Are you saying ” I want to be a millionaire “?
If you want to be like the millionaire next door, and have that millionaire mindset, an awesome first step is to calculate how far away from being a millionaire you are today.
The Millionaire Calculator
If you are saying I want to be a millionaire then this millionaire calculator will tell you how long it will take to reach that goal.
Simply add in the saving you have today, your monthly savings, a target interest rate and see how many years you are from becoming a millionaire.
You can drag the slider if you want to see how long it would take to achieve a target of less than a million.
Try the Millionaire calculator for yourself. Don’t worry, you won’t break it!
By the way, there’s a super-simple millionaire calculator available too.
Unfortunately, the calculator won’t tell you how to be a millionaire! To find out how to achieve that goal, read on.
Demo of using the Millionaire Calculator
Here’s a quick video showing you the key moving parts of the Millionaire Calculator.
Example of using the Millionaire calculator
So – you are still saying I want to be a millionaire. Let’s say you have $20,000 saved, and you were able to save $3,000 every month. Assuming an 8% annual return on your investments, the millionaire calculator can do it’s magic calculation.
Saving $3,000 a month, you would be a millionaire in 14.1 years.
How do I choose the right interest rate?
The annual interest rate represents your expected return from your investments every year. Depending on your asset allocation, it may actually be a combination of interest, dividends and capital growth.
For example, if you were to invest in the stock market’s S&P 500, the average annual return since 1957 has been 8%.
Remember, history is not a complete guarantee to future returns. But, 8% is not a bad first estimate of the gross return you might make from diversified stock market investment.
Will one million be worth one million when I become a millionaire?
Yes… and no.
One million will always be worth one million because it is one million.
The real question is will the buying power of one million change in the future. Will you be able to by the same amount of stuff as you can now.
The answer to that is… very unlikely.
This is because of inflation. Every year, the amount of stuff you can buy for every dollar or pound reduces because of inflation. So in the future, a million that could buy you a nice house, may only buy you a nice car!
Does inflation mean I shouldn’t save to become a millionaire?
Absolutely not. Investing for the future will help you get closer to financial freedom.
Even better, you are likely to experience wage inflation, meaning your salary will go up over time. So whatever ever you can save today, inflation should be the absolute amount of dollars or pounds will be higher in the future.
At some point in the future, the average employee will be earning one million every year, thanks to inflation. Almost every person you meet will be a millionaire next door.
Maybe that’s when you will be targeting to save for a billion! And I’ll have to update the millionaire calculator!
Will becoming a millionaire make me financially free?
There is no guarantee that having a million dollars or pounds will mean you are financially independent.
That’s because financial independence depends on how much you spend every year, and the investment return you can generate.
Using the financial independence formula, you can estimate how much you could spend each year as a millionaire.
For a $1,000,000 and a 4% safe withdrawal rate, you could spend $40,000 a year and never expect to run out of money.
So another way of saying you are a millionaire, is to say you are able to spend $40,000 every year.
This difference between the big money amount you have as your net worth compared to the relatively small amount you can spend each year explains why so many lottery players go broke.
Why do people who win a million go broke?
The data is clear. Lottery winners tend to go broke.
When you see someone celebrating a big win, don’t feel jealous. Feel bad for them. Because millionaires who haven’t learned how to make money, tend to lose it.
It’s easy to understand why instant millionaires often lose all their money in a few short years. Just look at the Financial Independence equation.
Let’s say Charlie wins $1,000,000. He thinks he is rich. He sticks it to the man. He quits his $50,000 a year job, and gets ready to live the high life.
Charlie thinks he’s financially independent. And to celebrate his new wealth, he starts to spend. New car. New house with a pool. Vacations to spectacular locations. Charlie sits on the beach and toasts his good fortune.
But, now let’s plug $1,000,000 into the Financial Independence equation.
$1,000,000 * 4% = $40,000.
This means Charlie can only spend $40,000 a year if he wants to live off his winnings for ever. Wait! That’s less than he was earning before he quit his job!
As Charlie is now earning less than when he was working, he needs to REDUCE his spending compared to before. That’s right, by winning the lottery, Charlie has to now lower his lifestyle. All because he quit his nine to five.
But, of course, because Charlie doesn’t know the Financial Independence formula, he continues to spend.
And he doesn’t just continue to spend at his old expense rate when he was working. He’s rich, right? So he spends big. He doesn’t reduce his spending, he increases it.
He gives money to friends and family, he donates money to charity. That expensive house was bought with an expensive house with a mortgage and huge running costs.
Charlie may even take on an expensive advisor to help him spend his money. And you can bet that advisor won’t tell him to only spend less than he was earning before the win. Charlie would sooner sack an advisor rather than hear that kind of miserable news.
In a few short years, Charlie is broke. In fact, in the short run, you can predict when he’ll be broke. If he’s spending $200,000 a year, he will be wiped out in 6 years at most. You know this because he’s spending 20% of his earnings each year, and the pot of money he’s getting a yield on is getting smaller and smaller.
As Charlie watches his house being repossessed and his wife running off with his financial advisor, he wonders what on earth he did wrong.
This same logic of – I’m rich so I can spend – is the comeuppance of many sports stars, reality stars and those who get a big inheritance. If you choose to adjust your lifestyle based on windfall assets be very careful.
If you ignore the Financial Independence equation, you will go broke.
What lesson do lottery winners offer if I want to be a millionaire?
Don’t be a Charlie.
If you have received a windfall amount of money, be ultra cautious. Or you won’t see the money for long.
If you’re like many people who dream of being a millionaire, you have learned to control you costs, increase your income and improve your investment returns.
When you reach financial independence, don’t increase your spending. If you want to increase your spending, increase your target investments and work a little while longer.
Lottery winners teach us that annual expenses can soon eat up a big pot of money if it is not invested wisely or too much is spent each year.
But I still want to be a millionaire!
Good. It’s a great aspiration. It’s time to learn about financial independence.
Still saying I want to be a millionaire? Whilst you wait for you money to turn you into a millionaire, why not listen to Travie McCoy: Billionaire ft. Bruno Mars