What It Takes to Become A Millionaire

Posted by Sun on February 14, 2008
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millionaireSo what does it take to become a millionaire?

If you Google “how to become a millionaire,” you will find a lot of suggestions, including a very popular post from Jeremy at Generation X Finance, one from Free Money Finance, as well as the latest addition on Blueprint for Financial Prosperity. While I agree that the suggestions from these posts are practical, I myself am not a big fan of “how to become a millionaire” (I don’t read any book on that subject). Not that I don’t want to, but I don’t think it’s a goal that needs five steps or six ways. Why not four or eight? In fact, if you go through those discussions, you will realize that all the suggestions come down to Earn more and save more, plus some disciplines, whether you earn it from your job, your rental property, or your business, whether you save it in your IRA, 401(k), or savings account.

That said, you may not have one million dollars under your name if you only save $100 a month, though you are disciplined enough to save that amount every month. For example, if you save $100 a month and put the money in your bank account that earns 3.00% or 4.00% return, you will never have a chance to be a millionaire if that’s all you do because that amount of saving will take some 100 years to become a million!

The following is plot of what I called “What It Takes To Become A Millionaire.” It’s not about what you should do, getting a second job, living below your mean, or anything like that. It’s rather about when you will be a millionaire if you save/invest a certain amount of money with salary being your main source of income. Given a monthly saving ($100, $200, … $3,600 in all accounts) and an annual return (from 3% to 25%) you assume your money will earn, it tells you how many years have to pass before you will have one million dollars (interests compounded annually), when you have zero to begin with.

how to become a millionaire

From the plot, to accumulate $1,000,000 in a reasonable time period, at least $500 should be set aside every month with the assumption that the average long-term return is around 8%. To shorten the time required, the savings rate has to go up, unless the return is extraordinary. However, that could happen only in the short period of time. Excessive return is something we can’t rely on in the long-term.

A table for the above plot is given next for easy lookup.

Monthly
savings($)
/Annual
return(%)		 100 200 500 800 1,000 1,200 1,500 2,000 2,500 3,000 3,600
3 110 88 60 48 42 38 33 27 23 20 18
4 90 73 52 42 37 34 30 25 21 19 17
5 76 63 45 37 33 30 27 23 20 18 16
6 67 55 41 34 30 28 25 21 19 17 15
7 61 50 37 31 28 26 23 20 18 16 14
8 54 45 34 29 26 24 22 19 17 15 13
9 50 42 32 27 24 23 20 18 16 14 13
10 46 39 30 25 23 21 19 17 15 14 12
11 43 36 28 24 22 20 18 16 14 13 12
12 40 34 26 22 21 19 18 15 14 13 12
13 38 32 25 21 20 18 17 15 13 12 11
14 36 31 24 20 19 18 16 14 13 12 11
15 34 29 23 20 18 17 15 14 12 11 10
16 32 28 22 19 17 16 15 13 12 11 10
17 31 27 21 18 17 16 14 13 12 11 10
18 30 26 20 18 16 15 14 12 11 10 10
19 29 25 20 17 16 15 14 12 11 10 9
20 28 24 19 16 15 14 13 11 11 10 9
21 27 23 18 16 15 14 13 11 10 10 9
22 26 22 18 15 14 14 13 11 10 9 9
23 25 22 17 15 14 14 12 10 10 9 8
24 24 21 17 15 14 13 12 10 10 9 8
25 23 20 16 14 13 13 12 10 10 9 8

How long will it take you to become a millionaire, if that’s your goal?

*Photo from Buzzle.com

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8 Comments
February 14, 2008

It’s interesting that the table was pretty much spot on for my situation - I always aimed at saving around $1000 per month and invested in stocks and real estate which produced around 8%pa return. I hit millionaire status last year which was around 26 years after I started saving seriously while working and going to uni.

The table also shows that
a) doubling your savings rate won’t get you to 1 million in half the time. For example, saving $1000/mo at 8% takes 26 years, but if you managed to live extr-frugally and saved twice as much, you’d still take 19 years to become a millionaire. Possibly not worth the big impact on your lifestyle that doubling your savings rate for 19 would have.
b) High income/savings rates make ROI less important. For example, if you can save $3000/mo you would become a millionaire after 15 years if your investments make 8%, but this would only reduce to 11 years if you managed to achieve 15% returns (with a higher risk of going broke!). In contrast, if you’re only saving $500/mo it would take 34 years to become a millionaire investing at 8%, but if you managed to get 15% returns your $500/mo savings would make you a millionaire in 23 years.

Finally, it’s interesting to see that by helping my sons save just $200/mo and investing for the long term in high growth investments such as stocks (that might make 11%pa), they would become millionaires in their own right by age 36.

Posted by Enough Wealth
February 23, 2008

I really like this graph and table. I find numbers always tell the truth, as long as you look at them correctly. You did that nicely here.

Lisa

Posted by Lisa
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