Living Below Your Means

The benefit may be more significant than you expect

When Ronald Read passed away in 2014, the headline in The Wall Street Journal read, “Route to an $8 Million Portfolio Started With Frugal Living.”

Read was famously frugal. When he came into town, for example, he would park his car several blocks from the town center to avoid having to put coins in the parking meter. That certainly contributed to his ability to amass an $8 million fortune after a career working as a gas station attendant and in other ordinary jobs.

But this headline overlooked a key ingredient in Read’s success: When he died he was 92. He had been investing for decades. And when he received dividends, he always reinvested them. The result was the magic of compound interest.

I don’t want to take anything away from Mr. Read’s investment success, but this is a great illustration of the importance of starting early. If you have a child or a niece or nephew in your life, I always say that the greatest (financial) gift you can give that young person is to explain what a Roth IRA is and to help them get started.