How to achieve 1 million dollar of Net Worth

With 1 million dollars of Net Assets (wealth), an individual is among the world 1 top % together with other 46.8 million people. At first, it could sound like an excellent achievement to join the bottom end of the 1 % top tier, but it is not. $ 1 million is a relatively low bar for entering the 1 top % earners and is ultimately due to the extreme cluster of poverty in many parts of the world.

The truth is that $ 1 million should probably be considerate a moderate saving target in the industrial world: in fact, with 1 million dollars of 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 your 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 dollars of Net Worth an achievable goal? How long would it take to hit this goal?

Let’s play with some projections. 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 business. 

With an average salary of $32,400, it would take 40 years to earn $ 1 million. That’s right, even without considering realistic increases in income, with a salary of $32,400, we would have gained more than 1 million dollars in our lifetime. Clearly, that money is not accumulated: it is earned; a good chunk will be spent. So, where is the trick?

Well, we all face two challenges:

  1. our wallet has too many leakages; we need to control our spending and secure enough savings.
  2. 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!

Overall, these are exercises that allow us to get familiar with online calculators, projections and the powerful effects of saving and investment decisions.  There are clearly many other factors to be considered once we develop a personal financial plan in line with our needs, lifestyle, age and location.

Nevertheless, it is exciting to see how it is possible to boost moderate-income earners’ financial results and possibly hit the $ 1 million mark.

Beside and beyond any positive increase of our income, a correct ratio of savings and investments can hugely help to escape modern poverty and secure the desired nest egg.

As usual, keep well, and Sweat Your Assets!

References

  • Online Investment Calculator (link).
  • Global Rich List (link).

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