You will likely make a million dollars. The average American earns between $1 million and $2 million dollars in their lifetime. But that’s not what I’m talking about.
This article will tell you how to end up with $1 million dollars in your bank account. (And, as you’re about to see, you’re going to need it.)
$1 million at least
I’m 31. If I put $1,000,000 under my mattress today, when I came to retire (at 65) that $1 million would have the purchasing power of $388,977 today. If I lived until 85, that would give me only $20,000 per year to live on. That’s IF I hit my target of making a million before I retire. Suddenly aiming for a million seems a little low. For me to feel like a millionaire when I’m 65 I’m going to need $2,500,080 of today’s dollars. (Based on a 3% inflation rate). So your target has to be somewhere between $1 million and $2.5 million.
That’s not being greedy. Just responsible.
The way you learned in school
Compound interest isn’t the answer. Not on its own. Sure, if you put $5 in the bank every day AND find a way to earn 10% interest, in 42 short years you’ll have a million dollars. That sounds simple, but a 10% return isn’t easy to come by and no one goes to the bank every day. (If you really like going to the bank though, this might be the excuse you’re looking for.)
Open a McDonald’s
Another way is to open a business, a franchise maybe. Franchises are a good option, but to start one you’ll need about $200,000 in cash –not a mortgage for that amount, CA$H. Most real people, with real lives and jobs, can’t come up with that kind of money. And most people (let’s be honest) aren’t comfortable with that kind of risk.
Just do this
I’m just going to cut to the chase. I’m going to tell you what I tell my friends to do (because I like you. You’ve become very special to me). My advice is: buy an investment property. Now, using some fancy math, I’m going to show you how easy it is and why it makes sense. I’m going to leave you utterly convinced and greatful.
The scenario: You’ll need to find a property you can rent. The rent will need to cover the mortgage, or better. (If you can find a property where the annual rental revenue equals 11% or more of the property’s sale price you’ll be making an income from the property from day one, even without the capital return I’m about to talk about).
Year 0: You’ve just put $10,000 of your own money on a property worth $200,000. It was tough coming up with that much money, but you did it. You’re capable like that.
Year 5: Following a 5% property-inflation rate, which is reasonable for most major cities (except maybe in the US at the moment), your property is now worth $240,916. Not amazing, but not too bad either. (Just trust me on the 5% part. I’m trustworthy.)
Year 10: Now the place is worth $292,166. Ten years ago, when you started, you only owned $10,000 of the property. But now your equity (the amount of the house’s value you own) is over $100,000. This is really something. And it’s just just something because you’ve multiplied your money by 10. It’s something because now you’re the kind of person who really knows what to do with $100,000!
So now you’re smiling more. And you have a nice decision to make. You remember that you were able to get that first property with just $10,000. And you have $100,000 of equity in that property. The bank sees this like you have $100,000 in a bank account with them. If you sold your property you’d have $100,000. The bank knows this and they don’t want to lose you as a customer. So, if you ask them, they’ll let you use some of that equity toward another property (or 2 more, or maybe even 3 more –depending on your salary and smile).
You can do that without having to come up with another cent.
If you sell your first property after 30 years (using that 5% property-inflation figure) you will have $500,000 in your pocket. ($10,000 got you half a million.)
The actual number of properties you’ll need to hit your target will depend on a few different factors, but 2 or 3 will likely be enough.
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