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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.
Here is a real-life example of a person who turned out to be a millionaire by earning below average salary throughout his lifetime.
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
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.
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 |
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 |
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.
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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