One million dollars” has a nice ring to it doesn’t it?
As a youngster becoming a millionaire meant you made it. It was fun daydreaming about the luxurious items you would buy with all of the money that flowed infinitely. For many, becoming a millionaire means automatic security and a life of luxury and leisure. In reality, a millionaire is essentially someone whose net worth exceeds $1 million. That doesn’t mean that they necessarily have $1 million in cash on hand. It means that their assets exceed $1 million dollars.
While $1 million dollars can provide you with a significant advantage and a certain level of comfort, it doesn’t solidify your financial future if squandered away unscrupulously. And thanks to inflation, $1million dollars today is completely different from twenty years ago. Life cost significantly less back then, meaning not only was your money worth more; it also meant that it stretched a lot further. In 1985 the average home cost $116,000 and the median salary was $12,747. A gallon of gas was $1.24 and a loaf of bread was 74 cents. In 2014 the average home price was $188,000 and the average median income was $51, 939. In 2014 the average gas price was $3.33 per gallon and a loaf of bread was $2.24. In 1985, today’s 1 million dollars would have been worth $2.2 million in today’s dollars.
So how do you become a millionaire?
Contrary to the common perception, the typical American millionaire lives a moderate lifestyle. A recent Washington Post article provided surprising characteristics about America’s millionaires. Their median income is $131,000 and their average home price is $320,000. The everyday millionaire is a saver. Only 20 % of them received their wealth from inheritance. Over recurring pattern is that millionaire's are scrupulous with their money. Very few of them drive foreign cars and most work regular jobs or operate small businesses. They are literally the millionaires next door and they’ve gotten here because they understand that just because you can, doesn't mean you should.
According to The Economist, the most common way to get rich is to start a business: nearly half (47%) of the world's wealthy people are entrepreneurs. You do not have to be a genius to build a million-dollar business, but it helps if you are intelligent and extremely hard working. Dominique Brown and his wife Sheena Brown of Virginia became millionaires by age 30. His journey to millionaire status began at age 25. Dominique did not inherit his money and was ridiculed by friends when he told them he was going to become a millionaire by 30. The Brown's achieved their millionaire status at age 30 through investing in real estate and prioritizing investing over spending. Since setting their millionaire goal they have and continue live on 50% of their income, investing the rest.
With millionaire status comes several life lessons. Brown says, "People assume that when you’re a millionaire you’re constantly loaded with money. They assume that everyday millionaires live like rappers and for me that couldn't be further from the case.” Brown also found that people who were aware of his status began to treat him differently. Friends and family members would assume that he could afford to take a "loss". When he realized that their net worth hit $1 million dollars he allowed himself to bask in how monumental of an accomplishment it was and then began planning. While he and his wife live well they are relatively modest and focus on their goals and plans to keep their millionaire status. Brown says he actually works harder than he ever worked before so that he can maintain his status and continue to create wealth for his family for generations to come.
So what will $1 million dollars today be worth in 2035?
Utilizing the average 3% inflation rate, it will take $1,806,111.23 to equal the buying power of today’s million.
Becoming a millionaire doesn’t necessarily guarantee security though. For example a 30-year old couple with plans to retire at age 65 would run out of money by the time they reach 84 (before their life expectancy of 86 and 89, respectively, for him and her) if they spent $100,000 a year. It’s simple mathematics – the earlier you retire and the more you spend per year, the less your $1 million will last you. According to economists, if you really want to make your million last in retirement you should try to keep your yearly withdrawals around $40,000. To calculate your retirement needs you can check out this useful tool from Prudential.
Becoming a self-made millionaire as opposed to winning the lottery or receiving an inheritance has helped the Browns appreciate the work. The average American is a consumer and spends money on short-term pleasures resulting in losses rather than long term investments that yield gains. If you want to become a millionaire remember that it is as much about behaviors and habits as it is work ethic.