It’s the fantasy we all dream about – to have a million dollars and be a millionaire. Oh the things I would buy, the places I would travel, the job I would quit! I apologize for bursting your bubble, but one million dollars will hardly allow you to survive.
Does One Million Dollars Make You Rich? No
Far too many people have the misconception that one million dollars will make all of their dreams come true. You might be thinking that worst-case scenario, you can quit your job and not have to work anymore. But it won’t. You need much more than one million dollars for your fantasy dreams to become a reality. Need proof? If you retire with one million dollars, you need to live on $40,000 per year for that money to last.
Last time I checked, $40,000 isn’t buying you a yacht. In fact, it is probably keeping you close to where you are at now. Understand that I am not saying living on $40,000 per year is a bad thing. What I am saying is that one million dollars is a lot less than you think it is.
You might be thinking that you can live off $40,000 per year so quitting your job would be a reality. But having $40,000 to live off of assumes you are 65 years old. Any younger, and you’ll run out of money and will have to go back to work.
Look at it this way: one million dollars would be enough to have saved up if you wanted to live a nice retirement, not enough to buy a vacation home at the beach. Sure you could make a nice sized down payment and have some money left over for the monthly payment, but what about homeowners insurance and furnishing it? Traveling there and back? All of this costs money. You’ll exhaust your one million dollars a lot quicker than you realize.
What Amount Of Money I Need To Be Rich
I’ve crunched some numbers for myself. If I wanted to retire today (I’m in my 30’s) and spend a lot of money every year (I’m talking $200,000 per year), I would need…$10 million. That’s right. That assumes the $10 million is invested in a 60% stock/40% bond portfolio. Now, this is my “dream” scenario but it goes to show you how much you really need to actually live your dreams. At my dream spending rate of $200,000 per year, one million dollars would only last me about five years. Less when you factor in inflation.
The point isn’t to dissuade you from dreaming of becoming a millionaire, but to help you to realize that just having a million dollars won’t allow you to live the life you think it will. Many found that out the hard way these last few years. When including the equity in their homes, they were millionaires. But they were living beyond their means and when the income from their house dried up, so did the rest of their finances. We all want to be millionaires; we just have to be practical when we get there.
Hi, my name is Jon and I run Compounding Pennies. I’ve been interested in personal finance since high school and love writing and talking about it. You can learn more about me in the Authors section of this site.