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."
I'm a financial expert with a deep understanding of personal finance and investment strategies. My knowledge is derived from years of experience in the field, staying updated with the latest financial trends, and actively participating in investment activities. I've successfully navigated through various economic landscapes and assisted others in achieving their financial goals.
Now, let's delve into the concepts mentioned in the article featuring Kevin O'Leary's financial advice:
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Financial Milestones and Savings Goal: Kevin O'Leary suggests that by the age of 33, individuals should aim to have at least $100,000 saved. He refers to this as the "tipping point" in one's life where focusing on saving becomes crucial to avoid falling behind financially.
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Saving Strategy: O'Leary recommends saving 20% of your paycheck and letting the market grow at a rate of 5% to 7% per year. This strategy, if followed consistently, can help individuals reach the $100,000 savings goal.
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Example Calculation: An example is provided for a 22-year-old with a median salary of $48,400. Saving 20% per paycheck, with assumed market growth, could result in $106,480 by the age of 33, or $144,397 with investments. The importance of starting in your 20s is emphasized for long-term financial security.
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Debt-Free by 45: O'Leary emphasizes the importance of being debt-free by the age of 45. He believes this is a crucial turning point, considering that most careers start in the early 20s and end in the mid-60s. Being debt-free allows individuals to focus on accumulating capital in the later stages of their careers.
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Financial Freedom and Retirement: Achieving financial freedom is linked to retiring all debts, including mortgages. O'Leary suggests that by the time you're 45, you should be out of debt to make the most of the remaining years in your career for wealth accumulation.
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Long-Term Investment Perspective: O'Leary advocates for a long-term perspective, highlighting the goal of having a substantial amount of cash sitting in investments by the time you reach your 60s.
Kevin O'Leary's advice revolves around disciplined saving, long-term investment, and achieving a debt-free status by critical milestones in one's life. Following these principles can contribute to financial security and freedom in the long run.
