 |
| Image from flickr.com by Michael_Lehet |
So, you’ve obtained one million dollars! What happened to it? Where did it all go?
Most people, at some time or another, like to imagine what they would do with one million dollars if they had it. More often than not, these dreams revolve around some kind of a windfall of money, such as lottery winnings. Everybody knows that their chances of actually getting this type of windfall are very slim and will likely never happen. The statistic that sticks out in my mind is - you are six times more likely to be struck by lightning than to ever win the jackpot from the lottery. Nevertheless, it is still fun to dream.
What if I told you that it doesn’t have to be just a dream? Chances are actually very good that you will obtain at least one million dollars in your lifetime and it won’t be by windfall for most people. Most of us will earn one million dollars or more over the course of our careers. It all comes down to simple mathematics that most people never really think about.
Earning In The Milliions
Let’s look at my life as an example. I am 35 years old and make a modest income as a truck driver. At my current income level, assuming it stays exactly the same, I will earn one million dollars in just over 18 years. So, from age 35 to age 53 I will have earned at least one million dollars. Add in everything I’ve earned before age 35 and everything I will earn after age 53, including pay increases, and the final tally will probably be closer to three or four million! These numbers do not include the income that my virtuous wife brings into the household.
My point is that virtually every household in America in this day and age is going to earn a million dollars. Even a couple working full-time minimum wage jobs will earn one million dollars. Assuming a $7.50/hr pay rate and 40 hours per week each, they should earn one million dollars in approximately 33 years. Starting at age 18, they would have reached the million dollar earnings plateau by age 51!
Spending In The Millions
As illustrated above, obtaining a million dollars is fairly easy. Spending it is even easier! Consider all of your monthly payments, such as mortgage, college, auto and credit card debt. Throw in living expenses, such as utilities, gas, groceries, insurance, dining, travel and entertainment. All of this stuff adds up pretty quickly and makes it very difficult to save. If you don’t make savings a top priority in your budget, you could easily spend through a million dollars without saving a dime.
After considering all of the above, I am left wondering what a benchmark percentage should be for net worth as compared to money earned. Maybe there isn’t a benchmark, but I am still curious. Inspired by The Dollar Challenge, via Corey @ 20’s Finances, I have come up with a proposition of my own.
The Proposition: Create Your Million Dollar Synopsis
You can make this exercise as simple or as complicated as you want. Your answers could be short and simply posted in the comments section below. Or, if you have your own blog, you could create an entire blog post on this subject. (Please link to this post) Here are the three things I am looking for:
I understand that some people don’t like to share specific numbers regarding their income or net worth. You can keep this as vague as you want, or go into great detail. You can use exact numbers, if you feel like taking the time to calculate everything, or you can use estimated numbers. You can use your personal numbers only, or use the joint numbers for you and your spouse. If using joint numbers, you may want to use the year that you combined finances as a starting point. Here is an example using my numbers.
My Million Dollar Synopsis
If I were to give only a short answer, it would look like this:
Now I will give my long answer to show how I came up with these numbers:
To figure out when I will hit the million dollar plateau, I first needed to know how much I have earned to date. The easiest way to do this for me was to simply look at my most recent Social Security statement and add up all of the income that is reported there. My earnings were reported from 1992, where I earned $490 as a dishwasher in a restaurant, until 2010. Add in my earnings for 2011, and I came up with a total of $632,098. Subtract this number from $1 million to see that I still need to earn $367,902 before I reach the million dollar plateau. Now, divide this number by my current yearly income ($55,000) to conclude that I need to work approximately 6.5 more years. This will put me at 42 years old when I finally reach this goal. These numbers are for my personal income only, and do not include what my wife has earned.
The net worth to earnings ratio was really easy for me. I track all of my finances using Quicken software and my current net worth is always posted in the lower left hand corner of my screen. Net worth is calculated by adding up everything that I own and subtracting everything that I owe. In my case, everything that I own includes my investment accounts, checking and savings accounts, and assets, such as my home, vehicles and travel trailer. Everything that I owe is obviously debts against these items, such as mortgages, a loan and a credit card balance. My current net worth is $70,000. This number, divided by my current total earnings, $632,098, gives me a NW/E ratio of .11, or 11%.
Millionize is a word that I made up. It basically means, to translate my current numbers to reflect what they would look like if my current total earnings was exactly one million dollars. Millionizing my net worth was extremely easy. Using my NW/E ratio, I simply multiplied it by 1,000,000, to get $110,000. I can now use this number to analyze and compare to my real life numbers. By age 42, will my net worth be close to $110,000? Should it be more or should it be less. Obviously, I am hoping and expecting it to be more. Within the next 6.5 years, my net worth absolutely should grow by more than $40,000. My investments are within good growth stock mutual funds, and I expect that the value of my home will increase quite a bit as well. All the while, I will be working hard to pay down my debts. This millionized net worth number gives me a good perspective and encourages me to have a goal to beat it by the time I actually reach the million dollar plateau.
Millionizing also works for those who have already earned one million dollars and goes like this. Take one million and divide it by your total earnings. Multiply this by your current net worth. The number you get will be less than your actual net worth. Use this number to analyze how you have done and compare with others.
Thank you for considering my challenge, The Million Dollar Synopsis. I look forward to seeing your responses! -Matt
Most people, at some time or another, like to imagine what they would do with one million dollars if they had it. More often than not, these dreams revolve around some kind of a windfall of money, such as lottery winnings. Everybody knows that their chances of actually getting this type of windfall are very slim and will likely never happen. The statistic that sticks out in my mind is - you are six times more likely to be struck by lightning than to ever win the jackpot from the lottery. Nevertheless, it is still fun to dream.
What if I told you that it doesn’t have to be just a dream? Chances are actually very good that you will obtain at least one million dollars in your lifetime and it won’t be by windfall for most people. Most of us will earn one million dollars or more over the course of our careers. It all comes down to simple mathematics that most people never really think about.
Earning In The Milliions
Let’s look at my life as an example. I am 35 years old and make a modest income as a truck driver. At my current income level, assuming it stays exactly the same, I will earn one million dollars in just over 18 years. So, from age 35 to age 53 I will have earned at least one million dollars. Add in everything I’ve earned before age 35 and everything I will earn after age 53, including pay increases, and the final tally will probably be closer to three or four million! These numbers do not include the income that my virtuous wife brings into the household.
My point is that virtually every household in America in this day and age is going to earn a million dollars. Even a couple working full-time minimum wage jobs will earn one million dollars. Assuming a $7.50/hr pay rate and 40 hours per week each, they should earn one million dollars in approximately 33 years. Starting at age 18, they would have reached the million dollar earnings plateau by age 51!
Spending In The Millions
As illustrated above, obtaining a million dollars is fairly easy. Spending it is even easier! Consider all of your monthly payments, such as mortgage, college, auto and credit card debt. Throw in living expenses, such as utilities, gas, groceries, insurance, dining, travel and entertainment. All of this stuff adds up pretty quickly and makes it very difficult to save. If you don’t make savings a top priority in your budget, you could easily spend through a million dollars without saving a dime.
After considering all of the above, I am left wondering what a benchmark percentage should be for net worth as compared to money earned. Maybe there isn’t a benchmark, but I am still curious. Inspired by The Dollar Challenge, via Corey @ 20’s Finances, I have come up with a proposition of my own.
The Proposition: Create Your Million Dollar Synopsis
You can make this exercise as simple or as complicated as you want. Your answers could be short and simply posted in the comments section below. Or, if you have your own blog, you could create an entire blog post on this subject. (Please link to this post) Here are the three things I am looking for:
- At what age did you, or do you expect to, reach the one million dollar plateau?
- What is your net worth to earnings ratio? (NW/E)
- What is your millionized net worth, using today’s numbers?
I understand that some people don’t like to share specific numbers regarding their income or net worth. You can keep this as vague as you want, or go into great detail. You can use exact numbers, if you feel like taking the time to calculate everything, or you can use estimated numbers. You can use your personal numbers only, or use the joint numbers for you and your spouse. If using joint numbers, you may want to use the year that you combined finances as a starting point. Here is an example using my numbers.
My Million Dollar Synopsis
If I were to give only a short answer, it would look like this:
- Million dollar age: 42
- NW/E ratio: .11 or 11%
- Millionized Net Worth: $110,000
Now I will give my long answer to show how I came up with these numbers:
To figure out when I will hit the million dollar plateau, I first needed to know how much I have earned to date. The easiest way to do this for me was to simply look at my most recent Social Security statement and add up all of the income that is reported there. My earnings were reported from 1992, where I earned $490 as a dishwasher in a restaurant, until 2010. Add in my earnings for 2011, and I came up with a total of $632,098. Subtract this number from $1 million to see that I still need to earn $367,902 before I reach the million dollar plateau. Now, divide this number by my current yearly income ($55,000) to conclude that I need to work approximately 6.5 more years. This will put me at 42 years old when I finally reach this goal. These numbers are for my personal income only, and do not include what my wife has earned.
The net worth to earnings ratio was really easy for me. I track all of my finances using Quicken software and my current net worth is always posted in the lower left hand corner of my screen. Net worth is calculated by adding up everything that I own and subtracting everything that I owe. In my case, everything that I own includes my investment accounts, checking and savings accounts, and assets, such as my home, vehicles and travel trailer. Everything that I owe is obviously debts against these items, such as mortgages, a loan and a credit card balance. My current net worth is $70,000. This number, divided by my current total earnings, $632,098, gives me a NW/E ratio of .11, or 11%.
Millionize is a word that I made up. It basically means, to translate my current numbers to reflect what they would look like if my current total earnings was exactly one million dollars. Millionizing my net worth was extremely easy. Using my NW/E ratio, I simply multiplied it by 1,000,000, to get $110,000. I can now use this number to analyze and compare to my real life numbers. By age 42, will my net worth be close to $110,000? Should it be more or should it be less. Obviously, I am hoping and expecting it to be more. Within the next 6.5 years, my net worth absolutely should grow by more than $40,000. My investments are within good growth stock mutual funds, and I expect that the value of my home will increase quite a bit as well. All the while, I will be working hard to pay down my debts. This millionized net worth number gives me a good perspective and encourages me to have a goal to beat it by the time I actually reach the million dollar plateau.
Millionizing also works for those who have already earned one million dollars and goes like this. Take one million and divide it by your total earnings. Multiply this by your current net worth. The number you get will be less than your actual net worth. Use this number to analyze how you have done and compare with others.
Thank you for considering my challenge, The Million Dollar Synopsis. I look forward to seeing your responses! -Matt
I hope you enjoyed this post. If so, the best way to compliment me is to Share This with one of the provided sharing buttons. If not, the best way to criticize me is to Share This with your friends or followers to show them how stupid it is! Comments are always appreciated as well.
