So I talked about how being a millionaire is both more achievable and less meaningful than ever before.
In fact, I’ll go even further by saying that for many of us, it’s also effectively mandatory. Yes, I’m saying that it’s not a matter of aspiring to be a millionaire, but that you need to become one.
Table of Contents
Ideals don’t take the place of meals
May we all live a long, healthy, productive, fulfilled life. May we all live simply, and off the land as much as possible. May we all have everything we need all around us, like this comic from the Doris Antidepression zine.
But while there are almost always methods we can employ to simplify our lives and become less dependent on the consumerist treadmill, there is a limit. That limit may be medical expenses, or perhaps the inability to work productively, or something else. It’s not a pleasant train of thought, but there’s no point avoiding it. We must live for today, but plan for tomorrow.
All of this is a roundabout way of saying that we’re likely going to need some money in the bank. I don’t feel like we can truly rely on our friends, lovers, the state, or even our offspring to carry us on their backs, at least not totally.
I believe that we each want to aspire toward having a minimum of $1,000,000 in the bank (or equivalent) in order to have a comfortable coda to our lives. My rationale for this is that this is predicated on the need to have your money work for you when you can no longer work for your money.
Bold claim, I know. But stay with me. Remember how I said that this is easier than ever. Not easy. Just not impossible.
Working hard for the money
There are endless arguments about how you can make your money work best for you. On the radio a few mornings ago, I heard a commercial about someone touting a book with a scam “secret method” talking about how he was able to make 72% return on a trade where the stock only moved 12%. Now, I have a stock tip of my own, but the fact that this kind of thing is getting air time speaks to my view about advertising.
When it comes to financial projections, I’m rather conservative. I believe in the “get rich slowly” ethos (espoused by the eponymous site), not only because it’s the only thing that will work, but also because it will teach you to be comfortable with your own wealth, your own responsibility, and your own accomplishments.
So how much do I think you can reasonably expect to make as a return over the long term? Let’s be ultra-conservative and say 4%. Short of violent economic contraction, I don’t think I know of anyone who’s going to argue that our economy will net you less than that.
So, if you make 4% at a minimum and you have a million bones, each year you’ll make about $40,000.
(The above is an oversimplification, but I’m assuming we’re talking Roth here and not worrying about taxes.)
When I think of $40,000, my first thought is “modest”, but my second thought is “sufficient”. An individual can live off of 40 grand a year. Probably less, but you take my point. This is, of course, assuming that you have no passive income sources, and that you’re unable to work at all. So in many ways, this is an overly conservative view of things.
Still, I wouldn’t want to leave that to chance. Social Security? Who knows. My own health? Who knows. People who can take of me? Who knows.
My focus has always been on investing, because to me it’s the easiest thing you can possibly do. Put money away. Wait. Rinse. Repeat. Nothing could be simpler.
What you need to do to make it happen
“I’ll never have a million dollars, Mike! It’s too late for me: I’m [whatever] years old.”
(As an aside, the age at which people start feeling like it’s “too late” for them is ludicrously low.)
Here’s a nice little chart for you. Let’s say you start with nothing. The chart shows approximately how much per month you’d need to put away in order to get to the big million mark in a given time frame. (Source: investor.gov)
[table caption=”How much to put away each month to make $1,000,000″ width=”500″ colwidth=”20|50|50|50|50″ colalign=”center|center|center|center|center”]
Years,4%,6%,8%,10%
40,$900,$500,$300,$150
30,$1500,$1000,$700,$500
20,$2700,$2200,$1700,$1300
[/table]
If there’s one lesson that this chart teaches us it’s: start now.
But this also assumes that your income never changes over the course of your life. $500 may seem like a lot now, but might not later, in which case, you could up your investment.
But even if you don’t get to the magic seven figures, it’s something to aspire to. It’s an overly conservative estimate, as it considers that you have no other recourse, but that’s better than assuming you’ll make 12%.
A million dollars is a nice round number. And while it’s been long associated with a symbol of wealth, it’s time for us to shift to looking at it as a base line. Not to live opulently, but to live simply, believe it or not.
But enough about me. Do you think this plan is realistic? What’s your plan for the future?
6 Comments
saulofhearts
Very interesting! I’ve been considering the opposite possibility — of depending as much as possible on community involvement and work/trade arrangements rather than traditional income/spending. I can’t see myself ever having the kind of money to put aside every month that I would need in order to save the amount you’ve described here — and the more time I chase after that possibility, the less time/energy I have to devote to local, in-person relationships (which are less likely to be influenced by inflation and exchange rates!)
Mike @ Unlikely Radical
Hey Saul. I had to think about this one for a while. But rather than write a book here, I’ll just ask: what’s the long term plan? While I see what you describe working out quite well in the short term, I worry that it might short-change things in the future.
I know it might seem overly conservative to be concerned with things 30+ years in the future, but since the plan I feel most comfortable with requires me starting now (indeed, years ago), I guess I sort of have to be concerned with the far-off future.
saulofhearts
I guess the assumption I’m going with is this: is it more likely that the economic system we’re basing these choices on will still be run by the same rules in 30 years, or that the social dynamics we build will? I think we’re going to see some major shifts in how the economy functions (likely including some form of universal basic income), but the communities and relationships we cultivate will still be here. Even in short-term scenarios (say, the possibility of an earthquake in the NW), I feel more confident in the preparations my community makes, including the food we store, than I will in my debit card, which may not even work! Ultimately, accumulating both types of resources may be best, and I wouldn’t want to be fully dependent on either.
Mike @ Unlikely Radical
I remember in 2009 sitting at my day job, watching the news and feeling like everything was collapsing around me, thinking that This Was Different. I was also reading a lot of James Kunstler at the time.
Fast forward to today, and for me, much has changed. For one, I don’t read James Kunstler anymore (even though I have the utmost respect for him). But another is that I feel like I now realize that we always think we live in exceptional times, but that, give or take, we rarely do. In short, while our system has many issues and sucks in lots of ways, I am, more or less, bullish on it.
So I guess, if I look to the future, I see our economic system being more or less the same. Perhaps better for some, worse for others, but I don’t foresee a cataclysm. And even if I did, I wouldn’t know how to prepare for it.
Now, I think that it’s also of utmost importance to cultivate our social relationships too, as what we need to thrive now isn’t going to change either. But I see this as a both/and, not an either/or.
But to plan for a future where our economic system doesn’t exist as we know it isn’t a worthwhile pursuit for me. Past performance doesn’t guarantee future results, but, to mix metaphors, it rhymes.
saulofhearts
Sure – I don’t mean to come across as predicting a cataclysm. And yet there have been times when our economic system has changed, maybe not exceptionally, but notably enough. The New Deal, creation of Social Security, more recently, Obamacare. Just last week, Hillary mentioned the need to address worker classification in the gig economy. I don’t think the system will collapse overnight, but it doesn’t seem unreasonable to anticipate major shifts in some areas, such as student loan forgiveness or UBI.
saulofhearts
Here’s a really interesting article that gets at the interplay between social and financial capital:
https://medium.com/@stan/why-give-the-homeless-portable-phone-chargers-c94ae067562
I guess, in some ways, I’m envious of people who are able to make those kinds of connections, tapping into their network rather than their bank account.