How To Make A Million Dollars In About 8 Years
A lot of people I know would really love to make a million dollars. Can you imagine what you could do with that? Besides your initial spending spree (I think we almost all would do the same initial actions—pay off some bills, fix up a car, repair something or other in our house; in other words, we would get “safe”), think of all the ways you could really start maximizing your potential. If you were me, you would finally get your ass back in school, go to grad school, whatever. Or you might look at the people in your life around you who you love and start to try and help them.
So what’s the problem? When I ask all these people what they’re going to do about it, things get muddy—and fast. They have no plan. It’s as if their dreaming stopped at the dreaming, as if somehow the bag of money would end up falling right out of the sky. “Man would that be their day.” They never get any further than that. If you want to become a millionaire, you really have to plan your way into it. You can’t just hope that your $150,000 house (for which you have a mortgage) will grow in value by more than 600%, especially these days. You really have to really goddamned do something about it. So let’s do something about it.
First of all, as the title indicates, I want to look at doing this in a relatively short period of time. No doubt saving a million bucks over the course of lifetime is doable, but is it desirable? To be able to retire when you are of the age to retire? That’s great. Old, and debilitated, now we can (finally?) have some fun. This doesn’t seem all that desirable. I want to be able to actually enjoy doing things with the wealth, and I want you to think about being able to do the same. So let’s go (but more quickly).
So there’s just no way around it. First, we simply have to do all the math. But don’t worry, I’ll help. And besides, most of it is easy. Once we actually start doing the calculating you’ll see quickly why most people never make it. It can be hard to make a million. But also, most people who think they want to make it, never actually go through this exercise, never see what obstacles they have, and hence, never overcome them and never end up making it.
So let’s start. The obvious beginning is to start mattress stuffing. Shelling away cash at some regular pace will be nothing short of an exercise in futility. In order to stow away a million bucks in eight years with this method, we’d have to shell out an ice cold twenty-four hundred dollars every week (Click this or any image to enlarge):
Not cool. We’d have to be wealthy before we can get wealthy. The first upgrade to this is obvious: “duh, let’s earn some interest.” Ok, let’s skip all the regular mainstream bank savings accounts (they’re awful—my wife’s Chase savings presently offers an amazing 0.35%—which is why she has thirty-six cents in it) and move right on to one of my favorites, ING Direct’s Orange Savings Account. Presently at 4.20% (12 times Chase’s) it annihilates regular savings accounts and it’s FDIC insured. But this doesn’t really solve anything either:
Even with the severely heightened interest rate, in order to get a million in eight years, we would have to invest over seven hundred thousand initially. So we have the same problem: we’d have to be wealthy before we can get wealthy. Not good. To get a million, even saving with a decent rate, we’d have to start off with much more than most of us has. Have you caught on to what we’ve just done? Most everyone is familiar with our good old rate formulas. What we’re doing is beginning to manipulate them. Given a fixed amount of time, and a fixed ending balance, we picked a rate and found an initial principle that would get us where we want to be with the rate we can easily achieve. But because this rate is not near good enough for those of us without three quarters of a million sitting around, we’ll have to go higher. How much higher? Look at the next graph. The rate formulas have four variables, Initial Principle, Ending Amount, Interest Rate, and Time. Our Time and Ending Amount are fixed (we want 1M in 8 years), so this shows the relationship between the other two variables, the rate and the initial principle, in other words, all the rates at all the different initial amounts that we can use to get a million in 8 years:
As you can see, almost any normal rate is insufficient if we don’t have a quarter million or more to earn interest on, and even if we had that much we’d need a remarkably high rate of about 18% per year. So much for our ING savings account. But you see, that’s why we’re doing all this. We’re doing all the things that the people who never make it don’t do. Conversely, this allows us to avoid doing, then failing, from all the things they might try. In other words, they might after all, have that ING account.
It should be plain that in order to do this, we’re going to have to start thinking big. No more nickel and diming your way to prosperity here—forget it. If you’re going to do it, you have to damned well do it. For starters, the next thing we can do is combine the two methods from above. The first one with a consistent savings amount combined with the interest bearing ideas from the second one. This will be kind of like an annuity, a mortgage in reverse.
So if we start saving a stream of money that, with the growing balance all earns interest, we’ll finally start seeing some results. Using a modest (modest compared to the $2000+ mattress stuffing from above) amount of say $80 from every bi-weekly paycheck, earning a sizeable interest rate of say 12.60% (more on the rate soon), all combined with an initial investment of $2000, we’ll get the million in September of 2039:
What does this mean? It means that even given regular payments, and a high interest rate, and an initial balance, it will still take much time to get to that million. How much of a bi-weekly payment will it take to reach a million in 8 years (assuming everything from above remains the same)? About $2,460 every other week will get us there in 8 years, which is interesting, because in our opening mattress stuffing example, this was how much we’d need every week instead of every two. The interest makes up about half of what we need. Still with me? (Now we see just how hard becoming a millionaire quickly can be—but I’m not done yet). In order to actually be able to do this we’re really going to have to push the envelope here. Assuming we don’t have a few hundred grand to start with, and assuming we’re really pushing the limit on what kind of interest we can earn (I’ll still come back to this), in order to stay within our 8 year time frame, we’re going to have to mess around with the amount we shell out every paycheck. But because we can’t shell out $2,460 every other week, let’s start much smaller and end much larger. What if we start with $60 every other week for the first year, then double it in the second? Then double that in the third, and so on? If we can manage that, we’ll cross over the million mark in July of 2016, or in about 8 years:
Before looking at this more though, let’s look at that interest rate. If you think 12.60% is ridiculous, don’t. I can think / of / three high income funds right off the top of my head that earn 13% or better and haven’t skipped a dividend in years. Hell some are even over 20%; and presumably, you could assuage your risk by diversifying ownership among many different ones that cover different industries. So back to our final solution. If we start in the first year setting aside $60 every other week for that whole year, then $120 during the second and so on, you might have noticed that by the end, to get a million in 8 years (starting with almost nothing), we would be forking out over fifteen thousand dollars every other week. But this is the whole purpose of the exercise: to push the limits on everything attainable to achieve maximum results in minimal time. If getting to the end seems unreasonable, try to raise the rate, increase the initial payment (to something higher than $60) or take a little longer to get there. But is doubling that payment every year really that unreasonable? I’m going to tell you that I don’t think it is. Think about this: once you got even a couple years into the experiment, you’d have saved tens of thousands of dollars. By about that time, after having continued to increase your saving amount, you’d be down to no cable, no DVD rentals, no luxuries (depending on how much you make and how much you could stomach). Food, house, car pool. But also, at about this time, you’d have a complete bankroll and quite realistically, you’d be an expert on making vast quantities of money in short time frames. Don’t you think people would be willing to hear, and even pay for, a story like that? Essentially, just by doing something remarkable, suddenly that initial remarkable feat would now be a source of additional income. As you continued then to remarkably amass a fortune in such short time, both your credibility and your notoriety would increase. The experiment would become self-indulging.
Think this is all impossible? Look at John Chow. In only around a single year he’s doing (and making) what our now meager example would have us do in over eight years. He’s making over $25,000 a month from a blog, that essentially is telling people the details about his making money from his blog. In other words, you don’t even have to be nearly as good as him to get there (though it would take you longer than his one year). And it wouldn’t even have to a blog—you could possibly write a book, or do presentations, whatever. Or for that matter, using your initial cash pile you could start a business, then use that business as a cash cow that would fund your million dollar experiment. The reason so many workaday members of society want but never get that million (and certainly not in 8 years) is because they never sit down and do what we just did: learn the hard way that traditional savings concepts simply will not cut it. You have to think very big, and then use that bigness to make it all even bigger.
And even though John’s blog is about money, you could fit into any number of other categories that suit your interests better. Only the top few sites in any category will make the most serious money, but the remarkable thing about the Internet is that there are no limits to the categories; you could make any site and gear toward making it the best in that class. Then use that increasing greatness to make it even greater, all the while making more money. Simply put, you have to start it and treat it like a business.
Another example is Shane at the Wall Street Fighter:
Look at what he’s been able to achieve in such a short time. He’s gaining in such popularity because he posts some of the funniest things around. Even more though, besides just all the funnies, he often posts links to completely useful stuff too. In other words, his site is becoming “best in his category” right before our eyes. Of course, I have immense respect for him because he’s also a fitness buff from
So getting to a million in 8 years is not easy, but unless you look at all the fundamentals involved you don’t even stand a chance. What if you’ve started with more money than what was used in the example? Or want to use different rates? Click here to download a spreadsheet with the rate formulas and some annuity tables. Now that you know what you need to know, you can make a million in 8 years; but you’ll have to be good. I’ll see you on the other side…