How To Build Your Nest Egg In 2024

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We will now meet ABC's Shark Tank star Kevin O'Leary, chairman of O'Leary Ventures and Bean Stocks. Kevin, welcome to the show!

Thank you very much. So, we're going to be talking about nest eggs, and it's so crazy—a statistic that I found. According to a Lending Club report, more than 60% of Americans live paycheck to paycheck, and this was as of September of 2023. So how can we create a nest egg if we are living paycheck to paycheck?

Well, first of all, that is a staggering stat. It's actually 62%. There are a bunch of people who measure this, and it's very scary. But here's the problem: the average salary in America, depending on what region, what geography you're in, is around $58,000 to $64,000.

So, the only way you can build a nest egg is when you start your career. When you start working, you have to save somewhere between 15% and 20% of your paycheck every single pay cycle, every two weeks. Now, it may sound easy, but it's not. But if you do that, and you just invest in the US Stock Market S&P 500, you'll end up with about $1.5 million in the bank by the time you turn 65.

I know we all would love to retire as a millionaire, and you mentioned that we should actually start putting away 15% to 20% of our paycheck as soon as we start working. So, can you please elaborate on how do we actually do that, especially if we are just starting to work and we're living paycheck to paycheck?

Well, here's the first task you have to do, and it's very simple. Most people don't realize this. You take two sheets of paper. You don't need a computer; you don't need your phone. This is as easy as it gets. And you look over a 90-day period—three months—because that really shows your spending habits. No matter where you are, I don't care if you're in Manhattan or in San Diego. Over three months, the way you live will really show itself.

So, on the left side, you put every source of income: a side hustle, a side job, gifts from your grandmother, whatever it is, whatever income you have. That's on the left piece of paper—how much do you make over 90 days? And on the right side, every cent you spend—every cent. And you can get that from your receipts.

Remember, you're doing this for your life. You want to make sure this works. You've got to make sure this is Task number one—that what you bring in and what you take out are at least matching. You cannot take out more than you bring in; otherwise, that is going on to credit card debt, which is now at 20.5% because of Fed rate hikes. Nobody can pay off 22.5%. That's why I invest in credit card companies. You should never let me make money off you; that's exactly what happens.

So, that's step one. And you'd be amazed—even very wealthy people that I show how to do this outspend themselves. They lose money every single month, so that's number one.

Now, here's where it gets a little tricky. You have to modify your behavior so that now you're saving 15%, and that's going into some kind of a vehicle that's going to invest it for you every month, every week, every day, every year. It's a behavioral mindset you have to have if you want to survive retirement.

Yeah, you mentioned behavior and mindset, and there's no doubt our ideas around money definitely have to do with our mindset. But what do we do if we're going through a life-changing event? Let's say divorce—life will throw you curveballs. You will have children; you will want to get a mortgage. All of these things—I totally get it. But if you put yourself in a mindset that you're investing in yourself, because that's really what you're doing here, you're not giving this money to anybody else. This is your money.

And I don't care if you get married. I've told every woman I know—in fact, one of my Shark Tank companies is called Hello Prenup, and we make prenups online for women because everybody should have a prenup going into marriage. You must keep your own personal financial identity for your whole life. You don't know with certainty what life's going to throw you into. You don't know what's going to happen to you.

And so, you have to have your own identity online, which means your own credit score. Now let's talk about that for a minute, because there's a good way—a good hack for that. People talk about debit cards and credit cards. Let me explain why: when you get out of college—now, this is tricky because a lot of people abuse their credit cards, and they buy too much junk. But the reason you want to get one early on is so that you can put $100 on it each month and pay it off, because the algorithms that determine your personal credit score don't care about the amount of credit you pay off; it's the fact that you pay it off in the first place.

So, over time, if you put $50, $20, $100, and you pay it off every month, the AI says, "Wait a second, this person is credit responsible," and I'm going to raise their credit score up. And the reason you want that is one day you may want a car loan, or one day you may want a mortgage, and the first thing they’re going to do is go to your credit score.

Now, another hack: the number one expense you have when you get out of college or you get out of high school and you start working is your rent. This is number one, particularly in places where you are like New York. It's not uncommon to see $1,800 to $2,500 for even a tiny little condo somewhere—you're renting it. That's your number one expense.

So how do you manage that and make it work for you? Remember, you're going to pay the rent anyways, right? You know that with certainty. If you buy nothing else, you're going to pay your rent; you're going to be out in the street.

So, how can I take that—let's call it $2,000 rent—and turn it into a massively high credit score? Now this, again, is one of my companies, but I got this for my kids. Let me show it to you: simple credit card called "Bilt."

All right, here's how it works: every landlord in America will take their payment on the Bilt card because they don't get paid any fees. Giant companies partnered with this—guys with mortgages like Blackstone, which have hundreds of thousands of apartments across America. My kids are on this too. You pay your rent on your Bilt card, and you pay your Bilt card off because you're going to pay rent anyways. Your credit score goes through the moon.

And for every dollar of rent, you get points just like you do on any other credit card. So, if you pay nothing else on credit cards, you end up with thousands of points, can go on holidays, buy things with it.

That's genius, Kevin! It's fascinating to hear about your approach to financial literacy for young adults. What are some other financial life hacks to transition smoothly from battling debt to successfully building their very own nest egg?

So this is the key. Now, when you get that discipline, you get that paycheck, and you take, let's say, 15%—your goal—you have to have some platform to put it into. And over, you know, hundreds of years, the stock market has delivered. It goes up and down; there’s lots of volatility, but you're in this for the long game till you're 65. You get anywhere from 7% to 9% returns a year, but you have to put it somewhere to do that.

Now, there are lots of apps online. The one that I'm involved in is called Bean Stocks. You can download it—B-I-N-S-T-O-X. The reason it's become so popular is it also allows you to buy T-bills—treasury bills—because now rates have gone up so much that you're getting anywhere from 4.8% to 5.2% on treasury bills, which theoretically are risk-free.

So, you can balance your portfolio, have some stocks, and have some treasury bills and basically build over time that nest egg. And so what it does is average cost weights you in; it's got an index of the S&P 500 in there, and it's got an index of the treasury bills. You put in $400, $200, whatever it is you can afford, and you forget about it. It's there on your phone; you can watch every day your assets grow, and you can see the volatility of the stock market. You learn a lot about it. But basically, over time, this is the way you create something for yourself.

No one—this is for no one else—it's for you. It's you personally. Even if you're married, even if you're divorced, it's yours personally. My mother taught me that. You know, in those days, she taught me in the late, you know, early '60s that she took 20% of her salary. She was a working woman, and she built a massive nest egg of treasury bills and telco bonds and stocks that paid dividends.

And she never disclosed it to both of her husbands—she was married twice. And when she passed away, they called me down to the notary's office and said, "Listen, your woman—your mother died a very wealthy woman. You've got to come down here; you're the elder brother." I said, "Impossible! We're a middle-class family. I know exactly what she did."

And she said, "No, no, no, no! You've got to get down." I called my brother Shane and said, "You can't believe this, Shane! You can't believe what mom left behind!" Because she never spent the principal—only the interest.

I always wondered how she put me through college, how she helped her brothers and sisters—she was smart that way. She wanted financial independence. She didn't want to be beholden to anybody when it came to money, and she died very wealthy just using the strategy I'm talking about now. Boy, did that change my mind about investing. I use her as my adviser. She's up in heaven now, but she still knows what she's doing.

Then I love that—she's your mentor. Your mom's your mentor, and she actually inspired you to do exactly what you're doing today. So lastly, I want to talk about the tax advantages and incentives that are available for individuals building a nest egg.

There are plenty of programs that you can use that allow you to accrue interest and capital gains on a tax-advantaged basis. And you can learn a lot about this online or go to Bean Stocks and look at it as well. But the whole idea is the government wants you to be a saver because they're scared—as everybody else is—that if we only depend on Social Security, that's not enough to live on when you're 65.

And so, by giving you the incentive to bear all this interest and all these capital gains tax-free, yes, they'll tax you when you start paying it out to yourself, but that's decades from now. An IRA, a 401(k)—all of these programs that you can use to do this, and you should take advantage of them to the max.

But it's the same theme: you've got to save. You have to save now. We should talk about how you adjust the way you live. I'm going to give you an example, and everybody's guilty of it—I was guilty of it for years.

Go into your closet and look at all the crap you bought that you don't wear. Look at all that crap. You have to—up to 70% of what's in your closet—you never wear it. You bought it because you thought you wanted it, and you never wear it. And this is what you've got to learn—another lesson from my mother. She would save all year to buy one Chanel jacket because that's—she just loves Chanel. And she would buy really high-quality, you know, the Chanel jackets, the vintage jackets.

And I didn't realize how much women coveted that. After she passed away, all the women in the family—it was a catfight for her Chanel suits. And I thought, "This is crazy." Some of these suits were bought in the mid-'60s, but they were vintage Chanel—same with her handbags.

And so I realized how smart that was. She didn't have a lot of stuff; she just had really good stuff, and that lasted her whole life. The same idea is what I've adopted. You see this Shark Tank outfit—this suit? It's the same suit. You've never seen me in any different. I got 25 of these, 25 shirts, 25 ties, 25 red poofs—it's a uniform for me.

I don't have to think about what I'm going to wear. This is it! And I think that's brilliant. I stole that one from Steve Jobs—he'd wear the same black pants and turtleneck every time. I used to work for him back at Apple in the old days. It's brilliant. There's so many hacks you can do. And I have five pairs of shoes; they're all Pradas—beautiful shoes, but I don't need any more than that. Two red belts, two black belts—you go into my closet, they're beautifully hung up, no waste.

I don't have 15,000 pairs of sneakers. You don't need all that crap. You've got to get disciplined.

Thank you, Kevin, so much! You gave us a lot to think about, and it was so interesting. I especially love all the financial hacks—the ones that the kids should be doing as soon as they're going off to college. I know it's so important.

Kevin, thank you so much for coming on.

Wake up! Absolutely. Take care! Thank you so much.