How to achieve 1 million dollars of Net Worth
HOW TO ACHIEVE 1 Million Dollars of Net Worth?
With 1 million dollars of Net Assets (wealth), an individual is among the world’s top 1%, together with the other 46.8 million people.
At first, it could sound like an excellent achievement to join the bottom of the 1% top tier, but it is not.
$1 million is a relatively low bar for entering the top 1% of earners, and this is ultimately due to the extreme poverty in many parts of the world.
The truth is that $ 1 million should probably be considered a moderate savings target in the industrial world. In fact, with 1 million dollars in Net Assets (invested in a balanced stock & bond portfolio), an individual can expect to retire with an annual passive income of $40,000 (the forecast is based on the 4% rule).
So, based on your country’s welfare and living costs, you might need to save and invest more than 1 million dollars to secure a nest egg in line with your needs or wants.
However, for educational purposes, let’s stick to the symbolic $1 million.
Can we consider $ 1 million in Net Worth an achievable goal?
How long would it take to hit this goal?
Run the numbers on how to achieve 1 Million Dollars of Net Worth
According to the Global Rich List, a $32,400 annual income will easily place American school teachers, registered nurses, and other modestly-salaried individuals among the global 1% of earners. This is an accessible income in most developed or developing countries once you have sufficient qualifications and/or run a profitable business.
With an average salary of $32,400, it would take 40 years to earn $ 1 million. That’s right, even without considering realistic income increases, with a salary of $32,400, we would have earned more than $ 1 million in our lifetime.
That money is not accumulated: it is earned, and a good chunk will be spent. So, where is the trick?
Well, we all face two challenges:
- Our wallet has too many leaks; we need to control our spending and save enough.
- We need to invest our savings in the most efficient way possible
Using an online calculator, we can plot the following scenarios:
SCENARIO A
- We earn an annual income of $32,400
- We maintain an 80% burn rate (annual saving of 20%; $6,480)
- We constantly invest the savings into US Stock Index Funds with a historical annual average of around 6%
As previously mentioned, based on these few assumptions, we could reach $1 Million in 40 years.
SCENARIO B
- We earn an annual income of $64,800 (twice the amount of Scenario A)
- We maintain an 80% burn rate (annual saving of 20%; $12,960)
- We constantly invest the savings into US Stock Index Funds with a historical annual average of around 6%
Based on these few assumptions, we could reach $1 million in 30 years!
SCENARIO C
- We earn an annual income of $64,800
- We choose an aggressive FI-RE lifestyle, and we keep a 50% burn rate (annual saving of 50%; $32,400)
- We constantly invest the savings into US Stock Index Funds with a historical annual average of around 6%
Based on these few assumptions, we could reach $1 million in 19 years!
BOTTOM LINE
Overall, these exercises help us become familiar with online calculators, projections, and the powerful effects of saving and investment decisions to achieve a Net Worth of $1 million or more.
Many other factors must be considered once we develop a personal financial plan aligned with our needs, lifestyle, age and location.
Nevertheless, it is exciting to see how it can boost the financial results of moderate-income earners and possibly help them hit the $1 million mark.
Besides any positive increase in our income, a sound ratio of savings and investments can greatly help us escape modern poverty and secure the desired nest egg.
Making money, keeping it, and growing it are not small feats. Charlie Munger famously said:
“the first $100,000 is very hard, but you gotta to it. I don’t care what you have to do – if it means walking everywhere and not eating anything that wasn’t purchased with a coupon, find a way to get your hands on $100,000. After that, you can ease off the gas a little bit”. “Making the first million is the next big hurdle. To do that, a person must consistently underspend his income. Getting wealthy […] is like rolling a snowball. It helps to start on the top of a long hill – start early and try to roll that snowball for a very long time”.
As usual, keep well, and Sweat Your Assets!
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