How to get to $1,000,000?
I caught the end of a reality show and saw the legalese at the end saying that the $1,000,000 prize was in the form of a 40 year annuity or current cash value. So, I did a quick calculation in Excel to figure out what that annuity would be. $220/month over 40 years earning 9% interest is $1,037,615.
If you put a lump sum in now and never add anymore money, you’d need $70,000 at 9% interest to grow to $1,031,140 over 40 years.
Could you save $220 per month with an understanding that after 40 years, it would be likely to be at least $1M?
Another example, shorter time frame: $400 a month over 30 years at 9% is $737,000. Compound interest and lots of time rocks! Use it!
Is there any good excuse not to become a millionaire when it is sooooo easy? 9% interest isn’t very much. This is about what the US Stock Market does annually over any 20 year period. You don’t have to be a good investor, just put the money in monthly and do not pay attention to it. Consistency. Consistency. Consistency.
How are you doing on your $1M? Check it with this simple calculation that happens to work in 2006 (it won’t work in later years due to inflation):
Multiply your age times your realized pre-tax annual household income from all sources except inheritances. Divide by 10. This, less any inherited wealth, is what your net worth should be.
So, if you’re 40 years old and earn $95,000 in salary and $5,000 from investments pre-tax, then your net worth should be $400,000 (40 times 100,000 divided by 10). If this test shows you’re an "under accumulator of wealth," then you might want to think hard about making some changes.
