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|
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.
You VS anyone
On Twitter, a few people disagreed with me. They argued that many households make very little income and they can’t save. Okay, they have a point. I guess “anyone” is too broad. After all, 50% of all U.S. households make less than median income. The less they make, the more difficult it is to save.
What if you don’t make $60,000/year? Does it mean you can’t become a millionaire? Not at all. You are not just anyone. If you’re reading this, you’re already on your way to becoming a millionaire. It means you want to be a millionaire and you’re trying to figure out how to do it. Only motivated people would ever find this post on the internet and read this far. Most people are watching cat videos and goofing off on social media. If you’re reading this, you’ll figure out how to earn more, and then you’ll be able to save more.
The question really is – Can YOU become a millionaire? I believe you can. You have to save, invest, and keep at it. If you make less than the median income, then focus on making more. (Read more at the link.) You’ll get there someday.
The biggest obstacle is…
IMO, the biggest obstacle to becoming a millionaire is age. If you’re in your 20s and 30s, you have plenty of time to work on it. Compound interest is your friend and it won’t be too difficult to become a millionaire. Our son is just 7 years old and I’m 100% sure that he’ll be a millionaire in the future. In 50 years, the median household income will probably be a $200,000 per year. It will be much easier to become a millionaire in 2068.
However, it’s much harder if you’re older than 40 and don’t have much savings. Then you’ll have to drastically increase your income and saving rate to become a millionaire. Or start a successful business. That’s a hard road, but it can pay off very nicely.
Now, I want to hear your opinion.
What do you think? Am I right or am I wrong?
*Sign up for a free account at Personal Capital to help manage your investments. I log in almost every day to check on my accounts and cash flow. It’s a great site for DIY investors.
Photo by Alex Radelich
For 2018, Joe plans to diversify his passive income by investing in US heartland real estate through RealtyShares. He has 3 rental units in Portland and he believes the local market is getting overpriced.
Joe highly recommends Personal Capital for DIY investors. He logs on to Personal Capital almost daily to check his cash flow and net worth. They have many useful tools that will help every investor analyze their portfolio and plan for retirement.
Latest posts by retirebyforty (see all)
- Early Retirement Blogs for Everyone - October 18, 2018
- How to Avoid Overspending and Overeating - October 15, 2018
- Do you like Retire by 40’s new logo? - October 11, 2018
- How Early Retirement Impacts Social Security Benefits - October 8, 2018
- Do you need Financial Independence to Retire Early? - October 4, 2018