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What dollar amount comes to mind when you think about “making it“?
Your response may be similar to, “When I’m a millionaire!”
It seems to be the perfect ideal, that junction between a dream and a goal – where the lofty and the attainable converge.
When most people think of a million dollars, they think of mimosas on the beach while the rest of society commutes to work.
The fact of the matter is, there is more to becoming a millionaire than many people realize – at least until you stop to think about it.
When you decide millionaire status is within your reach – consider it a goal, not a dream.
At this point, you have come to these 5 realizations.
Millionaire Mindset: 5 Sobering Realizations About $1M
#1 – Luck is for the lucky and the naive.
Think back to when you were in school. There was always that rascal who would exclaim, “XYZ, when will we ever really use this in life?”
Upon hearing the teacher’s answer, that student would name off 5 celebrities who were multi-millionaires and never graduated high school.
To that kid, I have one question: What happened to everyone else in the celebrity’s classes?
You see, the celebrities got mostly lucky. Fame, lotteries, lucky breaks, they happen, yes, but they are not common.
For the rest of us, we need to earn, save, invest – and above all, be money smart.
Luck does not (generally) come to those who expect it.
If you’ve decided that you’re going to earn your 1st million, that means you’ve set this as a goal.
As with any goal, just saying you want it is not enough.
You need to think through a feasible path that gets you there one step at a time. In other words, you need to put action verbs in your sentences.
#2 – $1M may not be enough.
That’s right, $1M doesn’t go as far as people may think.
If you retire on a million dollars, then that mimosa on the beach is going to be a vacation – not a daily lifestyle.
It’s not going to buy you a 10,000-sq. ft. mansion or a garage full of exotic cars. It will not allow you to spend with reckless abandon for the rest of your days.
In fact, those who reach this goal will tell you that they don’t even have direct access to a large portion of their money.
Now that may raise a few eyebrows, but it’s true.
When setting the goal, most people will choose to have a net worth of $1M rather than have a bank account with that balance.
Significant amounts of your money are invested in your home, 401k’s and IRA’s, dividend-producing stocks, and a few other lesser accounts.
How much of this is readily available for you to spend?
Certainly not the house, that could take a few months to pay out.
Other accounts could be accessed, though there would likely be some hassle and fees.
Most of the cash is not accessible, but let’s face it, why would you want to drain any of these accounts?
They’ve worked well for you so far, and now they can really start chugging out new earnings! That is probably the most profound concept an aspiring millionaire will realize.
Once they’ve earned the million, they want to keep earning. Thanks to the banking miracle that is compound growth, once you have a sizable investment, it will grow faster and faster! Once the goal is met, it gives you a serious head start (with serious momentum) toward your next lofty goal!
As I’ve heard, “The first million is the hardest”.
#3 – Invest early for compound growth advantage.
Let’s talk more about compound growth. Imagine you invest $1,000 and earn a 4% annual return.
The first year, the money will grow to $1,040.
Next month, let’s invest an additional $1,000.
If you earn 4% again, it’s not just 4% of the $2,000 you have invested. It will include the $40 of growth you earned the prior month.
You will bring in a fresh $81.60 your 2nd month.
You have a total of $2,121.60 (1,000 + 40 + 1,000 + 81.60).
As you can see from the example, the more money you have invested, the faster it can grow.
When you start investing, the investment grows relatively slowly at first.
$121.60 isn’t a lot of money compared to the $2,000 invested.
It takes time for the investment plus its growth to become sizable.
A way to facilitate this is to start investing earlier.
Let’s take a look at a simple example.
A 25 y/o investor will do significantly better than a 30 y/o investor in the long-run.
Here are the similarities:
-Starting balance: $0
-Annual return: 4%
-Retirement age goal: 55
Here are the differences:
-25 y/o invested balance at retirement: $1,049,909
-30 y/o invested balance at retirement: $779,611
That’s a difference of $270,298.
After considering yearly contributions of $18,000 ($1,500 x 12), we’re looking at a compound growth advantage of ~180,000 ($270,298 – ($18,000 x 5)).
This example shows how useful compound growth is, but it also emphasizes the importance of investing early and consistently.
In the case of the 30 y/o investor, they would have to increase their monthly contributions to $2,000 (vs. $1,500) to result in ~$1M by the age of 55.
This is one area where procrastination can hurt you. If you ever catch yourself saying you’ll look into learning about investments later – reconsider.
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#4 – It’s a lifestyle: A millionaire may live right next door.
As I mentioned above, there is a lifestyle that people “assume” about millionaires, and then there is reality.
The assumption is that they fly to Paris for an extravagant dinner and then fly back home the same evening.
The reality is that they will likely cook dinner at home, making a delicious recipe they found off the internet that aligns with the store sales for the week.
For the average person, becoming the millionaire next door takes some sacrifice.
A lifestyle is adopted within your means. Call it what you will – frugal, strategic, intentional.
Paying yourself first is your M.O.
Think about this. There are actually millionaires all around, but we don’t recognize them because they are not trying to show off.
Usually, it’s only the “lucky ones” who are so flashy with their cash.
For those of us working for it, we realize that a penny saved is a penny earned.
We are just typical people and blend in with everyone else. Have you ever seen a millionaire use a coupon?
Yes, yes you have. You just may not have known it at the time.
If you are interested in reading more about “The Millionaire Next Door” – check out the book by Thomas Stanley.
#5 – $1M is a means to an end.
Becoming a millionaire is not the end-all-be-all goal of saving and investing. It is simply the process by which you achieve your ultimate goal, whatever that may be.
Indeed, it will be exciting to see a 7-digit “net worth” value on the computer screen, but that doesn’t change much.
Then you start asking the hard questions.
Where do I go from here?
Here are some options:
- Decide to maintain the momentum and set a new money goal for yourself.
- Redefine your 9-to-5 by starting a side project that a strong financial ladder made possible.
- Semi-retire: work a part-time job and lightly sip at your investments while being careful not to take out more than what you earn from dividends and capital gains.
Whatever you decide, it’s always good to have choices.
- How Are You Building Your Retirement Success Story? + An Equation for Wealth
- My Early Retirement Quest: The Beginning (#1 of an ongoing series)
Who Wants To Be A Millionaire?
While it is a dreamy goal, $1M is perfectly attainable. There are ways of reaching the goal which is (nearly) guaranteed, but they require work, intelligent choices, and planning.
There are many people who just know they’re going to hit the lottery or “be discovered”, but they will soon realize that luck is not a sound investment strategy.
Once you have earned your cash, you will have earned your choice.
It really comes down to a decision between buying short-term lavish stuff or buying the freedom to live comfortably long-term, with or without a job.
Time to grab a mimosa and think hard. What is going to come next?
Read more about my mission HERE.
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*As with all financial and investment decisions, consult a professional. Read disclaimer here.
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Do you have a millionaire mindset? Have you already reached it? If not, what are some of the steps in your plan to make that happen? What do you plan to do next?