As the late Regis Philbin once asked, “Who wants to be a millionaire?”
With a combination of patience, persistence, and self-control you too can have $1,000,000 without having to answer any multiple-choice questions or phoning a friend.
Here’s how you can do it.
I’m going to show you how you can achieve $1,000,000 in investments. You should know, to truly be a millionaire, your net worth (What you own minus what you owe) should be $1,000,000. If you have $1,500,000 in assets (what you own) and $1,250,000 in debts (what you owe), your net worth is $250,000. You wouldn’t be a millionaire even though your assets are over $1,000,000.
There is a phenomenon in finance called time value of money (aka compound interest). The nutshell version is a dollar invested today will be worth more in the future. If you keep investing consistent amounts, the value of your total investment will be worth much more than the actual amount you invested.
Think of the movie Shawshank Redemption. If you are 25 years late to the party – get ready for spoilers. In the movie, Andy Dufresne is wrongly convicted of killing his wife and her lover. At the end of the movie, you see he has escaped from prison. He does so with a small chisel and cuts away a tiny amount of concrete in his prison cell each day. He takes the chiseled concrete to the prison yard in an undetectable way to not see what his little project is. Eventually, over 17 years, Andy dug his tunnel to freedom and escapes.
Becoming a millionaire is not so different – it’s not going to happen overnight.
What is the actual path you need to take?
I’ve created a few scenarios. Each scenario has consistent variables. The consistent variables are:
Your investments grow at an annual average rate of 8%
The average yearly inflation rate is 2.5%
You start from scratch with zero money invested
Your annual contribution increases with the rate of inflation
While past performance is not indicative or a guarantee of future returns, it can give us a starting point. These examples are purely for illustrative purposes.
The first scenario is a 40-year investing time frame. With the assumptions above, how much would you need to contribute per year to have $1,000,000 (in today’s money adjusted for inflation) in 40 years? The answer is $7,567 in year 1. Your total contributions would equal $302,691 in today’s dollars.
The second scenario is a 30-year investing time frame. With the same assumptions, the amount you would need to contribute in year 1 is $14,131. Your total contributions will be $423,921 in today’s dollars.
The third scenario is a 20-year investing time frame. You’ll need to contribute $29,092 in year 1. Your total contributions will be $581,839 in today’s dollars.
The final scenario is a 10-year investing time frame. You’ll see the yearly contributions are huge, starting at $78,157 in year 1. Your total contributions would be $781,569 in today’s dollars. Compare the 10 Year graph to the 40 Year graph. Notice the difference in space between the green and blue lines? That is how much less you have to contribute to achieve the same end result.
Here is a table detailing the different scenarios. The moral of the story is: the earlier you start investing, the less you have to contribute to reach your investing goals. It will cost you less to have $1,000,000 the earlier you start. And, it’s much easier to contribute $7,567 per year than $78,157. If you start investing when you are 25, you can absolutely reach $1,000,000 by the time you are 65. If you’re 55 and want to have $1,000,000 in 10 years, it can happen but it’s going to significantly impact your personal budget.
Ask yourself these questions:
How much do I want to spend in retirement?
How much do I need to spend in retirement?
What are my retirement goals?
Do I want to leave an inheritance after I pass away?
What am I doing today to reach these goals?
Are my current investments aligned with my goals?
Are my investments too risky or not risky enough to reach my goals?
If you don’t have the answers right now or know you need guidance getting there – I’m here to help you. I offer a complimentary 30-minute consultation for all first time meetings. If you're interested in a free consultation, click the button below to schedule. If you’d like to learn more about my firm you can explore my website for more information.
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About The Author
Shaun Melby, CFP® provides fee-only financial planning and investment management services in Nashville, TN. Melby Wealth Management serves clients as a fiduciary and never earns a commission of any kind. Shaun has over 10 years of experience as a financial advisor in Nashville.