This past February, the story of Ronald Read, “The Millionaire Janitor”, started making headlines in mainstream media channels including CNBC. Mr. Read passed away in June 2014 at the age of 92. Most of his life he worked as a janitor and as a gas station attendant. Upon his death, his estate donated $4.8 million to a local hospital and $1.2 million to a local library, and his total net worth was estimated at over $8.0 million. How could someone who worked minimum wage jobs for most of his life amassed such wealth? Did Mr. Read win the lottery? Did he stumbled upon a buried pile of cash? Was it an inheritance from a wealthy family member? None of the above. Mr. Read built his wealth through the two fundamental pillars of personal finance: saving and investing. Let’s take a closer look at Mr. Read’s story to see what we can learn from this great man.
Mr. Read lived a frugal and unpretentious lifestyle which is what allowed him to save money over the years. Here are some of the highlights:
- He drove a second-hand Toyota Yaris. One of the best value cars in the market. With a fuel efficiency of 40 MPG and an average price of $4,400 (for a 2007 model), this vehicle choice allowed Mr. Read to put more of his money to work and less of it into transportation.
- His two hobbies were investing and chopping wood. Chopping wood kept Mr. Read active, which allowed him to live a healthy long-life with perhaps far fewer medical expenses than his sedentary peers. Investing, his other hobby, is a big part of what made him rich (more on this later).
- He lived in Brattleboro, Vermont in a modest neighborhood, which allowed him to keep his cost of living low, freeing up more of his money to work for him.
- He was an avid reader. According to his stepson, Mr. Read “would come home with a stack of books after having returned a stack of books”. Another wealth-building hobby. I bet he had no cable TV either.
After looking at Mr. Read’s life, it starts to make sense why he became a wealthy man. But $8 million is a lot of money, especially for someone who earned close to minimum wage most of his life. Let’s take a closer look into the numbers to see if the millionaire janitor story holds up.
Since we don’t know all the exact numbers from Mr. Read’s story, I will use what is publicly available and make some reasonable assumptions to recreate his road to riches. We do know that he started working as a gas station attendant in 1945, and that he constantly invested his money in blue chip U.S. stocks including AT&T, Bank of America, GE, CVS, Deere, and General Motors. Here are the key assumptions I used to recreate his finances from 1945 to 2014:
- His returns match those of the S&P 500 index, since we do not know his exact asset allocation.
- We adjusted for inflation so that we can see all the figures in today’s dollars using an average inflation rate of 3%.
- He earned an average hourly wage of $7.50 from 1945 to 2014.
- His average monthly savings were $250, equivalent to $3,000 per year. He invested all of his savings.
- He reinvested his profits to take full advantage of compound interest.
As you can see in the graph, Mr. Read’s story holds up mathematically. When using what we know, plus a few reasonable assumptions, we can see how he was able to amass a fortune of over $8 million. According to our model, Mr. Read reached financial independence around 1971. This is when he could have started living solely from his investments. (Download the Millionaire Janitor Data spreadsheet if you wish to see detailed calculations).
- Mr. Read is a great real life example of what can be achieved with time, discipline, and dedication. His savings and investing habits enabled him to amass a large fortune even with a low income.
- It is not about how much you make, it is about how much you save. If you make $100,000 per year but spend all of it, your net worth will always be $0.
- Investing is not an obscure subject that can only be learned by those who make a career out of it. Mr. Read did not even have a college degree, but he became an avid investor by reading about the subject.
- He donated a large portion of his wealth, which goes to show that it doesn’t take a high level of spending to live a happy and meaningful life.
- If he could do it, you can do it too!