Want to become a millionaire? YouTuber and investment guru Preston Seo said it’s possible if you know what numbers to track. Seo said that even if you’re putting away money in savings every month, you could still be losing money if you’re not employing the right growth strategies.
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On his YouTube channel Legacy Investing Show, Seo made a video that breaks down exactly what you should be looking at to fast track your journey to becoming financially free. Find out what those three numbers are and how to use them to grow your wealth.
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Net Worth
The first number Seo said you need to be aware of is your net worth. Your net worth is your assets minus your liabilities. Your assets are defined as things like property you own, stocks you invest in and money you have in the bank. Your liabilities are any loans or debt you have. Seo pointed out most people don’t track their net worth closely or regularly.
“The moment you start tracking your net worth, you stop playing the ‘I hope I have enough money’ game and start actually building wealth,” he said.
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Seo said this doesn’t have to be a formal process. You can just update your numbers in a spreadsheet once a month and track what’s growing and what’s holding you back.
“Once you see that number consistently going up, you’re going to be addicted to making smarter financial moves,” the YouTuber said. One smart move he suggested was taking money from a traditional savings account and putting it in investments or at least a high-yield savings account.
Savings Rate
Knowing your net worth is great, but it really doesn’t matter if you’re spending everything you make.
Seo defined savings rate as your income minus expenses divided by your income multiplied by 100. So if your monthly income is $5,000, and you spend $3,000 of it you take 2,000 and divide it by 500,000 and you get a savings rate of 0.004. The higher your rate, the faster you’ll reach financial freedom, according to Seo.
“Most people save less than 5% of their income. That means they have to work for 40 [plus] years before they can retire. But if you save 50%, you cut that time in half. If you push yourself to 70%, maybe 80%, you become financially free in less than a decade,” he explained.
Freedom Number
Seo said your freedom number is the amount of money you need to make in order to never work again.
“Most people don’t even know this number exists,” the expert noted. “They work their entire lives with no clear goal of how much they actually need to retire, but once you calculate this number, everything changes.”
Seo explained you can calculate your freedom number by multiplying your monthly expenses by 12, then take that number and multiply it by 25. So, using the example above, you’d multiply your monthly expenses of $3,000 by 12, which is $36,000. Then you’d multiply that by 25, and that’s $900,000.
Seo explained this is based on the 4% rule, which says that if you withdraw 4% from your portfolio every single year, your money should last indefinitely. The idea is that as long as the investments you make yield 4% per year, your money should last forever.
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This article originally appeared on GOBankingRates.com: 3 Numbers To Track To Reach Millionaire Status, According to Preston Seo
