One million dollars within 10 years? That sounds impossible but I believe with the right blueprint we can figure out exactly what steps we need to take to get there. Contrary to what people might tell you, it’s not an impossible task.
According to the latest Global wealth report, there are 24.5 million millionaires in the United States, which accounts for 39% of the world’s millionaires. Other countries with the most amount of millionaires also include China, Japan, Germany, France, the UK, Canada, and Australia.
If there are 24.5 million millionaires in the United States and the population of the US is 340 million, that means about one in eleven or twelve have a million dollars or more. These statistics should be a little bit more comforting to you because becoming a millionaire is going to be a lot more attainable than you might think.
In this article, we’ll walk through the math of how to get there within 10 years. I’ll also give you some principles on what I think it takes to get there as well as at the end of this article.
First, let’s break down the math on how to actually get to a million dollars within 10 years starting from scratch. The Math takes $50,000 a month after tax invested at an annual return of 8% per year which is about the average return that you can expect in the S&P 500. Yes, that is a lot of money, that’s $64,800 post-tax money that we need per year.
There are a few things to point out here, first of all, the eight percent return number that’s not always a guarantee, that’s basically what the average has been in the past of the S&P 500. But as we all know that the past is not indicative of what the future might hold, it also assumes that you have $64,800 post-tax money to invest which realistically for most of us reading, that is not possible.
With the average median salary in the United States being closer to 55K to 60K per year we also need to take this into account. The fact that if you have $64,800 to invest every single year, you still have expenses to pay as well, you will still have to pay for things like rent, groceries, a car payment, insurance, etc etc.
So, if you do have $64,800 to invest post tax, it’s likely that before tax your salary is somewhat in the range between 150k to 200k per year. You also probably don’t spend your money frivolously, and most likely you probably don’t have dependents either.
We’re going to talk about shortly in this article how to achieve that $64,800 without solely having to rely on a nine to five job. However, for now let’s illustrate the math a little bit further.
The Real Deal
If in year one you start the year with $64,800 assuming the historical rate of return of 8% in the market, your ending balance at the end of year one is $69,984. The next year you start with that balance and you add another $5,400 a month over the course of a year, your balance at the end of year two is going to be $145,566.
This pattern goes on for years, three, four, five, and so on all the way to ten. That’s when you actually achieve the millionaire status. I think the mind-blowing part of this compound interest table is that after 10 years of investing, you’ve contributed $648,000. $365,000 of your million dollar is now from interest, so essentially a lot of your million dollar balance at the end of 10 years still is comprised of savings, that’s a lot of money.
Principles Needed To Achieve $64,000
let’s discuss the principles that we need to achieve this amount. First, we want to talk about the mindset that you should Mindset adopt when it comes to an undertaking like this. You need to actually believe that you are worthy and capable of getting to one million dollars within 10 years.
Having positive self-talk and an affirmative mindset is going to really help a lot here. Someone with a negative mindset might say things to themselves like “Man, a million dollars seems like such a lofty goal, I don’t have the skills, I don’t have the time, I’m just not smart enough, and maybe in another life”.
There are a lot of maybes, might, I’m not good enough in the phrase, and honestly maybe another life, another life? This is the only one that you have so instead say something to yourself like this “I’m planning on making a million dollars within 10 years, if I focus on what I’m good at and I invest my time and my money wisely and intentionally, I’ll make the right decisions to get there.
You see how that change in tone influences how you feel about your goal in a very subtle kind of way. Compound that way that you feel for the next 10 years, and that’s going to make a really big difference. So, you lose nothing from being positive. If you have the choice between being negative versus being positive, you might as well choose positive self-talk.
Stay Away From Negative People
A lot of people are going to tell you that you cannot do it, and it might even come from some of the people that you love. Don’t let those people tell you that you can’t do it especially if they haven’t done it before. They don’t even know what it’s like.
Everyone is unique and we all have a certain set of skills and wealth can be generated throughout the world. So we need to be aligned with this fact and we just gotta know that it is not an impossible task. So let’s put together a roadmap to get to a million dollar within ten years.
Principle 1: Save Aggressively
The first principle that I want to share with you guys is that you need to really save aggressively. This is going to be a tough pill to swallow for you guys out there, but if you are on a goal to get to a million dollars within a certain ten years, you need to make some sacrifices when it comes to spending money. Not only do you have to know exactly how much money you are spending, you also have to cut back on the categories in which you think you are spending too much.
It also takes a lot of discipline to pass on certain events and entertainment opportunities that you might otherwise go to in the pursuit of this long-term goal. This also means that if you get a promotion or a raise at work, that you’re not inflating your lifestyle instantly. Perhaps you’re living at home a little bit longer to save money, and you’re probably optimizing every single dollar that you are getting.
That means if you have excess savings, for example, like let’s say you have some cash that’s just lying around sitting at a big bank paying you little interest, that’s not really optimizing your dollar. And so instead, you can move it to a high-yield savings account, make sure you’re being paid some interest on your excess savings.
So right now, high-yield savings accounts are paying between 4% to 4.3%, and they might even go up further.
Recommended: Tips For Finance | How To Save Money With a Financial Planner
Does it Matter How Much You Make?
Now, to a certain extent, it doesn’t really matter how much money you make but rather how much money you save. So let me illustrate this even further with someone who makes over seven hundred thousand dollars a year.
That’s a mind-blowing amount of money, but guess what? I think he spends probably 650K to 680K of that $700,000 salary every single year. He’s spending money left and right like it’s water, and we all probably have a friend that kind of fits this description.
So, I wanted to ask you guys, does making 700k a year even matter if you’re saving only 20K of it? Because you could probably do the same thing, save 20K even on a much lower salary say 60K or 80K a year. What really matters is that you have a high effective savings rate, and that’s the first principle of saving aggressively.
Principle 2: Additional Income
Next, let’s talk about additional income. Say you’re in a nine-to-five right now that doesn’t really pay you a ton of money. Realistically, it’s unlikely that you’re going to get to a million dollars in your nine-to-five unless your nine-to-five is a really high-salary paying job like if you’re a lawyer or a doctor or if you’re at a startup for some reason and you have some equity in that startup that’s going to realize into a big payout later on.
So, while you should still look for opportunities within your main line of work, we should really be looking at pursuing some other opportunities outside of work that could get us there faster.
Starting Your Own Side Hustle
If you start your own side hustle or your own business outside of work, there’s so much more maneuverability that comes with that because all of a sudden, you’re in control of your own destiny, and you’re not relying on your employer.
Oftentimes, if you’re in a nine-to-five job, there’s a cap on how much you can earn extra every single year. You usually get a five to ten percent raise, and you’re still dependent on your employer. But in opportunities outside of work, basically, your pay is going to be directly correlated to your effort and the results that you can get. I think salaries are really great for having a stable income, but oftentimes the reward structure just isn’t there.
So, let’s say you worked your ass off for a single year for your employer. If they don’t notice that you’re putting in extra effort, you’re just going to be paid the same. It’s not like you see a substantial upside in your income unless your boss notices that you’re working a lot more.
So, by focusing on additional streams of income, we’re going to be able to start accumulating that wealth. And maybe we can’t invest $5,400 a month like in our math example, but we can start with $200 or $500 or $1,000 per month as you experiment, learn more skills, and stay disciplined, there’s going to be just more opportunities that come your way.
Principle 3: Time Disconnection
Now, a key concept here is the time disconnection of your time and your compensation. According to Naval Ravikant “The first thing if you’re going to make money is that you’re not going to get rich renting out your time. Even lawyers and doctors are charging three, four, or five hundred dollars an hour. They’re not getting rich because their lifestyle is slowly ramping up along with their income, and they’re not saving enough. They don’t have that ability to retire.”
There is a lot of truth to what he just said. Renting out your time will not be the best use of your potential. I’d actually argue that if you are in one of those high-paying jobs like Naval is talking about, you can actually get rich, but you just can’t have your lifestyle ramp up too quickly.
Now, let’s pretend we aren’t doctors or lawyers or someone with a really high-paying gross hourly wage. How else can we get there? Well, there are some career choices that we can make to get there instead. These are some example jobs that are not dependent on time and can lead to higher income.
Jobs Not Dependent on Time
1. Realtors. They make commissions on real estate, so the more expensive homes they sell, the higher percentage they take home.
2. Software Sales. These positions are often salaried, especially at big tech companies, but if you hit your sales goals, you can receive large bonuses, leading to a total compensation of $200,000 to $300,000 per year.
3. Logo Designer. Depending on your client, you can charge different rates per project, so your time is not directly correlated to your compensation.
4. Novelist. Similarly, if you’re a novelist, a lot of your pay will come from royalties based on book sales. This is similar to someone who creates an online course or even a musician.
5. Lastly, you could become an e-commerce store owner. The more products you sell, the more you earn.
The idea with these five jobs that we just mention is that they don’t have a direct correlation between time and income.
After you start piecing together that income, or if your nine-to-five job is paying you a high enough salary, the next step is to figure out what to do with that money, how to invest it, and appreciate those assets.
When you’re young, it’s recommended to take on as much risk as you can to grow your money quickly. Conventional wisdom suggests investing in index funds, which historically average 8% to 10% returns per year.
However, if you want to take a bigger swing, you could consider investing in growth stocks or individual names, especially in a tax-advantaged account like a Roth IRA, where the gains are tax-free. If you prefer index funds to try and go over that 8% average return per year, some options to consider are FXIAX by Fidelity or VFIAX by Vanguard. Additionally, ETFs like VOO or SPY are good choices.
Another concept to consider is acquiring appreciating assets whenever possible. For example, real estate can provide a leverage opportunity to maximize returns. Let’s say you have $50,000 invested, but you want faster growth. You find a property listed for $250,000, and with a 20% down payment, you spend $50,000.
If the property appreciates by 5% in the first year, its value would be $262,500. This means you had a $12,500 unrealized gain on your $50,000 investment, resulting in a 25% return on investment due to leverage. Of course, this is a simplified example, and it’s essential to do thorough research before investing in cash-flowing assets or other appreciating assets.
Wrapping it up
In conclusion, while a million dollars may seem like a lofty goal, it is achievable with the right mindset, strategy, and dedication. By focusing on increasing your income through various streams, investing wisely, and acquiring appreciating assets, you can work towards growing your net worth and reaching that million-dollar milestone.
Remember to track your progress, stay disciplined, and continually educate yourself on personal finance to make informed decisions along the way. With determination and smart financial choices, you can pave your path toward financial independence and wealth accumulation.