How to save $1 million

Happy Friday! I hope this finds you well.

If you enjoy numbers and data, you will love this post. It is a bit long.

I hope you can use the information to your benefit.

Not long ago, I came across a podcast titled, How to Become a Millionaire in 10 Years or Under (Oh. and Market Timing). Considering one of my goals is to have a $1 million net worth in five years, this was something I wanted to explore.

I enthusiastically sat down and pored over the information. My goal was to determine whether I or someone who lives in a high cost-of-living area, such as New York City, can achieve this ambitious goal.

Note: all information sources are linked below.

Here are the key podcast takeaways:

• The good news is it's very possible become a millionaire in ten years, and you don't even need to make six figures to do it (Note: there is a caveat to this, which I will consider below).

• Fewer than 1% of people alive are millionaires.

• Could anyone become a millionaire early in life, regardless of income? I think the answer is technically no.

• Your income does impact how quickly you can reach your goal, but the income level required is a lot lower than a lot of people would assume.

• Long-term investing strategies are not “get rich quick” hacks. They are “get rich slowly” hacks.

• The number one thing that is going to drive real financial progress is how much you have to invest in the first place, and how much time that money has to compound.

• A solid spending plan is the nonnegotiable foundation here, because if you don't spend it, you can invest it.

• Remember, you're not just saving the money, you are using it to buy assets, via investing, that theoretically go up in value, maybe not every day or every month or even every year, but over that 10-year period.

• In order to become a millionaire via investing in ten years, you'd only have to invest $72,600 per year, assuming a 7% average real rate of return…that is $6,050 per month.

• If you are a single person trying to invest $6,050 per month, let's assume that you need another $3,200 or so for your living expenses.

• That's a total post-tax income of $9,250 per month, between spending and investing, which is approximately $111,000 per year of post-tax income. Now we can back into how much pre-tax income we would need to pay our federal and FICA taxes and still end up with $111k left over, and it's around $150k per year. That assumes no state taxes (Note: New York deducts federal, state, and city taxes, so kick that figure up to approximately $165k per year for a single person).

The podcast host does take into consideration the following variables:

• Age at the time you start investing.

• Unexpected money, e.g., bonus, tax refund.

• Living expenses for a single person, a couple, and a family of one, two, or three kids.

• State taxes of states such as Texas, Florida, California, and New York.

Here are the caveats:

• $150k is an exceptional income for a single person, especially a young single person…But what about a household with two earners?

• A single person needs to earn between $150k and $165k per year pre-tax, depending on where they live, to spend the average amount per month and invest enough post-tax to hit the magic million in ten years.

• A married couple only needs to earn between $175k and $190k per year together to spend the average monthly amount, invest the difference, and become millionaires in ten years, depending on the state taxes.

• It's much easier to create $175k of income between two people than it is for one individual to create $150k. Theoretically, a married couple making $87,500 each would be millionaires in 10 years if they kept their spending under $5,500 per month.

While the above information is helpful, I want to focus on a single person, not a couple.

Now, let’s look at numbers to consider if you live in New York City:

• The average individual income in New York City is $107,000.

• In New York City, the median household income is $67,046.

• The median salary in New York (Manhattan), NY, is $51,270.

• The average monthly rent for a Manhattan apartment ranges from $4,265 to $5,000, depending on location, size, and quality.

• Average rental prices in June 2022 were up 29% over the last year.

• New York City rents have declined 0.9% over the past month (October 2022) but have increased sharply by 12.1% in comparison to the same time last year. Currently, median rents in New York City stand at $2,106 for a one-bedroom apartment and $2,224 for a two-bedroom.

This is a lot of information to wrap your head around.

While the podcast information and numbers are ambitious, the numbers are solid. I checked every link, I checked alternative sources, and I could not find any flaws.

My goal is to determine the feasibility for a single person living in New York City to save $1 million in ten years.

Suppose you make $150k to $165k per year as a single person living in New York City; then yes. Earning $1 million in ten years is feasible and a reasonable goal, depending on your living expenses and discretionary income spending.

However, what if you earn the reported median salary of just $51,270?

How long would it take to make $1 million?

I am running with the median salary for now because “the median does a better job of capturing the typical salary of a resident than the mean (average).”

Investopedia's website uses the example of a “30-year-old person earning $50,000 per year with an expected increase in income of 4% per year.”

Suppose you are 30 years old, making the median salary of $51,270 in New York City.

It will take 35 years to reach a $1 million retirement savings goal, depending on living expenses and discretionary income spending.

What if you are closer to the average New York City salary of $107,000 and you have some money invested and saved?

Using my experience as an example, I currently contribute 15% pre-tax into a tax-deferred annuity (which earns a flat 7% interest). I invest $400 per month in various index funds and stocks. I save $1,100 per month (emergency fund). My total investments and savings come out to approximately $2,750 per month.

My current assets and savings are approximately $99,000. Using my monthly contributions of $2,750 per month at a 7% annual rate of return and an investment calculator, I would have saved $667,800 in 10 years.

That is not my goal. My current goal is to have a $1 million net worth by age 55.

I am currently 50.

With the amount I have invested and saved, an expected 7% rate of return, and a 3% inflation rate, if I saved $10,000 per month, in five years I would have $854,837.

At the age of 56, I would be a millionaire.

Not too bad.

Now I need to figure out how to save $10,000 per month.

The bottom line: whatever your current salary is, start investing. It can be as little as $25 per month, $25 per week, or whatever you can afford. Understand your current financial situation, research your options, and set up a financial plan based on your living expenses and spending habits. Then open an investment account, be disciplined, and be consistent.

I was able to build up my investments and savings while having over $150k in student loan debt.

Thanks for reading!

Please share this with someone you believe would enjoy reading this.

Check out my other articles here.

Follow me on Twitter.

If you are not a subscriber, please subscribe:

Disclaimer: The information presented is for informational and educational purposes only. It is very important to do your own analysis before making any investment based on your own personal circumstances. You should take independent financial advice from a financial professional for the purpose of making an investment decision.

Sources:

The Money with Katie Show: How to Become a Millionaire in 10 Years or Under (Oh. and Market Timing)

The Average Salary in New York City

The Median Salary in New York

Average rent in Manhattan was a record $5,000 last month

October 2022 New York City Rent Report

Manhattan, NY Rental Market Trends

I Make $50K a Year: How Much Should I Invest?

When to Use Mean vs. Median