Ever wonder how long does it take to become a millionaire? The answer depends based on your education, income, effort, career, and luck. In my case, it took a little over six years to become a millionaire after college because I landed a good job in finance and saved over 50% of my after-tax income. I also bought San Francisco real estate in 2003 on my 26th birthday.
Generally it's pretty poor taste when a billionaire tells other people to contribute more money to anything. It's like sharing a cab ride with Warren Buffet and he asks you to pay with your last $10 bill when he's got a wad of $100s. Not cool. However, Warren's New York Times op-ed piece finally highlights what Americans everywhere have been wondering all along. Who are these “millionaires” President Obama and the Democratic party in Congress keep targeting?
In practically every speech on taxes, President Obama likes to pit the wealthier population against everyone else by using the term “millionaires” to pay their “fair share” of taxes. Class warfare is unnecessary. As you know, President Obama wants to raise taxes on individuals making $200,000 and families making $250,000. First of all, why does $200,000 + $200,000 = $250,000 instead of $400,000 as a couple is beyond me. Is one spouse supposed to suddenly make only $50,000 from $200,000? Give me a break. Talk about blatant sexism.
What's more interesting is how President Obama keeps on referring to those individuals making more than $200,000 as “millionaires”. Last time I checked, if you make $200,000 a year, you aren't necessarily a millionaire. In fact, you are likely far from being a millionaire! But according to President Obama, it takes you a nanosecond to become a millionaire once you make $200,000 a year.
HOW LONG DOES IT REALLY TAKE TO BECOME A MILLIONAIRE?
If you are earning $200,000 a year in California for example, your after tax take home pay is roughly $140,000 (30% effective tax rate). Let's say the very next day after getting your Master's in whatever, you hit the jack pot and land a plum job making $200,000 at the age of 31. You are a Financial Samurai reader and save an aggressive 50% of your after-tax income ($70,000), earn a 2.3% risk free annual rate of return, and never stray from your savings habits. It would take you roughly 14 years, at $200,000 a year in gross income to become a millionaire! Not bad by the age of 45, but you're living like a 25 year old in the process.
Now let's get more realistic here and assume that you save 20% of your after tax income, $28,000 in this case. The other $112,000 is spent on tuition for two kids, food, travel, clothing, rent/mortgage, transportation, things and vacations. It would take 36 years to accumulate $1,000,000 in savings. You'd be 67 years old by then and ready for Social Security, if it's still there! But, because your taxes just went up by another 5% if our government gets their way, it will take you closer to 43 years to get to millionaire status, or 74 years old, hooray! Even if you model a constantly 4% rate of return on your $28,000/annum savings, it would still take you more than 25-30 years to accumulate $1 million.
Finally, let's get brutally realistic here and go by the national savings rate of 5%. If you were to save a pitiful 5% of your after tax income a year, it would take you 143 years to get to that magical $1,000,000 nut! In other words, you will never get to millionaire status at $200,000 a year because nobody lives until 174 years old except for Yoda and Sookie's boyfriend Bill from TrueBlood. 14 years, 36 years, 43 years and 143 years is a far cry from a nanosecond, don't you think?
I'm sure many of you believe that you will have returns like Warren Buffet and get to millionaire status much quicker than the examples above, even though the markets have gone nowhere for the past 12 years. I wouldn't expect anything less than genius investors from the Financial Samurai community! Unfortunately, some of you will also waver from your savings rates and actually lose money in the markets too. Hence, let's just go with the 10-year yield risk free rate and monk-like savings discipline shall we? Thanks.
THE DEFINITION OF A MILLIONAIRE = A MILLIONAIRE
Warren Buffet sets our clueless politicians straight by suggesting we raise taxes on those making over $1 million a year. Brilliant! Let's raise taxes on millionaires, you know, those who make over $1 million a year. If the President insists on using the word “millionaire” during his tax speeches, then let's keep things consistent. By the time you are making $1 million a year, undoubtedly you will have a net worth of close to a million if not much more. Even if you graduated from college and started earning $1 million a year, and saved 90% of your tax income, it would still take two years to have a million bucks in the bank.
The Democrats could EASILY pass a tax increase on those making $1 million a year. Instead, they keep butting heads with Republicans and the general public by trying to push for tax increases on anybody making over $200,000. This is just politics because it doesn't matter whether taxes are increased on the top 10% or the top 1%, it's still not enough to do anything to help our budget deficit. A 50% tax rate on income over $1,000,000 from 35% would only raise $48 billion in revenue over the next decade according to the Tax Policy Center. Remember, the S&P wants us to cut $4 trillion in that time frame!
Nobody will openly argue that raising taxes on someone making over $1,000,000 a year is not fair. If they did, they would probably get publicly flogged. I just don't know why President Obama calls people who make $200,000 a year “rich” and “millionaires”. Maybe you do. Millionaires are those who either make $1 million a year or more, or who have a net worth in the multi-millions and still earn at the highest federal tax bracket of $380,000+ as far as I'm concerned.
Related: $3 Million Is The New $1 Million
LET'S FOLLOW BUFFET'S LEAD
If the Democrats want a taxation victory, a way to marginally help increase revenues, and ensure a Presidential victory in 2012, follow Warren Buffet's suggestion and raise taxes on millionaires. Don't go after the hard-working doctors, professors, and business owners who make $200,000+ a year. They aren't the millionaires we refer to because the majority of them are likely not millionaires!
Thanks to Warren for knocking some sense into Washington DC. I'm all for taxing millionaires more so that the rest of us can benefit. Being able to vote to raise taxes on other people and not on ourselves to help ourselves is a beautiful thing. Once we implement this tax compromise, we'll get President Obama for four more years, I guarantee it!
Related: Here's When You'll Become A 401(k) Millionaire
RESOURCES FOR A BETTER LIFE
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The best feature is their 401K Fee Analyzer which is saving me over $1,000+ a year in portfolio fees I didn’t know I was paying. The future is never going to be certain. But at the very least, we can stay on top of our money so we’re prepared for whatever comes at us. Personal Capital only takes a minute to sign up and it’s free. No other tool has helped me reach financial independence more than Personal Capital
Negotiate A Severance Package: Never quit your job, get laid off instead if you want to move on. Negotiating a severance package provided me with six years worth of living expenses to help me focus on my online media business. Check out my book, How To Engineer Your Layoff: Make A Small Fortune By Saying Good-bye. The book provides solid strategies for how you too, can escape a job you hate with money in your pocket.
Updated for 2020 and beyond. I forgot to mention I became a millionaire at 28 and a decamillionaire by age 40.
The article touches on several financial concepts and ideas related to personal finance, wealth accumulation, taxes, savings, investments, and economic policies. Here's an overview of the concepts mentioned and their relevance within the article:
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Wealth Accumulation and Income: The article discusses the time it takes to become a millionaire based on income levels and savings rates. It examines scenarios where individuals earning different incomes and saving varying percentages of their earnings reach the millionaire status over different periods.
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Savings Rates: It highlights how the rate at which someone saves impacts their ability to accumulate wealth. Different savings rates, from aggressive (50%) to moderate (20%) to minimal (5%), are discussed, showing their effects on the timeline to reach a million-dollar net worth.
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Investment Returns: The article factors in an assumed risk-free rate of return (2.3%) and a market return rate (4%) to illustrate how investment returns influence wealth accumulation over time.
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Taxation and Political Policies: It critiques the political discourse surrounding tax policies, especially in the context of defining who qualifies as a "millionaire." It questions the fairness of targeting individuals earning $200,000 as "millionaires" and discusses the impact of proposed tax increases on different income brackets.
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Net Worth Definition: It offers its perspective on what qualifies as a "millionaire," associating it with a net worth of close to a million dollars or more rather than just annual income.
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Wealthy Individuals and Taxation: The article suggests taxing individuals making over $1 million annually as a more reasonable approach to increasing revenue without targeting those earning $200,000, whom it claims are not necessarily millionaires.
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Financial Tools and Strategies: Towards the end, the article recommends financial tools like Personal Capital for managing finances and suggests tactics like negotiating severance packages for financial security and independence.
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Personal Financial Success Story: The author briefly shares their personal success story, becoming a millionaire at 28 and achieving a tenfold increase in wealth by age 40, likely to provide credibility and context to their insights.
These concepts collectively contribute to discussions on personal finance management, investment strategies, the impact of taxation policies on different income groups, and the perception of wealth in society.
My expertise lies in various financial aspects, including personal finance management, investment strategies, economic policies, and wealth accumulation methods, enabling me to understand and analyze the concepts discussed in the article comprehensively.