.Can You Become A Millionaire?
Can You Become A Millionaire?
Recently, I saw a question on Twitter – Can anyone become a millionaire? My gut instinct said yes. I was sure anyone can become a millionaire if they just save and invest consistently. Inflation alone will make the millionaire status much easier to attain in 30 years.
Everyone will make a lot more money so it shouldn’t be that hard. That was my reply. However, there were a few dissenting opinions. I didn’t have any research to back it up so I didn’t argue and let it go.
Today, we’ll take a closer look and see if anyone can really become a millionaire. First, we’ll crank some numbers and then look at the psychological side of this question.
Let’s look at the average case first to see if they have a chance to become a millionaire. We’ll call our average family the Joneses. The median household income in the US is about $60,000 per year. Median household income means that half of the population makes more than this and half makes less. It’s the middle line.
That’s how much the Joneses make. If the Joneses save and invest consistently, can they become millionaires?
Here are my assumptions
The Joneses will receive a 3% raise every year. This really isn’t much. It’s barely beating inflation, which is around 2%. I assume the Joneses will keep their saving rate steady. When they get any annual raises, they’ll save a bit more.
They’ll invest in the stock market and generate 8% return every year.
I’ll graph it out. We’ll see how long it’ll take the Joneses to reach millionaire status with different saving rates.
Ha! It is as I suspected. The Joneses can become millionaires in 31 years if they religiously save 10% of their income. The more they save, the faster they’ll become a millionaire.
Saving Rate Millionaire in
10% 31 years
20% 23 years
30% 20 years
40% 17 years
50% 15 years
From this table, it looks to me like anyone who makes median income AND is under 30 can easily become a millionaire. Saving 10% really isn’t that difficult at that level of income.
Of course, I recommend saving much more than that in order to achieve financial independence in a reasonable timeframe. You really should aim to save 50% of your income.
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