By Dr. James M. Dahle, WCI Founder
I've seen a few studies about your “chances” of becoming a millionaire. In reality, those studies are really just descriptions of who millionaires are, and have little to do with your personal likelihood of becoming a millionaire. Few were surprised to see that the percentages were higher for the highly educated, elderly, and white and Asian Americans.
Lots of bloggers picked up on that for various reasons. But something entirely different stood out to me, and that is how pretty much any random millennial should become a millionaire at some time in their life. Now, of course, I'm barring those with physical or mental disabilities that prevent them from being able to contribute in a way that society values monetarily. But for everyone else that still has their career ahead of them? There's really no excuse. Stay with me here.
What Would It Take for the
Average Median American to Be a Millionaire?
average median household income in the US is $65,712. Average. Median. Lots of people make more. But I think it's fair to say that if you pursue any sort of reasonable education and you work reasonably hard, you can get yourself to that level relatively early in your career. Certainly by your mid-30s or so. Even if you're in a career that doesn't pay that much, there are still other options.
First, it's a household income. Even if you only make $40K, all you have to do is find a partner who will contribute another $25K — basically $2,100 a month, or $480 a week. That's a mere 40 hours at $12 an hour for your partner. You can also, I know this might sound crazy, but maybe, just maybe, one of the partners could do a little overtime or pick up another job in the evenings or on the weekends. Or open a side business. Or go back to school to learn something that would earn more. At any rate, $65K is not some incredible hurdle to reach. Very, very doable.
Now, the household needs to save some of that income. Let's say 15%. Personally, I think 15% is quite doable. Certainly, just about every family making $65K has someone who lives down the street who is living on 85% of that amount. Live like them and save the difference. 15% of $65K is $9,856 a year. Chances are good that this partnership won't even have to cut spending by that much. At least one of the two partners is likely eligible for a 401(k) with a match, and even if they aren't, they could use fully deductible traditional IRAs, which would lower their tax bill significantly. If they make just a little less, they might even qualify for a saver's tax credit. At any rate, the point is that they can get to a 15% savings rate without cutting spending by 15%.
Can They Become Millionaires? Running the Numbers
This couple doesn't have to start at 18 nor work until 70. Let's assume they don't start until 25 and retire at 65. That's 40 years. Can they become millionaires? How much do they end up with?
=FV(8%,40,-9856,0) = $2.55 Million
That's right. Not only do they become millionaires, they become multi-millionaires.
But wait, there's more. We haven't counted anything but their investments. What about all that stuff they bought? Their house has value. Not only did it likely appreciate over the years, but they probably paid off a mortgage. All that home equity counts too. And technically, a net worth is everything they own minus everything they owe. Maybe not at full retail value, but all those cars, boats, furniture, and everything else certainly counts. If we assume their house and stuff adds up to the median US home value of $325K plus $50K for everything else, they only need the investments to get to $625K to reach a million dollars. In reality, they could wait to start investing until they were 37. Or they could just save 5% of their income. Or they could just earn 4% nominal on their investments.
But wait, there's more. We're not even counting inflation here. Let's assume that $65K household income and the average house value increase with inflation 3% every year. After 30 years, the average household income would be $158K a year and the average house (and stuff) would be worth $910K. It won't take much saving discipline or investing skill to get well over a million from there.
In fact, in 30 years, being a millionaire will probably be viewed like being a “hundred-thousandaire” today. Certainly much better than being broke, but hardly an unusual achievement. Many people already look at it that way, especially when they realize that per the 4% rule, a million bucks only provides a safe retirement income of around $40K a year — less than the median household income.
My point is, if you're a millennial and you can't manage to become a millionaire in your lifetime, something is very, very wrong with the way you're living your financial life. Sure, understanding and implementing the basic principles of personal finance might be a superpower, but it is the most easily acquired superpower. Make a plan, stick with it, and you too can be a millionaire.
Why Aren't Doctors Millionaires?
Now, let's turn our attention to the high-income professionals who happen to be the target audience of this blog. If Jane and Joe Average are going to have no trouble whatsoever with becoming a millionaire, what's your problem? Why aren't you a millionaire?
Yes, I've heard the excuses.
“But we can't start saving until we're 35.”
(Never mind that residents are paid the average American household income.)
“But we start out in the hole by $200-500K because of our student loans.”
(Never mind that almost any physician can completely eliminate their student loans within 2-5 years of residency completion simply by living like a resident while earning like an attending.)
But there are some among us who don't think they can do it. Even worse there are some among us who don't do it. Survey data shows that 11-12% of physicians in their 60s have a net worth under $500K, and nearly 1/4 have a net worth under $1M. Imagine the Financial M&M Conference on that?
“So doctor, after 30 years of physician level paychecks (perhaps $5-6M+) and despite the miracle of compound interest, you've only managed to accumulate $300K in net worth. To what do you attribute that incredible misuse of your resources?”
How dumb would that look? All those Joe Averages who earned the median household income and saved 15% of it are millionaires, and you're not. Have I embarrassed “Future You” enough that “Present You” is now willing to save a little more of your income? Good.
Running the Numbers for the Physician Millionaire
Let's say you are a primary care physician earning $232K. We'll assume you get out of residency at 30, but spend the next 5 years not saving or investing at all and simply pay off your student loans. So now you're 35 years old. Let's assume while you're building this nest egg that you're acquiring $200K worth of home equity and stuff. Let's also assume you're saving 20% of your gross income starting at age 35 (what, you can't live on $185K, do you know how dumb that sounds–especially to Joe Average–when you say it out loud?) and earn 8% on it. How long will it take you to get that savings up to $800K (remember you get to add in $200K of stuff)?
=NPER(8%,-46400,0,800000) = 11.26 years
So you're 46. Mid-career. Like I said, no excuse. And this all assumes you spent a full 5 years doing NOTHING financially but paying off your loans and that your spouse NEVER works and your income NEVER goes up.
“But what about disability?”
Buy disability insurance.
“But what about divorce?”
One house, one spouse, but even so, still no excuse. You should be able to cut your net worth in half once and still reach this goal.
“But what about pediatricians?”
Do you know any making less than $65K?
“But what about non-traditional students?”
Were you planning to have a career shorter than 13-16 years?
“But I live in a high cost of living area!”
Great! You can become a millionaire just by paying off your mortgage.
“But a million isn't that much money now and will be even less later.”
That's right. You'd better get started on that first million right away so you can then get the other ones you'll need.
“You're being insensitive to my problems.”
Your problems don't give you a pass on math.
No excuses. Become a millionaire. Make a plan today.
How to Become a Physician Millionaire
- Live like a resident until the student loans are gone.
- Then save 20% of your income.
- Invest it in some reasonable manner.
- Give it a decade.
Voila, you're a millionaire and well on your way to financial independence. This millionaire stuff isn't that hard. You owe it to yourself to become a millionaire. Just do it. We did it in seven years after residency on an average income of $180K (three living like an attending and four living like a resident) and many “white coat investors” did it faster than that.
What do you think? How long do you think it should take the average doctor to become a millionaire? How long did it take you out of residency? Comment below!
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