I’m setting a goal to become a millionaire by the time I’m 40. Granted, a million dollars isn’t what it used to be, but it’s still a fun and exciting milestone to shoot for. Currently my net worth checks in at $364,000. At 34, soon to be 35, I have a little over five years to nearly triple my net worth to become a millionaire. A tall task indeed, but I enjoy setting lofty goals.
Let’s take a look at the current make up of my family’s net worth:
|Current Net Worth|
|Taxable Investment Accounts||27,000|
Getting To the Millionaire Club
What do I get for becoming a millionaire? Well I’m hoping for a gold plated membership card and my picture on the wall at the hall of millionaires. Surely that exists right? Seriously though, it’s just a nice round number and a lofty one at this point in my financial life to shoot for.
So how can I get the no longer very exclusive millionaire club gold card? First I need to set a plan and stick to it by determining how much I can save and invest over the next 5+ years and what kind of return I can get on my money.
Through my research I’ve read numerous projections on returns over the next 5-10 years that are all over the board. However, many fall within the 6-8% range. The S&P 500, since its inception in 1928, has returned on average 10% a year. Over the last 5 years, the S&P has returned just shy of 11% (not including dividends). The truth is, nobody knows. Studies have shown that “expert” predictions typically fail to hit the mark. The market has continued to perform well, and assuming that interest rates remain relatively low, which I believe they will, I expect the market to continue its good performance, on average.
Given my age and investment timeline, I take a fair amount of risk in my investments, keeping bonds and other lower risk, lower return investments to a minimum. Therefore I believe assuming 8% to be a reasonable assumption at this point. Regardless, it’s an estimate used to reach a visually appealing but otherwise irrelevant number (will I be that much worse off if I get to only $950k by 40 instead of $1 million?), so there is no reason to overly focus on it in this case.
Checking the Numbers
Let’s start with the easy stuff. I currently contribute the maximum to my 401k through work. Including the company match I contribute a total of $23k every year. With a little over five years to go until I hit the big Four-Oh (damn that’s coming up soon!), and using an 8% return, I should have around $515k in my retirement accounts by the time I reach 40. That’s an increase of $267k. Not too shabby, but leaves me with another $323k to go before I reach $1 million.
My current mortgage will be paid down to $57k by the time I reach 40, and my home value is projected to increase to $198k assuming a 3% yearly increase in value. This adds another $77k to my net worth, but still leaves me with a short fall of $266k.
Unless my Powerball ticket hits or I learn how to beat the house in blackjack without getting my arm broken, I’ve got my work cut out for me to reach my goal. Over the past few months I’ve become more serious about managing my financial situation. I’ve dedicated myself to increasing my investments outside of my retirement accounts in order to shorten the time it takes to reach financial freedom. I’m planning to invest an additional $45k outside of the $23k already going into my retirement accounts. This includes the raise I expect to receive before the end of this year and the bonus I’m projecting to receive early next year. Once again assuming 8% returns, my taxable investment accounts project to increase to $325k.
These estimates get me to to my goal of $1 million. They do not factor in future raises that I am likely to receive outside of the one already in my contract, nor do they account for any additional side hustling to earn extra income to push me over the top. So while my expected rate of return may not pan out, there is always the option of earning more money.
|Projection for 40|
|Taxable Investment Accounts||325,000|
Reaching the Goal
“Motivation is what gets you started. Habit is what keeps you going.” – Jim Rohn
Many have the motivation to become a millionaire, but do they have the discipline to continually practice good habits that will get them there? Part of my reason for starting this blog is to use it as a forum to hold myself accountable to the goals I set. Goals that you share with others are far more difficult to abandon than those you keep to yourself.
How I plan to get there:
- Using Personal Capital to track my net worth. I love this tool and have been using it for several months now. Stay tuned for my review of this free financial tool.
- Automation. This is already taken care of for my retirement accounts as money from each paycheck goes directly to my 401k without me having to do a thing. However, it’s a little more tricky for my taxable accounts. I use multiple platforms to invest, depending on what I want to invest in. Be it dividend stocks, index tracking ETF’s, or invest in P2P lending (just getting started here).
- Consistent tracking and updating. When you share your goals with others, you are more likely to reach them. Sharing my progress towards my goal here will further help hold myself accountable. For now, I’m planning on doing annual updates on my progress.
- Continued discipline. We are not extreme savers like many I’ve seen on various blogs. I applaud those people and enjoy reading about their journey. My wife and I do not spend a lot on possessions (we have a 900 square foot 3 bedroom 1 bathroom starter home where we’ve lived for nearly 10 years that most of our friends probably scoff at), but we do like to spend more on experiences.
It all seems so easy when I lay it out on paper. Of course, a lot will be dependent on if the current market remains bullish or just bullish enough. Regardless, the journey will be a fun one and I’m looking forward to the challenge over the next 5 years.
Readers, please share your financial goals and how you plan to get there. Are you on track? What tools are you using to help you realize your goals?