$1,000,000 Is Much Closer Than You Think
How to calculate how long it will take you to reach $1,000,000
Have you heard of the $8,000,000 janitor? Ronald Read came from an anything but financially privileged upbringing, yet he amassed millions of dollars in his lifetime. It wasn’t until he passed away at age 92 years old that his friends and family found out about his riches.
Ronald was the first in his family to graduate high school, he worked in the US military, and after WWII, he got a job as a gas station attendant and a janitor, he managed to live below his means, and he invested what he didn’t spend into the U.S. Stock Market.
You may grudgingly point out that the cost of living was much lower in his wealth building years, or that he had to spend his time working two jobs, and you may be philosophically opposed to living far below your means, but I love this example because it’s a real life example of how accessible a comfortable retirement (and generational wealth) is in the United States.
If you’re reading this, you’ve likely already decided that you can reach $1,000,000 in your lifetime and you may have started taking steps towards this financial goal, but do you know just how long it would take you to reach your first $1,000,000? Do you know approximately how old you will be when you reach that milestone?
If you’ve never thought about becoming a millionaire in your lifetime, you may be surprised to learn that you *do not* need a high income and you most likely *can* reach your goal within a handful of decades.
Let’s look at two hypothetical case studies as examples of what it would take someone in the United States making the median income for a given state, then we’ll dive into how you can calculate this for your situation.
Disclaimer: This is not financial advice nor should be taken as such. This is for educational purposes only. Investing involves risk and should be done based on your goals, risk tolerance, and timeline.
Case Study 1
Age: 30
State: California
Cost of living: Medium
State Median Salary: $65,895 (Gross), $47,724 (After tax)
Money Plan: 50% Essentials ($1,988/m), 30% Wants ($1,193/m), 20% Investing ($795/m)
Time until $1,000,000: 32 years at age 62
Case Study 2
Age: 30
State: California
Cost of living: Medium
Median Salary: $65,985 (Gross), $47,724 (After tax)
Money Plan: 40% Essentials ($1,590/m), 20% Wants ($795/m), 40% Investing ($1,590/m)
Time until $1,000,000: 23 years at age 53
Case Study Considerations
- The investments here assume index fund purchases (like S&P 500), which have historically performed at around an average annual 10% rate. This calculation is based on a post inflation average annual rate of 7%.
- Case Study 1: $795/m for 32 years at 7%.
- Case Study 2: $1,590/m for 23 years at 7%.
2. These case studies do not take into consideration pre-tax investment savings nor do they consider employer contributions. You’ll see how much money a year each case study would save on taxes if they invested in their 401k. These tax savings could be spent, saved, or invested.
- Case Study 1: $795/m contributions into a 401k would yield in an annual tax savings of $1,886. If invested, they would reach $1M 2 years sooner.
- Case Study 2: $1,590/m contributions into a 401k would yield in an annual tax savings of $3,031. If invested, they would reach $1M 1 year sooner.
3. These case studies assume the same income over the estimated timeframe, which means that if there is an income raise, then one could either:
- Invest their entire raise, and reach $1,000,000 sooner
- Inflate their lifestyle to live a more comfortable life, or fund a dependent with their entire raise.
- Invest some of their raise and spend some of their raise (on needs and/or wants), and still increase their time to $1,000,000
4. These case studies don’t explicitly address debt. If one is in high interest debt, it would be wise to pay it off as soon as possible as it is not possible to out earn high interest debt with a long term buy and hold index fund investment approach that this assumes. Unless someone’s debt payments are included in their essentials expenses and/or want expenses, these case studies do no account for debt.
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Your Turn: How Long Would It Take YOU?
Let’s walk through different variables that you need to calculate this yourself, and different resources (like calculators) that you will need.
If you would like for me to put a road map together based on your unique situation, you can fill this out, and it may be featured on my new $1M Road Map series.
If you’d like to approximate this yourself, feel free to go through this exercise below:
Age:
State:
Cost of living: You can use this tool to find out if your town/city has a high cost of living area, medium cost of living, or low cost of living.
For the rest of the article go here.
❤ Anita
