How to Save $1 Million

Good morning!

I hope this finds you well.

Welcome to another edition of The Matt Viera Newsletter.

The newsletter with the goal to inspire you to live the life you actually want to live.

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We are a few days from Thanksgiving.

Once we wake up Thursday morning, the holiday season officially commences.

From the morning we wake up this coming Thursday until we wake up on the first morning of 2024, the next few weeks are all about food, drinks, gifts, and travel.

In other words, spending money.

Spending lots and lots of money.

I was thinking of not publishing a newsletter article this week, but I decided to publish for three reasons:

1) I didn't announce I wouldn't publish this week; as such, I must publish.

2) Because the next few weeks are all about spending money, I thought it would be a good idea to resurface the 3rd newsletter article I ever published: How to Save $1 Million (even if you live in New York City).

3) I'll get to the third reason at the end of this article.

I was going to publish the article "as is."

However, as I was reading through it, I noticed I made some financial gains and decided to update some numbers to motivate you to be mindful of spending this holiday season (and as a working journal for me).

Note: most of the article will remain identical to what was originally published (on October 14, 2022) with updated numbers for 2023.

Any errors in any calculations are my own (and I welcome anyone to call me out via email if any errors are found (I'm thinking of you, Iceman)).

So without further delay, here is the updated article: How to Save $1 Million (even if you live in New York City):

If you enjoy numbers and data, you will love this article.

It is a bit long.

My hope is that you 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 by 2028, I wanted to explore this.

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.

Here are the key takeaways from the podcast:

• The good news is it's very possible to become a millionaire in ten years, and you don't even need to make six figures to do it (Note: there are caveats 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 impacts how quickly you can reach your goal, but the income level required is much lower than many people would assume.

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

• The number one thing that will 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 a nonnegotiable foundation 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, not every day or every month or even every year, but over that 10-year period.

• 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, assume 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 go 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

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

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

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 monthly amount (for living expenses) 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 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 monthly.

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 is $5,588 (up from $4,265 - $5,000 in 2022), depending on location, size, and quality.

• New York City rents have declined 1.0% over the past month (November 2023) but have increased by 1.1% compared to last year. Currently, median rents in New York City stand at $2,092 (compared to $2,106 in 2022) for a one-bedroom apartment and $2,209 (compared to $2,224 in 2022) 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 become a millionaire in ten years.

Is it feasible for a single person living in New York City to become a millionaire in ten years?

The answer is yes.

If you earn $150k to $165k per year as a single person living in New York City, becoming a millionaire in ten years is feasible and reasonable, depending on your living expenses, discretionary income spending, and the amount you invest monthly.

How long would it take to become a millionaire if you earn the reported median salary of just $51,270?

I am running with the median salary for now because according to Statology, "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."

This is how a 30-year-old can achieve the goal of $1 million at age 65, starting out on a $50,000 per-year income.

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

Using my experience as an example, I earn close to the average New York City salary.

I currently contribute 22% of my pre-tax income (up from 15% in 2022) into a tax-deferred annuity (my retirement account which earns a flat 7% interest).

I invest $400 monthly in ETFs, stocks, REITs, and a Roth IRA.

I save about $250 per month into a high-yield savings account (my emergency fund, which can currently cover 6 months of my essential expenses).

My total investments and savings total approximately $1,550 monthly (down from $2,750 monthly when building my emergency fund).

Note: I increased the amount of contributions into my retirement account and reduced savings into my emergency fund because a) the retirement account provides a guaranteed 7% earned interest rate and b) my emergency fund can cover 6 months of essential expenses)

My current net worth (assets, investments, and savings) is approximately $185,000 (up from $99,000 in 2022).

Using my monthly contributions of $1,550 per month at a 7% annual rate of return and an investment calculator, I would save ~$641,000 (down from $667,800 in 2022) in 10 years (which includes ~$270,000 in earned interest).

That is not my goal.

My goal is to have a $1 million net worth by age 56 (I am currently 51).

Taking into consideration my current net worth, the amount I invest and save per month, and an expected 7% rate of return, if I saved $10,000 per month I would have $989,566 (up from $854,837) in 5 years.

At 56, I would be (close to) a millionaire if I could increase my monthly investments and savings by $8,450.

However, if I increased my investments and savings by only $2,050 monthly, I would be a millionaire ($998,527) in 10 years.

The bottom line: whatever your current salary is, start investing, saving, and contributing to your retirement account.

If you do all three already, consider increasing contributions monthly.

Understanding your current financial situation, researching your options, and setting up a financial plan based on your living expenses and spending habits is essential.

Then, execute your plan ruthlessly with discipline and consistency.

Consult with a financial professional if necessary.

The earlier you start, the better.

Don't wait until you're in your 50s.

Before you go, the third reason I decided to publish this week:

I wish each and every one of you a Happy Thanksgiving!

Sources:

New York City Rent Report: November 2023

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

The average Manhattan rent just hit a new record of $5,588 a month

You can find the collection of my favorite financial tools & resources by clicking here.

Thanks for reading!

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