How long till your first million?

Work is starting to tire me out. The long hours and running multiple projects at the same time does bad things to one's social life, stamina, stress level and concentration. For July and August, I've done 80 hours of over time and this month I'll be trying to scale back to 50 hours. A 8~12 hour work day is not exactly the way I want to be spending the rest of my life.

The trick to living a good life is working smarter, not harder. So, I've started doing some calculations to get a general idea of how long would it take for a person to make their first $1 million dependent on the amount they are able to save per year, both dependent on whether if they just stuck that cash in a bank or earned some interest.

There are probably similar types of graphs like these in financial planning books but I have created one for myself as shown in the image below (click for an enlarged and much clearer version).



The results don't look encouraging, but let's do the math. The above graph plots the amount of money you will have saved dependent on your annual savings rate and depending if you reinvest the money to earn 7% or not. The dotted lines represents a linear savings rate.

I have been collecting expenditure data for my life style and it comes out that I spend approximately $2000/month in living expenses, including taxes. Given this, I will have expenditures at $24,000 year. Suppose now that I want to save $20,000 a year, requiring earnings at approximately $44,000/year.

Without investing, it will take me 50 years to make my first $1 million, or 23 years if I reinvest my entire savings at 7%. I'm going to be pretty old by the time I get that far, considering inflation and everything, $1 million is not going to be the worth the same thing in 23 or 50 years. This is not an acceptable solution, so we are going to have to do something to increase income.

Suppose that we bumped things up a notch and aimed for a $40,000/year savings rate. Making the bad assumption that the tax rate doesn't change, I would have have to earn at least $64,000/year to make this goal. Obviously, the time to make the first $1 million is cut in 1/2 to 25 years if you just stashed in the bank or 15 years if the funds are reinvested at 7%. The numbers are starting to look a little more reasonable.

Now, suppose for a young person that your income is $44,000 and you need to bump it up to $64,000 now to hit that $1 million target in 15 years using the 7% investment plan.

You have 2 choices:

1. work approximately 50% longer or
2. find more productive ways of generating income.

Suppose that I worked an 8 hour work day and took option 1 and extended the work day to 12 hours. Including a 1.5 hours of commute time and about 8 hours of sleep for a total of about 21.5 hours/day being used up. This leaves 3.5 hours for personal time during the weekdays.

That obviously does not seem like a reasonable lifestyle to me. Thus working longer for more money is out, so option 1 is dead, so we consider option 2.

How does one find more productive ways of generating income? How do you go to your boss and say that you want 50% more pay? Under what conditions would they provide you with that cash? The most obvious answer to me would be to improve productivity either by doing more of the same in less time, or doing something completely different to produce more value in less time.

Negotiating with HR or management for salary increases is obviously a thorny issue, but you are going to have to be equipped with the right kind of information to make your point. From my point of view, talking directly in dollars and cents or productivity is very important to winning that salary increase. But also, there are obviously limits on the amount of money your employer is willing to pay an employee. If you really want to make the big bucks, then you are going to have to go at it alone.

I now have some real world experience in me to finally appreciate these numbers, I only wish that people would have found ways of understanding the magnitude of long term planning in their early 20s. Imagine if you were 35 and you made your first million.

The impact is huge.

So you want to gun for your first $1 million? I'll give you a chart for how much and how long you need to save to achieve it.


I will admit that the calculations done here are crude and requires refinement, but the basic analysis of the $1 million problem should give everyone a good idea of what exactly you're up against.

Attaining this goal is a very tough challenge, hard enough that it isn't easy to do alone. For all you young people out there, if this is a worthy goal for you to attain, look to your peers and find ways to help, work together and educate yourselves. Because it's going to be now or never, and the sooner the dialogue starts, the better.