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."
Kevin O'Leary's financial advice often sparks discussions due to its practicality and specific milestones. As someone deeply versed in personal finance, let's break down the concepts in this article:
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Savings Goals by Age: O'Leary suggests having $100,000 saved by the age of 33. This advice is rooted in the idea of establishing a financial safety net early in life. While the figure might vary for individuals based on their circ*mstances, it emphasizes the importance of setting achievable financial targets for different life stages.
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Saving Strategy: O'Leary proposes saving 20% of one's paycheck, coupled with market growth at 5% to 7% annually. The combination of consistent saving habits and investment growth demonstrates the power of compound interest in wealth accumulation.
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Example Calculation: By starting at 22, saving 20% of a $48,400 salary per year, one could accumulate $106,480 by 33, without factoring in interest. However, with investments and an assumed 5% growth rate, this amount could grow to $144,397. O'Leary points out the historical average return of the S&P 500 Index (around 10% annually since 1926) to support his claim.
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Starting Early: O'Leary stresses the significance of starting to save in one's 20s, highlighting the long-term benefits of early financial planning and investment. This aligns with general financial advice advocating for the advantages of starting early due to the compounding effect.
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Debt Management: While O'Leary emphasizes savings, he places equal importance on becoming debt-free by age 45. He argues that by this age, individuals are past the halfway mark of their careers and should focus on accumulating capital instead of debt.
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Career and Financial Planning: O'Leary ties age-related financial milestones to career stages, highlighting the importance of aligning financial goals with career trajectories. He advises that by 45, individuals should prioritize being debt-free to leverage the remaining working years for wealth accumulation.
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Long-Term Financial Freedom: O'Leary's overarching message emphasizes the importance of financial freedom, allowing individuals to retire comfortably without the burden of debt. This aligns with broader financial principles emphasizing the significance of financial independence and planning for retirement.
These concepts reflect a nuanced understanding of financial planning, encompassing savings, investments, debt management, and long-term goals. O'Leary's advice serves as a roadmap for individuals aiming to secure their financial future through disciplined saving, prudent investment, and strategic debt management.
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