Being a Millionaire is Hard But Not Impossible

Brandon Wang
Photo by JD Mason on UnsplashUnsplash

Millionaires are simply misunderstood. They are also a lot more common than you think. Being a millionaire, or having a net worth of at least a million dollars, is often misconstrued to be synonymous with being wildly rich or belonging to only the top 1%.

In reality, there are over 14 million millionaires in the U.S. and over 10% of all households have a net worth over a million dollars(Source: Federal Reserve’s Survey of Consumer Finances, 2016). That means more than 1 out of every 10 households in the U.S. could call themselves millionaires.

It might also be surprising to hear that around 4 in 5 of those households are self-made and first generational millionaires. This might sound incredulous to some, but the process to becoming a millionaire is much more straightforward than you might expect.

Time and Compound interest. Anyone can be a self-made millionaire by combining these two ideas. All you need is a slight change in mindset and the determination to start consistently working towards accumulating your net worth.

For example, a 22-year old fresh out of college might think working towards becoming a millionaire is next to impossible but in practice, they actually have a much easier route of achieving this.

As unbelievable as that sounds, it is undeniably true. So what is the secret? This is because although the fresh college grad might be saddled with debt and a low starting salary, they also have tons of time.

“Time is money”
Hypothetically, let’s say a random individual named Bobby who is a 22 year old fresh out of college, wanted to become a millionaire by the time of retirement(around 65 years old), he would only have to save roughly $4,000–5,000 a year to achieve a net worth of over $1 million at retirement. Now lets take a minute to do the math here. Bobby, who is probably just graduating college and starting out in his career, has 43 years until he becomes 65. So if he saves $5,000 each year, he’ll have $215,000(43*5000).

Hold up. Bobby was supposed to be a millionaire. $215,000 is barely even one-fifth of the way there. Where is the other $785,000? That’s where the power of compound interest comes into play. Let’s imagine instead of just holding onto the $5,000 Bobby saves each year, he invests it into the stock market in something like the S&P 500 which has averaged a 9.8% return over the last 90 years. Bobby will start seeing returns that will compound over time. If he invests $5,000 into the S&P 500 for the next 43 years, instead of having only $215,000, Bobby will end up with a whopping $3,064,642.75! A self-made multimillionaire.

Even if we stay more conservative with our calculations, let’s say we use an average 7% return due to inflation and Bobby can only save $4,000 each year, he still ends up with $1,060,483.41 and becomes a millionaire at retirement. Now Bobby is actually lucky here. He is still very young and has time on his side. Let’s take a look at the numbers and see how much an individual might need to save at a few different ages before retirement(lets keep it at age 65 to stay consistent).

Necessary Annual Savings/Investment Rate to reach $1 million by Age 65

Assuming a 7% average return on investment

  • 25 Years Old — 40 years to retirement: $4,700/year to reach $1,003,964.98 in retirement
  • 30 Years Old — 35 years to retirement: $6,800/year to reach $1,005,811.53 in retirement
  • 35 Years Old — 30 years to retirement: $9,000/year to reach $1,000,623.11 in retirement
  • 40 Years Old — 25 years to retirement: $14,800/year to reach $1,001,611.76 in retirement
  • 45 Years Old — 20 years to retirement: $22,800/year to reach $1,000,126.03 in retirement
  • 50 Years Old — 15 years to retirement: $37,200/year to reach $1,000,235.59 in retirement
  • 55 Years Old — 10 years to retirement: $67,700/year to reach $1,000,849.67 in retirement
  • 60 Years Old — 5 years to retirement: $163,000/year to reach $1,002,986.39 in retirement

Without compound interest, our money can’t grow. Without time, compound interest is useless. As the time left before retirement grows shorter, the necessary amount to invest yearly grows exponentially. With this in mind, it becomes ever so crucial to start saving now. It might not be so difficult to save $5,000 a year on most salaries but as time passes, it becomes harder and harder to become a millionaire.

Surprisingly, the hardest part of becoming a millionaire isn’t making the money, it’s keeping consistent with saving, investing, and being patient. If your goal is to break into the that top 10% and attain that millionaire status, this is the most consistent and surefire method.

Don’t give up on making $1 million before retirement. It is a difficult goal, but it definitely isn’t impossible. Slowly transition out focusing so much on the present and work yourself into the mindset of preparing for a greater financial future.

Happy investing!

This article is for informational purposes only not all information will be accurate. This should not be considered Financial or Legal Advice. Consult a financial professional before making any significant financial decisions.

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San Francisco, CA

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