Monday, January 1, 2018

A good resolution to start 2018 – many ways to become a multi-millionaire

There are many ways to become a millionaire and what it usually takes is self-discipline. When you are young, you often don’t make a large salary and you like to spend. But say you set yourself this goal in life:  I want to be a multi-millionaire by age 62.  This is not a bad goal because it is doable without excessive intelligence. But you need some self-discipline.  You need discipline to save; i.e. live a bit below your means and you need some investment discipline.

These are the assumptions:  from age 25 to 35 you safe every year between 0 and $10,000. That takes into account good and bad years; that you save at least 10% of your gross income every year and that you probably make around $100,000 per year when you’re older than 30 years. Also, over time your compound annual return is 6%.


Then between 35 and 45 you save every year between $5,000 and $50,000 depending again how good the circumstances are. Once the kids have left the home and you are in your peak earnings years you save between $25,000 and $200,000.  This of course includes windfall savings such as a severance pay or cashing in of employee stock options during stock market booms. Company savings plans should help you to realize big savings as well - it is far from impossible to have here and there a year of extremely good savings of $100,000 or $200,000.  The compound savings return remains all these years around 6%.  Which does require investment discipline but is definitely a lot less than the returns a Warren Buffett makes.
The result?  Depending on when you made your savings and the variable rates of return (averaging 6%) during good and bad markets, you should have accumulated between the 5 and 7 million dollars in about 37 years. I guess that is what it takes to become a multi-millionaire. Far from impossible! The beauty of all this is that there is no requirement to only invest in stocks, or bonds. Real estate can easily provide a 6% average return and even GICs may substantially contribute or your own business. Whatever you do, achieving a 6% return on average over 37 years is far from impossible.  Below is a shortened spreadsheet of this approach:
Compressed schedule of annual contributions and its 37 year compounded value (Savings) totaling between 5 - 7 million by age 62 (after 37 years).


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