Want a Million Dollars?
What does $1 million mean to you?
To me, this means I am one of 8.39 million in the United States with a net worth of a million or more. It also means that I am one of about 142,000 in the state of Georgia (my home state) that is considered a millionaire. But more importantly, it means I have accomplished something.
No, it isn’t that (to me) I accomplished something in terms of status to the outside world; it means I have accomplished a goal that I set for myself. It also doesn’t mean that all my goals have been met because this is just the first of many goals that I look to accomplish from a monetary standpoint. Accomplishing this goal doesn’t help me with my personal life or accomplishing my happiness goals though, as I have many goals I want to accomplish.
Many young professionals start out their career looking to become a millionaire. If one accomplishes this feat though, it doesn’t make them any better than the individual that hasn’t because an entire life is based on more than just meeting monetary goals.
Given that this is a goal I have set (judge me how you want) and already analyzed, I wanted to give others a reasonable way to get on track and accomplish this goal. I have to make certain assumptions (the boring part), but then I provide my view of a game plan to reach this goal.
They say if you assume you make an… well you know how it goes
The current Compare tool on www.yourwela.com shows that the average salary for people in their 20s is $65,000. So this is a good place for us to start this exercise. We have to assume that your income is able to grow at some rate and a reasonable (conservative rate) would be 1.5% per year. To give some perspective, this would mean that by the age of 60 you are making in excess $100,000/year. If your income grows faster, great!
We also must make another assumption for this plan to work. We have to assume that the average annual growth rate of your investments/savings is 4.5%. This means that individuals will have to take some risk with investments, as opposed to tucking it under the bed or putting it in zero interest rate savings accounts.
Let’s get to the blueprint…
Now comes the point that is dependent on you! This isn’t something that can be left to assume and is the most integral part of the entire example. At Wela, we like to use the abbreviation of TSL (Taxes, Savings, Life). And we break out our income by different percentages amongst each of these aspects. A good plan for anyone would be to put 30% of your gross income towards taxes (we got to pay Uncle Sam), 20% towards our savings (we have to fund our retirement) and then 50% towards living (got to enjoy life today but not at the expense of tomorrow). So, for this example, we are going to take our own word and show how saving 20% per year will help you accomplish your goals that you may have never believed to be achievable.
Starting at age 25 (mid point for the 20s), our example person is earning $65,000 and at the end of the year, they put away $13,000 to their retirement account at work. Then, the next year, the income grows by 1.5% and she puts away 20% of the new income level. By the time she is 30 (and with a growth rate of 4.5%), she has saved over $76,000! And by 40, the future is looking even brighter as she has seen her savings grow to over $300,000. Then comes the real impact of compounding, just 16 years after turning 40, the goal is met. At 56, this individual would have over $1 million dollars in savings at nearly the perfect time (individuals can’t touch retirement savings until 59.5). And all of this was accomplished by sticking to the simple TSL strategy.
Commitment means being dedicated to a cause… Commit to having a million
We can all live today and save today, while also enjoying tomorrow just as much. But it comes with commitment and discipline. Make saving automatic by having it come out of your paycheck to your 401k at work. Start saving today, you will be happy later!
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