One cool million dollars is not what it used to be in just a little two decades ago. Approximately every 26 years, due to inflation, the dollar is reduced 50% in value.
John D. Rockefeller became the first billionaire in 1917 (Wikipedia.org), and since 2,208 new billionaires have joined the club as of 2018 (Forbes.com).
The millionaires club is no longer an exclusive club for the few, but it is continued to elude the mass – not because of the lack of opportunities, but the financial destructive lifestyles.
The first credit card was issued in 1950 and the flood of cheap Chinese imports for the last 30 years has conditioned the mass to hyper-consumerism lifestyles across all incomes range.
It is rare now a day to see the traditional one income earner under one household. It will take two spouses to keep up with all the expenses – and it is not the inflation that bought on the high cost of living.
It is the shiny new cars, the big homes, the latest iPhone, the Disney vacations, the latest fashions and the latest entertainments – all snugly fit into the paycheck we have yet earned with the help of creative options in small payment plans.
In just over three centuries ago, it was not hard to find human beings who were physically beaten and forced into laborious jobs to support the overall economic infrastructure – across the globe.
The idea of a lifetime and multi-generations slavery was real!
The economic model of the 21st century is much more sophisticated in designed. It does not utilize whips and guns to force labor. All recruits are volunteered into a lifetime of servitude – and the drugs of consumptions are the scientific tools that replaced the outdated whips and guns.
The jailbreak solution to the lifetime of servitude is not making more money. It is self control – someone or something in the real world is holding the remote control that pointing to you.
The knee jerk reaction to the mass when their expenses get out of control is trying in vain to make more money.
There is nothing wrong with working harder to earn more money, but it is futile to work harder to just keep pace with consumption expenses – the reactions and behaviors will eventually established a vicious cycle that potentially can last a lifetime.
For the majority of the population, it is much easier to reduce 10 to 25 percents of personal expenses than to increase the income with the same percentage.
The reason for the difference in effort is rather simple!
If you are executing the reduction in personal consumption, the main adversaries in the game is you, your spouse and your children – otherwise, it is just you if you do not have a family.
Whereas, taking on the effort of increasing your income to keep up with your personal expenses the antagonists are you and 10, 100 and possibly 1000 of your peers who are looking for the same percentage in financial gain as you – it is the survival of the fittest game that has been in place for billions of years.
To make more money, the first antagonist is you. You have to condition and train yourself to compete harder and smarter than you have ever done in the past years – a critical requirement that many will have hard time in fulfilling.
We are truly a product of our environment. As we are aging with years go by, our personal lifestyle becomes the box that limits our actions, behaviors and thinking – the size and dimensions of the box is the resulted from our past interactions with the external world.
This is the basis for all failures in the world, losing weight, promising careers and long lasting marriages.
Most of us have very tough time modifying 10 to 15 percents of our actions and behaviors – if you are familiar with the utility of a compass on the high sea – just few degrees of differences will land the ship along with its entire crew in a different country.
The modification in 10 to 15 percents in our mindsets and in turn our actions and behaviors – in due time, will lead to dramatic change in the undesired financial circumstances – the ones where the main culprit were the lifestyles.
Let’s do an example on a recent feature article on Marketwatch.com – “This budget shows how a $350,000 salary barely qualifies as middle class”.
Below is the detail of the expenses for the family in discussion –
Currently because of the high level of expenses, there is a meager $1455 of saving from the after tax income of $223,840.
Let’s look at “Food for four” expense item!
This family spent $25,548 on groceries – approximately $70 per day. If groceries meant go to a food market and buy raw foods and prepare meals at home, there is no place earth groceries for four person cost $70 per day – a groceries budget of $12,774 or $35 per day is much more reasonable.
The three weeks of vacation per year can be budgeted for $5000. There are many prepackaged vacations cost less than $5000. Local excursions, an area of 200 to 300 miles around any homes, will provide many entertainments for much less than $5000.
The last time I checked Netflix monthly subscription is less than $20. With $3000 budget yearly or $250 per month is plenty for any family to find reasonable entertainments on weekends. Local zoos, the fine arts museums, public parks for family picnics, fishing are few examples of cost entertainments that the kids can enjoy with their families.
Competitive pricing from mobile providers combined with savvy shopping can easily bring the cost family mobile plan to $900 per year.
Unless the fashion industries begin to manufacture clothes with papers, the budget of $200 for replacing worn out clothes per month or $2400 per year is more than reasonable budget.
With the re-calibrated cost on these five items, a saving per year for this family is $21,874. If the saving is to be invested in a low cost index funds consistently every year – capital gain and compounded interests will turn this saving to one cool million in 20 years.
That is a small 9.8 percentages ($21,874/$223,840) in the change of lifestyle that can result in huge development in the future financial outlook of this family.
The million dollars questions is – do you have to make the after tax income of $223,840 to have a cool million dollars in your working life time?
The answer is unequivocally NO!
Let’s do an example of a 30 years old working adult who is bringing home $40,000 after tax income.
Below is the result of a lifestyle of 75% percents expenses and 25% of savings –
If the savings are invested in any low cost index funds, this hard working 30 years old will have a nest egg of well over one million dollars at the age of 60 years old.
The financial success story gets better – at 57 years old this person can declare he/she is financially independence.
Meaning, the accumulated and compounded savings has reached the critical level where it can generated a passive income for the next 30 years to support the same lifestyle he/she has been living for the past 27 years.
This is absolutely an incredible financial outlook for someone who brings home just $40,000 of after tax income and have the self-control to put away just 25 percents to long term saving.
Below table projected the number of years to reach 1 million dollars for the after tax incomes ranged from $30,000 to $200,000 along with the saving rates from 15 to 30 percentages – all proceeds are invested in low cost index funds with the annual average return of 7 percentages.
The required time to accumulate the first one million ranges from 10 to 40 years – depending on the saving rates from 10 to 30 percents of the after tax income.
With the appropriate lifestyle, one million dollars in investable asset can be generated from wide range of jobs and careers – blue and white collars from all industries.
The only questionable factor in path to one million dollars remains – do you have the self-control and in turn the discipline to take on the financial journey?
Let’s play the game of life!
