asset class can match the returns from equity.
Markets grow in tandem with the nominal GDP growth rate. Good quality funds and stocks provide higher returns than the same. In the long run; markets, good funds, and quality stocks keep only going up.
Equities are slave to earnings. As long as economy and earnings grow, markets would continue to do well.
Investing regularly with discipline (Mutual Fund SIP) would help you to benefit from stock market cycles and build huge wealth.
This simple piece of advice is at the heart of the money mystery to be a millionaire is “You don’t have to do large businesses or fat paychecks. Yeah, it’s true! You just need “Regular Savings & Investing”
The scientific reason behind this is that, – Compound Interest.
Once you have Saved and Invested- your money has started working for you.
You just do one thing and that is regular savings and investing – the rest will be taken care by the Compound effect.
To get a better understanding, let us recall an old story. A sage named Sissa invented Chess & presented it to a King. In gratitude, the king agrees to reward him for his invention.
A Story on “How Compounding Works?”
Sissa wishes to receive one grain in the first square & which is then doubled on every following square. The sum of all the 64 squares is 18 quintillion.
That is more than 1000 times greater than the current production of grains in the world. In mathematics, it is termed as exponential growth. This is the power of compounding.
The practical implications of compound interest are substantial. A small amount invested at regular intervals can fetch more returns. Mutual fund investments are one such investment where you can enjoy the benefit of compounding.
You can reap a significant return in the long run. The following is a real-time example.
| Kotak Bluechip fund (Growth) – Investment from Jan 2008 to Dec 2022 | |||
| Tenure (Years) | Monthly Investment | Total Investment | Final Corpus |
| 15 | 5000 | 9,00,000 | 25,29,289 |
| 15 | 10000 | 18,00,000 | 50,58,577 |
| 15 | 15000 | 27,00,000 | 75,87,866 |
| 15 | 20000 | 36,00,000 | 1,01,17,155 |
| 15 | 25000 | 45,00,000 | 1,26,46,443 |
What is the best way to accumulate wealth?
You will ask what is the ideal time for this. When one should start “Savings & Investing”? Well, the answer is – as early as possible – means now. Don’t wait for tomorrow if you can start today. It is that much important. Don’t underestimate the power of this simple-looking advice.
So from next month when your paycheck arrives, you do one thing. You tell your bank that just within 2 days of your paycheck being credited to your account, cut a minimum of 10% and a maximum as much as you want before you do any expense and divert this money into some good, well-diversified Equity mutual fund.
So, from next month, your second expense must be “Savings & Investing” Why the second expense? what is the first expense? Well, it’s the tax that your employer cuts from your paycheck before it gets into your hand.
So, you learn to live with 90% or less of your salary first. Believe me, first you will find it very difficult but after 6-8 months you will be surprised that, you can live with 90% of the amount as happily as before.
If you don’t save and invest in early life and in later life if you go to some financial planner then he will also tell you to do this thing. If you attend any financial literacy seminar over the world, at the heart of every seminar “Regular Savings & Investing” is the key.
No other advice is remotely as effective as this. Because this is time-tested advice from the last 8000 years from Ancient Babylon (6000 BC) to the modern Information Age.
The best way to build wealth is to choose a long-term (not less than 10 years), invest regularly and stay invested for the entire tenure. Hopping in and out of the market can make you miss some best days which would significantly dent the returns you would have obtained by simply staying the course.
Always remember what John Bogle said:
“Stay the course. No matter what happens, stick to your program. I’ve said ‘Stay the course’ a thousand times, and I meant it every time. It is the most important single piece of investment wisdom I can give to you.”
Investing regularly for long-term in equity would definitely ensure not only peaceful retirement but passing on good wealth to the next generation as well.
No matter how young or how old you are, just do this one thing. But AGGRESSIVELY! Not Residually! Instead of thinking that “What’s the hurry, I will do savings and investing in the future”, think that “I will do regular savings & Investing Now and forever”!
Another observation noted is that, if you start “savings and investing” in your early stage of life, you will be able to save more. You get your first paycheck at 22 or 25. At an early age, you have no liabilities like debt, children, marriage etc. So, you can invest maximum if you want. Once you are married and have children and you have liabilities, then it will impact your savings capacity.
Another statistical observation is that, at retirement, 90% of your net worth amounts to savings & investing from the first 5 years of your earning (means when you first started savings & investing) life. Yeah, this is true! So try to save and invest as much as possible in the early 5 years of your career rather than earning a lot in later life.
So Moral is that…
No matter how much you earn you have to keep a minimum of 10 % and a maximum of as much as possible aside from your monthly paycheck as a “Savings and Investing”. Don’t take it as a residual activity. It is better to start early rather than forcing yourself earn a lot in the later years of life to catch up the gap.
There is not a single piece of advice in the literature on “How to make wealth in life?” as effective as this one. Believe ME!
3. Reinvesting
Ronald Read always focuses on companies that gave good returns so that he could reinvest the money.
“I have a problem with too much money. I can’t reinvest it fast
enough, and because I reinvest it, more money comes in. Yes,
the rich do get richer.”
― Robert Kiyosaki
Reinvestment is an effective strategy where the income received from the investment is ploughed back into that investment instead of receiving it in cash.
Here the dividends can be used to buy more stocks, interest income can be utilized to buy more bonds. One of the key benefits of reinvestment is that your investment grows faster compared to redeeming your returns
Unless there is a necessity for cash flow, make your FDs cumulative. Similarly, mutual funds have two options for all fund categories.
They are Income Distribution cum Capital withdrawal (IDCW) and Growth option. Under the IDCW option, the profit made by the fund is distributed to the investors at regular intervals. Under the growth option, the profits made by the fund are reinvested in the fund to drive future growth. Always choose the growth option in Mutual funds.
4. Diversification
Ronald Read owned shares across industries which include Healthcare, Telecommunication, Banks, Consumer Goods, Rail Transport, and Public Utilities.
He owned shares of Lehman Brothers when it went bankrupt in 2008, the bankruptcy minimally affected his returns because his investments were diversified.
“Successful Investing is about managing risk, not avoiding it”
― Benjamin Graham
Ronald Read relied on The Wall Street Journal to pick blue-chip companies. Unlike Ronald Read who just focused on shares, we could also shift our investment to other asset classes.
Diversification is a technique that helps to reduce the overall risk of the portfolio & tries to maximize the return. We could balance the risk & reward in your investment portfolio by diversifying your assets.
For a newbie investor, the practical application of diversification may seem daunting. Or some investors do not find time to technically analyze various things & invest.
Such investors can choose Mutual fund investments. Mutual funds invest across sectors & market caps thereby minimizing the risk involved.
When it comes to the mutual fund, the fund manager manages your investment. And also the risk is well diversified by a professional team, and the potential return of the mutual fund is manifold.
To get even better insights on Ronald Read Investment Strategies, we recommend watching this video:
Key Takeaways:
It is not how much you earn, but how much money you save.
Ronald’s life was a perfect example of someone who wants to build wealth from ground zero.
Being rich is different from being wealthy. Rich people believe in materialistic things & show off more. A wealthy person would always limit his things to necessities.
“Life is not accumulation; it is about contribution” – Stephen Covey.
“ஆகாறு அளவிட்டி தாயினுங் கேடில்லை
போகாறு அகலாக் கடை.”
Thirukkural – Couplet 478
Incomings may be scant; but yet, no failure there, if in
expenditure you rightly learn to spare
― Thiruvalluvar
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