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How To Be a Millionaire in 20 Years

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I've been officially old (big 4-0) for a few months now. It occurred to me that 40 year-olds have around 20 years of work experience (depending on high school, college, graduate school degrees).

The other reason I picked 20 years for this article is that the numbers work out. This clip from Something About Mary explains why 20 years is the perfect number:

At first glance 20-years seems like a long time. No one wants to wait 20 years for something right?

I thought the same thing until I realized that Summertime by The Fresh Prince and DJ Jazzy Jeff is 25 years old. We're not even going back to Parents Just Don't Understand. Time can sneak up on you.

How To Be a Millionaire in 20 Years

How To Be a Millionaire in 20 Years

So how do you get to a million dollars in 20 years? I decided to work backwards with two assumptions that I considered safe:

  • You are going to save some amount of money each year and invest it.
  • The investment is going to earn 7% a year. While that number will vary, this 7% is generally accepted as a rate of return when investing in stock indexes.

What's the magic number you need to save and invest each year? Let's see if you can spot it:

(It's my first time publishing a Google Sheets document on the web, so hopefully this is a link where you can view the sheet and calculations. If anyone sees anything wrong or has any tips on how I can do this better in the future, please leave a comment below.)

Yep, it's $23,000. By the end of the 20 years you'll have invested "only" $460,000. (We'll get to the "only" in a bit). The investment gains will be $540,000**.

When I did the math, the $23,000 number surprised me. Why? The maximum amount a person can contribute to a 401k plan is $18,000. The maximum a person can (typically) contribute to a Roth IRA is $5,500. If you were to max out both, you'd be saving and investing $23,500.

To all the conspiracy theorists out there, doesn't it appear that the government set these numbers because they want you to become a millionaire in 20 years?

How Can I Save $23,000 a Year?

Saving $23,000 a year can be easy for those with big incomes or an enormous challenge for those with small incomes. There's no one "right" way to get that money to save. I think it's best to work with a blended approach.

The first thing I'd do is track your finances through Personal Capital. Many people are surprised to find out that their restaurant spending is several thousand dollars a year. You might be able to save a couple thousand dollars at restaurants with these tips.

I would try to put as much money as I can in a 401k. Why? Because it's pre-tax money, you won't notice as big a hit in your paycheck. (Yes, you'll pay taxes later**, but psychologically, you'll get a big boost from the big number in the 401k.)

Next, I'd sign up with Digit. This free service takes a small amount of money out of your banking account and "hides" it in another FDIC insured account. The idea is that you won't miss the money the money you don't see. I wrote a review after I used it briefly: Digit Saved me Over $100 in One Week! Now that I've used it for more than a year, I can say that it hid about $4000 that I didn't notice.

By now you are probably seeing that you may be able to save a few thousand here and there. It really depends on what you are already spending and what you are earning. Over 20 years you'll probably need to buy a new car. You may be able to get a car that is cheaper and save yourself a hundred or two a month, which really adds up.

Does saving $23,000 still sound like too much money? Get a spouse and you can cut the savings goal in half. Some may consider it cheating, but I think most people would consider a great joint accomplishment. When I got married I found that many expenses, rent, utilities, cable, were cut in half as I had someone sharing them.

Looking for more ways to become a millionaire? Here's a lighthearted look at How to Become a Millionaire. Here's the story of how one person became a millionaire in ten years.

* When I was 23, I was introduced to a 27 year-old woman. I flat-out called her "old". Perspective is a strange thing.

** I'm glossing over a few details such as:

  • Investment Expenses - These can be minimized with index investing.
  • Inflation - A million in 20 years is likely going to buy less than it does today. On the flip side, it should be easier to save $23,000 in year 18 than in year 1.
  • Taxes - This is a big one. I'm going to do what everyone else tends to do and suggest that this is in a retirement account and that there are no taxes when they are really just deferred. I think most people with a million dollars in their retirement accounts would call themselves a millionaire. Am I wrong?
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Financial Freedom

Posted on July 27, 2016.

Rhode Island’s New CollegeBound Saver is Great!

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Editor’s Note: While I usually try to write for a national audience, today’s topic is more fitting for residents of my state, Rhode Island. However if you stick around until the end, you might have a chance at some free money. It’s good to be back to work after a week’s vacation. We just got […]

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College, Investing

Posted on July 25, 2016.

The End of An Era and The Beginning of a New One

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This Saturday we lost electricity… and along with it my old Dell Zino. I first wrote about it when I looking to do my digital media overhaul in August 2011. It’s a fun article to reflect upon. I had two $99 HP Touchpads coming to the house the next day. That’s how long the Dell […]

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Spending, Technology Tip

Posted on July 19, 2016.

Herbalife Settlement: Quick Reactionary Thoughts

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I checked into my stock watchlist this morning to see Herbalife stock up around 20%. That was my first indicator that the FTC/Herbalife settlement must have been announced. Sure enough… the news headlines were, “Herbalife declared NOT a pyramid scheme.” I shook my head thinking that this feels like an inside job, just like how […]

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MLM

Posted on July 15, 2016.

My Ideas for “The Big Short: Part 2”

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Last night, I finally got around to watching The Big Short. I had rented it on Amazon for a $1, but it sat around. Yesterday I got an email from Jim Wang of Wallet Hacks that he had just watched it on Netflix. He wrote the following: “When it came out in 2015, I’m sure […]

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Investing, MLM

Posted on July 14, 2016.

What You Can Do To Get Your First Paid Freelancing Client

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The following is a guest post from Martin of Studenomics, where he writes about financial freedom in your 20s without missing a party. For more tips, check out his book, Next Round’s On Me. “He said that I didn’t charge enough so he offered me more money because he felt bad for me.” A student […]

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Income Growth

Posted on July 13, 2016.

Amazon Prime Day is Here!

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You knew I just had to write about Amazon Prime Day. This is probably one of the best days to save money. Unfortunately, it’s also one the most dangerous days to spend money. When I’m looking at some of these deals, I have to remind myself that saving money means not spending it at all. […]

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Spending

Posted on July 12, 2016.

I Just Made a Ridiculous Investment… Here’s Why

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I made a mistake in the title. Investment is the wrong word… gamble is better. Bad gamble might be the best phrase. To make matters worse, I invested money that wasn’t mine. I invested in an ETF focused on Greece (symbol: GREK). Let me start off by explaining how bad this investment is. Here’s what […]

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Investing

Posted on July 11, 2016.

Best Use of Less Than $100? (and Bonus Deals!)

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I was reading the awesome email newsletter this week and Jim ended it with a great question: What do you consider your most valuable under-$100 purchase of all time? The thing that has had the most impact in your life? I cheated by naming two “most valuables.” For some reason, whenever Jim asks me for […]

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Deals, Spending

Posted on July 8, 2016.

Prepare Now for Amazon Prime Day

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[Editor’s Note: Even though article is about Amazon Prime, it’s actually most useful for people who aren’t already, and don’t intend to become, Prime members.] Last year Amazon had a Prime Day that was, by all measures, enormously successful. I think I picked up $200 in electronic deals (the highlight being a very cheap Kindle […]

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... and focuses on:

Spending

Posted on July 6, 2016.

 
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