How often do you ask yourself this question? My guess is that most people think about this at least some of the time. I think it’s a good idea to visualize when and how you’re going to reach that million dollar goal — it’s a healthy way to set a goal and focus on it; by doing so, you may realize that the day you actually achieve your dream comes to you soon enough.
There are a few tools and calculators out there that can encourage us to think positively and can help us plan for these goals. I like some of the calculators from CNN Money that give me a picture of the future based on my current financial situation. For instance, here is one of their calculators that asks:
When Will You Be A Millionaire?
By entering some of my personal information in the millionaire tool, I’ve found that it’s going to take me at least 2 decades to reach millionaire status. Here’s what I entered:
For Taxable Accounts
How much I have: $50,000
How much do I save each year: $10,000
My federal tax rate: 33%
My state tax rate: 9%
For Tax Deferred Accounts
How much I have: $75,000
How much will I be saving per year: $4,000
Projected Rate of Return/Goal
Average annual gain: 8%
Desired Nest Egg: $1,000,000 (one million dollars!)
And here is the result!
The numbers here indicate that I’ll be waiting a while before I hit my goal (unless I hit the lottery first). I’m taking financial baby steps for now but that doesn’t mean I can’t do more to expedite the growth of my nest egg. I thought of some actions I can take to get closer to my goal more quickly: looking at the numbers, I can very well work on saving more money per year, both for my taxable and non-taxable accounts. I may be able to manage saving up to 25% of my gross income to the tune of $25,000 a year, split among my various accounts.
Another strategy to enable me to get to the million faster would be to attempt to get a return that’s higher than 8% a year. But this would mean having to take more investment risks with my portfolio which I am not exactly prepared to do. Plus, a higher return may not be achievable year in and year out.
But just for fun, let’s see just how much sooner I’ll reach a million dollars by making the appropriate adjustments. By saving an additional $11,000 a year (still with an 8% annual return), this is what I have:
For Taxable Accounts
How much I have: $50,000
How much do I save each year: $15,000
My federal tax rate: 33%
My state tax rate: 9%
For Tax Deferred Accounts
How much I have: $75,000
How much will I be saving per year: $10,000
And these are the results of the calculation:
Time until your nest egg is $1 million:
15 years and 2 months
Inflation adjusted:
19 years and 9 months
It’s a little better — saving an additional $11,000 a year or $916 a month will shave off 4 years from this savings plan (or 7 years if you’re looking at the inflation adjusted numbers). Goes to show that a little extra income could go a long way here to help me improve my savings efforts — so perhaps I should work a little harder, maybe snag a part time job or work on small business ideas that can help me increase my income, and thereby, my savings.
What I like about this exercise is that it encourages us to think that becoming a millionaire is possible and within our grasp. Because I’m still fairly young, I can see that this financial goal is highly feasible and not impossible to achieve. It’s definitely an inspiring thought!
So when are you planning to be a millionaire?
{ 3 comments… read them below or add one }
Per this article http://bit.ly/LdSUY at SeekingAlpha, we can probably expect lower market returns in the future for the same or similar risk. It makes sense to focus on reducing spending and on increasing savings and income.
If having a million dollars is your goal, this tool would be a good way to see if you’re on track. Thanks for sharing it.
I get 20 years and 5 months.
Of course, the real number is the inflation adjusted one. I think we are going to see some real inflation pretty soon. And, not the “core rate” inflation number the Government posts.