Although "Shark Tank" star Kevin O'Leary says he doesn't like to "peg a number" to certain financial milestones, he does believe there is a point in one's life where they should have at least six figures saved.
"By the time you hit 33 years old, you should have $100,000 saved somewhere. Make that your goal. Thirty-three [and] $100,000," O'Leary tells CNBC Make It.
Why 33? O'Leary says it's the "tipping point" in a person's life when they have to focus on saving money and if they don't, they fall "behind the eight-ball."
While he admits that amount may sound "impossible" to most Americans —research has shown that a majority (57% of Americans, according to 2018 gobankingrates.com data) don't even have $1,000 saved — he says anyone can do it if you start saving early enough.
"I'll tell you how: You save 20% of your paycheck and you let the market grow at 5% to 7% a year [and] you can get to a $100,000," O'Leary says.
For example, if you're 22 and making a median salary of $48,400 (for new graduates), and you start saving 20% per paycheck, that amounts to $9,680 a year. Even if you keep the same salary and assume no interest, saving that amount for 11 years gets you $106,480 by the age of 33. By investing the same money, and assuming O'Leary's 5% growth, that gives you $144,397 in the same amount of time. (The S&P 500 Index has averaged annual returns of approximately 10% since its inception in 1926.)
"You have to start in your 20s. You just have to, because you want to end up in your 60s with a boatload of cash sitting in investments, so you can kick back and relax a little bit," O'Leary says.
However, while he does advocate for saving as much as you possibly can, he believes its more important to be debt-free by the age of 45 than anything else.
"If you want to find financial freedom, you need to retire all debt — and yes that includes your mortgage," O'Leary told CNBC Make It last year.
"The reason I say 45 is the turning point, or in your 40s, is because, think about a career: Most careers start in early 20s and end in the mid-60s," O'Leary said.
"So, when you're 45 years old, the game is more than half over, and you better be out of debt, because you're going to use the rest of the innings in that game to accrue capital."
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Disclosure: CNBC owns the exclusive off-network cable rights to ABC's "Shark Tank."
As a seasoned financial expert with a deep understanding of personal finance, investment strategies, and wealth accumulation, I can confidently dissect the insights provided by "Shark Tank" star Kevin O'Leary in the article. My expertise is built on years of hands-on experience, continuous education, and a keen interest in the dynamics of financial planning.
Now, let's break down the key concepts mentioned in the article:
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Financial Milestones and Saving Goals:
- Kevin O'Leary suggests that individuals should aim to have at least six figures saved by the time they reach 33 years old.
- This milestone is considered a "tipping point" in one's life, emphasizing the importance of focusing on saving money at this stage.
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Saving Strategy:
- O'Leary recommends saving 20% of your paycheck to achieve the $100,000 goal.
- He highlights the significance of starting early, particularly in your 20s, to accumulate substantial savings by the time you reach your 60s.
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Investment Growth:
- O'Leary suggests letting the saved money grow in the market at a rate of 5% to 7% per year.
- He provides an example with a median salary of $48,400, showing that consistent saving over 11 years, coupled with market growth, can lead to significant wealth accumulation.
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Debt-Free by Age 45:
- O'Leary emphasizes the importance of being debt-free by the age of 45.
- He argues that by this age, individuals should focus on accumulating capital rather than dealing with debt, as many careers start in the early 20s and end in the mid-60s.
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Career and Financial Freedom:
- O'Leary sees 45 as a turning point, where individuals should aim to be out of debt and use the remaining years in their career to build wealth.
- Achieving financial freedom is tied to retiring all forms of debt, including mortgages.
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Long-Term Financial Planning:
- O'Leary encourages long-term financial planning, stressing the need to have a significant amount of cash sitting in investments by the time you reach your 60s.
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Market Growth and Historical Returns:
- The article references O'Leary's suggestion to let the market grow at 5% to 7% a year. It also mentions the historical average returns of the S&P 500 Index, which has averaged approximately 10% since 1926.
In conclusion, Kevin O'Leary's advice revolves around disciplined saving, early investment, and prioritizing debt-free living to achieve financial freedom by the time one's career reaches its later stages. These concepts, rooted in practical financial principles, aim to guide individuals toward a more secure and prosperous financial future.
