Like many of my readers, I want to be a millionaire. Heck, I even took the millionaire pledge for crying out loud! As part of my pledge, I shared that no one in my family has ever been or is a millionaire. I hope to be the exception to the rule.
What Millionaires Are Like
Since I want to be a millionaire, I Google about millionaires very frequently. This is what I found.
What most people get wrong is that they think millionaires spend millions. That is not true. Millionaires are notoriously frugal and spend nowhere near a million dollars a year. Billionaires spend millions.
In the media, we are blown away by Bill Gate’s $123M mansion (appraised in 2014). Or Mark Cuban’s pad, valued at around $17.5M. With this, it’s easy to assume that the rich spend like there’s no tomorrow. However, that is the wrong way to think!
I used to think that millionaires used money to wipe down their kitchen counters and throw it away after single use. Why would I be wrong? They spend millions on just their house in the first place. I couldn’t imagine what other things they spend exorbitant amounts of money on.
I was forgetting that they are bringing in boatloads of money. The ones who spend millions on a house are usually billionaires. 1 million is 1/1000th of a billion. The median household income is around $55,000 (plus or minus 10%). That means that what billionaires spent on a $1M house is equivalent to a median household spending $55. $55 is worth something but it sure is not earth-moving by any means.
I Want to be a Millionaire! The Plan
What did this lesson teach me? Millionaires are frugal. Yes, spending a million on a house is considered frugal. Even then, some billionaires (Warren Buffett), spend (much) less than a million on a house. That’s the #1 characteristic that I realized caused someone to be rich. It isn’t a high income (though it helps), it isn’t smartness, it isn’t the lottery, and it certainly isn’t a trust fund. It’s savings.
When I first realized this was when I was reading an article about Warren Buffett. He was asked how someone can get rich. He said “saving aggressively.” What! I couldn’t believe what I was reading. A billionaire is advocating someone to save aggressively in order to get rich.
After 4 years of saving throughout college allowing me to have a $40,000 net worth, I am very convinced that that is the path to a millionaire status. Saving is one of the easiest things to do. Why? After getting used to it for about 3 months, it becomes effortless.
That’s all I’m going to do. Save. I’m confident that it will get me to the land of millionaires, where money stress is nonexistent and time is dictated instead of time doing the dictation. It’s not going happen overnight, not by a long shot.
Don’t believe me in words? That’s understandable. That’s why I attached a spreadsheet where if numbers are met every year, I will end up with a million dollars at the latest of 40. I want to be a millionaire so desperately that I revisit this spreadsheet daily. Do I have a personal finance problem? I think so. I probably need to start a personal finance anonymous group.
These are my assumptions used to calculate the numbers above. At this rate, I’m on track to be a millionaire by the time I’m 39. One whole year ahead of schedule! I start calculating at December of 2016 because that is when I officially turn 22 as Christmas Eve is my birthday.
Income is the starting income (what I currently earn today), the income increase is the yearly salary increase I hope to attain, savings rate is calculated as a gross number (so 43% of pre-tax dollars $54,300 would be my first year savings), and the stock market will average a 7.5% return over the next 18.25 years. These are the assumptions I used to plug the numbers in above.
Assumptions Beyond Numbers
Other than the numbers it took to derive the millionaire number, there’s important assumptions to note as well (positive and negative). Instead of being blindly optimistic, studies have shown that being optimistic while considering the possible bumps in the road leads to actually following through.
Therefore, I thought of the positive and negative things that could happen during my way to a million. I want to be a millionaire and I don’t want over-optimism to be the reason why I can’t be one. The positive assumptions skew the projections to be more positive than it actually could be. The negative assumptions do the opposite.
Positive Assumptions Over the Journey:
*I won’t get fired
*I won’t get divorced
*No over-the-top medical bill
*I don’t pursue a graduate degree
*I don’t have a quarter / mid life crisis and start buying BMWs and Mercedes on debt
*Nuclear power doesn’t become so advanced and wipes out the human race
*The stock market returns 7.5% over the next 18.25 years
I am hoping that I get lucky and my positive assumptions turn out to be true. Any of these things gone wrong could halt everything that I’m working so hard for. One exception is the graduate degree. I’ve yet to think about whether I should pursue it.
I will move to the negative side, everything that skews the spreadsheet numbers to be less than they should be.
Negative Assumptions Over the Journey
*Starting net worth is $45,000. By the time I get to December of this year, I’m on track to have a higher net worth than $45k. However, it doesn’t hurt to be conservative.
*My future spouse doesn’t work. With women increasing their presence in the workforce at the fastest pace, it’s unlikely that my future spouse won’t be working. However, I don’t want to add in her income to reach FIRE, it’s about being conservative.
*I won’t get promoted. Don’t get me wrong, I will put in my dues, add value to my company, and do everything to be a high performer. Everything that is needed to be promoted. However, I don’t want to model out that I’ll get a promotion every x years or so. A simple smoothed out 2% increase in income every year is fine for projection purposes.
*I’ll only save 43% of my income every year. I can easily max out my HSA and 401k on a $54,300 income. Especially in Alabama where the cost of living is so cheap. On top of the max contribution to HSA and 401k, I just need to come up with an extra $1,728 to meet my first year’s savings rate of 43%. I will save an extra $4,000 over a full year working just by looking for the best deals.
Boring but Effective
The whole point of this post was to say that I will be a millionaire by saving. That deserves multiple yawns throughout reading this post. I am almost yawning during my time writing this post. If you want to be a sexy millionaire, I don’t have a guide to show you. I don’t know how to be a sexy millionaire.
However, if you want to be a boring millionaire, this is just the guide! It all depends on whether your image is desired or not. For me, I don’t want my image to be a sexy and flaunting millionaire, but a quiet one not looking for any recognition.
I want to be a millionaire so badly that I don’t care about what kind of millionaire I am (unless it’s through unethical or illegal means).
Readers, do you want to be a millionaire? Do you agree with the guide I set forth? When will you achieve the coveted status? Let me know your plans below!
My goal is to enable your success in personal finance so that you can realize the American dream. The first step is starting today!
Read more about me here.