How To Turn $15,000 Into $1.6 Million Without Adding Another Dollar | David Bach

David Bach (0:00)

If you start at age 15, this is like my son, and you save $3,000 a year from age 15 to 19, at 65, this person's got $1,615,000 if they earn 10%.

Next kid starts at 19 and invests till age 26, never invest another dollar, they've got less, 1.5 million. Compound interest works when you start it, and you start sooner versus later. I say 20 people hear about money, at 30 people worry about money, 40 people really worry about money, and 50 people hyperventilate.

Tommy Mello (0:29)

Today, I got an awesome guest. You're gonna learn about wealth saving, retiring like a millionaire, David Bach's in the house. He's a former financial advisor, VP at Morgan Stanley, author of The Automatic Millionaire, Start Late, Finish Rich, Smart Women, Finish Rich, The Latte Factor. David Bach is a 10X Time Best New York Times bestselling author, entrepreneur and financial educator known for the Automatic Millionaire and Finish Rich series. David has taught millions of people how to build lasting wealth through simple automatic habits and inspired a global movement around financial freedom. And today, he's going to share with us an amazing new tax strategy.

David, thank you so much for being here, brother.

David Bach (1:14)

Good to be here. I'm so thrilled this could work out. Thank you. That did. It worked out well.

Tommy Mello (1:18)

Joe Paulish is just a connector, man, one of the best in the world.

David Bach (1:21)

The greatest connector of our life. I've known Joe since 1997 I see your book back here. I just sent him a picture of it.

Tommy Mello (1:28)

Yeah. No, he and I grew very, very close. He lives down the street from me. We probably talk, we're texting every day, and he texts everybody every day.

Let's just get started. Great to have you.

What's the number one piece of advice that you give people about money?

David Bach (1:46)

Super simple. Before I even say what it is, let me just say that I've worked with thousands of real life millionaires, not people who built business and sold businesses, people who had jobs making $50,000, $75,000, $100,000 a year. Average Americans, how they built real financial freedom is super simple. Comes down to three words, pay yourself first.

The word you can see, because I know you, I watched one of your podcasts and you were talking, it's all about paying yourself first. It's the flow of money. And so the way ordinary people in America have become millionaires, and by the way, as I updated the Automatic Millionaire book, there's now 24 million millionaires in America. And that's a number that's going to double in the next 10 years. And the bulk of these Americans have become wealthy by paying themselves first. But it's the second part that's the key. And we'll talk about what it means to pay yourself first. The key is those who paid themselves first and it worked, it worked because they made it automatic. It was all done automatically behind the scenes, right? Like you've got 1,015 employees you told me today. Okay, so when an employee has a 401k plan, the single most important decision they make is when they sign up for their 401k plan. It's that automatic decision where they're paying themselves first before they pay the government, which by the way, it's the only legal way to get to pay those taxes, right? So they've got to pay themselves first. The formula, and I'll give you the exact formula right now, you know what the number is to become a millionaire in your 50s.

It's one hour a day of your income. So the first hour a day of your income, so everybody who's working for you, if they're filling out the little form and they go, what is an hour a day of your income? It's 12.5% of your gross revenue. Now I actually want you to save more than that. I want you to save 15 now because you're going to need more money. The reality is with inflation, the cost of everything, you need to be saving minimum 10% of your gross income. Ideally 15%.

Now the formula, when I say it's a formula because we now have 40 years of data on this, Fidelity has the largest 401k numbers of anybody. There's Fidelity, there's Vanguard, there's Schwab.

Fidelity has right now 565,000 people who are millionaires in their 401k plans. It took them an average of 26 years and they saved 14% of their gross income. Now, in most cases, those people also had some kind of a match. Their employer put a match on top of it. And the breakdown of how the investments were inside the 401k plan is very important. It was 75% stock and 25% bonds. Now for your employees right now, who do you have your 401k plan with? Do you know?