Kevin O'Leary believes you need $5M in the bank to 'survive' no matter what happens — here's how to hit that number

Here’s the math behind that number and how most millionaires have achieved it.

O’Leary’s magic number

In coming to his figure, O’Leary assumes a 6% to 7% return on $5 million will be enough to support a family regardless of economic conditions. This implies an annual passive income of $300,000 to $350,000.

Some analysts might say O’Leary’s assumption of 6% to 7% annual return is optimistic. Many savers operate following the “4% rule”.

Substituting 4% for O’Leary’s 6% to 7% would yield $200,000 in passive income yearly — still a better-than-average income.

So, how do you raise that $5 million principal? Here’s O’Leary’s advice.

Be selective with investments

“I’ve probably heard more than 10,000 pitches,” the ‘SharkTank’ investor said. “And truth be told, most of them sucked.” His advice about being vigilant and doing due diligence is critical. Don't get swept up in the fear of missing out on the next big thing — as you know, many businesses fail in their early days. Trust your gut and look into every opportunity with the same level of skepticism and interest.

For example, options trading can be highly lucrative, making it appealing to many investors. However, beginners may overlook significant risks and while experience is typically the best teacher – experimenting with strategies when your hard-earned money is at stake might cost you.

If you want to benefit from the potential of how profitable trading could be, consider tastytrade.

With features like Curve Analysis and Order Chains, tastytrades can help facilitate risk management for your portfolio.

The platform also includes a built-in margin calculator for quick visibility into trade margin requirements. With no additional charges for broker-assisted trades and a competitive margin base rate of 10%, tastytrade aims to lower costs for margin trading so you can build a portfolio worth bragging about.

Focus on cash flow

O’Leary also recommends focusing on cash flow — that is, filling your portfolio with investments that produce actual income (e.g., dividends) instead of hoping that your holdings’ market value will rise over time. This advice echoes Warren Buffett’s famous quote: “The first rule of an investment is don't lose (money). And the second rule of an investment is don't forget the first rule.”

One way to prioritize your cash flow is by maximizing your incoming funds. For a reliable method to grow your money over the long term, consider placing it in a high-interest earning that can help boost your earnings.

SoFi – a personal finance company and online bank – offers a checking and savings account that provides convenience and competitive rates to help grow your savings.

While many Americans overlook their daily accounts as tools to boost their savings, optimizing these accounts can help improve your cash flow. You can earn 4.60% APY on savings balances – which is up to 10x the national average – and 0.50% APY on checking balances.

With SoFi, you can enjoy no-fee overdraft protection, early paycheck deposits and access to over 55,000 ATMs within the Allpoint network.

Speaking of deposits, sign up now and you can earn a bonus up to $300.

Aside from your daily accounts, consider stashing some of your money in a high-yield savings account that can offer returns exceeding 4% – while the U.S Bank’s stand savings APY is 0.01%.

To find the best high-yield savings account for your needs, explore the Moneywise guide to the Best High Yield Savings Accounts of 2024 to see which account is the best one to help you reach your financial goals.

Alternative ways to invest

With historically high returns, the opportunity for regular income and relatively low volatility, you might want to consider investing in real estate.

Backed by world class investors like Jeff Bezos, Arrived makes it easy to fit rental properties into your investment portfolio regardless of your income.