Shark Tank star Kevin O’Leary has a simple rule that he says can help middle class-workers retire as millionaires: Invest your money instead of spending it on things you don’t need.
“Let it compound,” he said. “That’s the gift the market gives you.”
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O’Leary recommends saving 15% of every paycheck (plus any income from side hustles and cash gifts) and letting it compound over time. While rising costs may make it more difficult to save 15% of your income, the math behind his advice is powerful. Doing so can mean having enough for a comfortable retirement that allows you to travel, spend time with family and more.
Kevin O’Leary’s 15% rule
O’Leary’s basic advice boils down to saving and investing 15% of every dollar you earn — and it's a common recommendation in financial planning circles. If you earn $100,000 annually before taxes, this rule stipulates that you should save and invest at least $15,000 per year or $1,250 per month. A $50,000 salary would require setting aside $7,500 annually to invest, or $625 monthly. Not only will the savings grow as you set aside more money each year, but you can also generate long-term returns in your portfolio. A 7% annualized return over 40 years turns $625 monthly investments into more than $1 million before inflation and taxes.
The $1 million figure is not a guaranteed outcome since returns fluctuate. But you can use interest return calculators to get a general sense of how much your money can grow (and how much you have to save to reach your goals).
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Trim your spending
O’Leary suggests that you can save more each month by trimming your spending. Monitoring your spending can help. There may be an unused subscription that you no longer need, or you may be spending more money on entertainment and dining out than you think. You can often check your banking apps for breakdowns on how much you're spending in each category, or turn to a budgeting app such as Quicken Simplifi or Monarch.
Getting a used vehicle instead of a new one, cooking meals instead of ordering delivery and delaying your next smartphone upgrade can also help. But because a mortgage or rent is often someone’s largest expense, consider whether there are ways to cut back on your housing costs if you’re looking to save a significant chunk of change. Debt can also be a costly burden, especially if it’s a high-interest debt such as credit card debt, so you may want to prioritize paying it down.
How to apply the rule simply
Say you make $50,000. If you only have $100 left over each month after your essentials, you likely won’t jump to investing $625 per month within a few weeks. Having the goal of $625 per month may be enough to help you trim some expenses, pay down some of your debt and look for a side gig.
You can start by contributing enough to your 401(k) to get your employer’s full match, if one is available, and increasing contributions by 1% every few months or upon receiving a raise. Many financial advisors recommend prioritizing tax-advantaged accounts first and setting up automatic contributions so you never see that money in your checking account. It’s also important to have an emergency fund that can cover at least three to six months of your expenses. Then, depending on your goals, you can consider opening an individual retirement account (IRA), taxable brokerage account or another type of savings and investing vehicle.
