Dave Ramsey has promoted for decades the idea that everyone should retire a millionaire by saving 100 a month for 40 years earning 12 percent. For some reason a lot of discussion was spurred when Dave Ramsey posted it on Twitter

While most people balk about the 12% return, nobody can dispute the effects of saving a little bit of money over a long period of time. It is the long period of time part that can make anyone rich.

Diving into the minutia of this concept will shed some light on the meaning behind Dave Ramseys statement. It brings hope to those who feel they will never have enough money to retire or for the life they have envisioned. It can also bring action to doing something critical for their financial future, which is even more important than rate of return.

Saving 100 a month

This action by itself may not seem significant, but the failure to start saving money will cause people to remain broke, or worse poor.

Saving money is important, and I think we can all agree that saving money is something we should all do more of. Whether it is $10 a week, $100 a month, or committing to invest your Christmas bonus every year, the action of saving money every month is the most important step in joining the Millionaire Net Worth Club.

for 40 years

Nobody enjoys the idea of conditioning themselves for a long period of time. This is especially true for young adults whose only exposure to investing has been the constant chant of The Great Recession by CNBC.  Saving and investing takes money away from today and puts it out of sight, out of mind. It makes the money we do have to use today seem even smaller. Who wants to experience that? The only enjoyment from this discipline comes when the quarterly statement shows up in the mailbox after there has been a good run in the market.

$100 a month stashed in a cookie jar for twelve months is $1,200. Even without the possibility of growth it is still better than never starting to save at all. Beginning the process of investing the equivalent of a Benjamin Franklin for the next 40 years in a row is the second stage of initiation into the Millionaire Net Worth Club.

earning 12%

Here is where many of those who argue with Dave Ramseys statement become derailed on the concept. Over the past 10 years the DOW has increased by 8.55 percent, the S&P 500 increased 7.94 percent, and the NASDAQ increased 8.5 percent (according to Morningstar). It can be argued that inflation and fees has a lot to do with the balking of Dave Ramseys 12% ROR statement, I cant say that I have constantly earned that much every month over the past 20 years, but earning something in the way of growth or interest in an investment account is better than nothing.

Past performance is not an indicator of future returns. However, arguing about rates of return only frustrates potential investors from doing anything, which in turn causes them to miss out on receiving any meaningful returns. Earning some form of return is the third step to joining the Millionaire Net Worth Club.

turns into 1 million dollars

Is Dave Ramseys promise of you becoming a millionaire supposed to trick us into saving? I believe the answer to this question is yes, and no. Making a bold statement that saving $100 a month for 40 years earning 12% will turn you into a millionaire does seem like a pie-in-the-sky promise, especially when you consider it turns $48,000 into $1,000,000, but the math does prove it to be true.

• $100 earning 12% annually turns into $101 in one month ($1.00 is growth)
• Adding another $100 to the existing $101 investment earning 12% again turns into $203.01 because of compound interest

• Continuing this process for 10 years will more than double the value of the account
• Interest and reinvested dividends buy more shares that grow more interest and more reinvested dividends, thus a millionaire is born in 40 years

Dave Ramseys statement does base its promise on a false premise that we will earn 12% for 480 months. But people immediately jump to the conclusion that you cant get a 12% rate of return, causing the entire statement to be false. They are only partially correct. Many years we have seen drops in the market and many years we have seen returns greater than 20%. The DOW dropped to 6,500 in 2009 and closed above 15,000 four years later. What would the value of your new car or a couple of iPhones be in four years?

My $100 a month experiment

I started an experiment in 2013. My goal is to test the $100 a month for 40 years principle. I opened up a Roth IRA with Betterment * and have $100 drafted out of our checking account on the 15th of every month. Their funds are in ETFs, which I am not entirely convinced are the best investment vehicles for me, but they are better than doing nothing. I honestly do not believe the hundreds of stocks the ETFs are buying will all go bust at the same time if they did then America will be in bigger trouble than we could ever imagine.

I believe so strongly in the $100 a month principle that I have committed to saving up to $24,000 into my Betterment * account over the next 20 years. Why only 20? Im probably a bit older than you are and will hit retirement age before I can test the full 40 year theory. It will also be interesting to see how my $100 a month Roth performs when compared to the dull, more experienced mutual funds I have in other retirement vehicles.

Ride the roller coaster. Learn about investing and how it works. Dont take anyones advice for granted and definitely dont put money into something you dont understand. Life is too short to worry about earning the right amount of interest. It is certain that saving money over a long period of time will make you richer than your current, younger self.

Im putting my money where my blog is

Dave Ramsey says saving only 100 per month from age 25 to age 65 making 12% growth = $1 million

If you would like to join me in my experiment then would you please consider saving $100 a month for yourself? Start with your works 401(k), a self-directed Roth IRA, or start a Roth with Betterment *. I know you will find it extremely easy to open a Betterment account and scheduling to send $100 automatically for you is a snap.

*This is an affiliate link for which I will receive $10 if you join. If you are convinced that this is just a sales pitch to get money out of you then I understand. Feel free to close your browser now if you have another way to invest for your future. However, if this article spurred you into starting to save $100 a month then I would appreciate any comments or feedback. It could encourage others to begin saving.

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Having a million dollars will get you instant admission into the Millionaire Net Worth Club.