According to the most recent Census data, the average person earns nearly $2.7 million over his or her lifetime. Yet, after 40+ years of work most Americans are still financially unprepared for retirement. Unless it’s by choice, I don’t want to work until I’m 67 years of age because of my finances and only enjoy 11 years of retirement (if I’m lucky) before debt do me part. I want to enjoy my money in the present and in the future. Are both outcomes possible?
This National Financial Literacy Month April 2019 I found myself in a reflective place and decided to find out. I hope you all enjoy reading this post as much as I enjoyed writing it.
The Millennials Will Inherit the Earth
If you follow me on Instagram, you know I gave a presentation to some young mentees in their late teens and early 20s. I love mentoring and networking. My father instilled the value of mentoring in me at a young age by often taking me to volunteer in the community, which I hated at the time. With age, I’ve learned to appreciate what he did for me.
The importance of networking was a skillset I wouldn’t pick up until I entered the “real world,” when ironically, an adult mentor volunteered his own personal time to show me the power of networking and the impact it can have on your career. I truly believe you should be a part of the change you want to see. This is one of many reasons why I am a part of Paychecks & Balances, LLC.
Drake Says The First Million is The Hardest
All that nice stuff being said, if you have ever attempted to speak to someone under age 25 you know it’s difficult to keep their attention. As such, I named my presentation “The First Million is the Hardest” as both an attention grabber and because I believe it’s true.
I also believe that as a Senior Millennial my purpose in life isn’t to teach younger individuals to be like me. I want them to be better than me. In a perfect world, all youth would learn from the mistakes of their elders until the world is filled with nothing but wisdom. Sadly, that’s not how life works.
I can tell someone fire is hot, but even if I’m right, there will always be people who have to experience the heat for themselves. In this way, I try to position myself as both a cautionary tale and a place of safe, judgment-free counsel. Given that no one fell asleep during my presentation to the Austin BLF Foundation, I assume my title worked.
In full transparency, my idea wasn’t original. To be even more honest, most of my ideas aren’t original. I steal without discretion but credit with attribution. If you say a witty quote or hot-take around me, just know it might be in my next blog or podcast (with a shout out to you, of course).
You see, I’m a Twitter dinosaur. I was on Twitter right after the beta phase in 2009. I remember directly interacting with some of the early adopters who just wanted to see a cool platform reach its potential. No one really knew what “Twitter” was or what it could do. This was back when Twitter was generally just for fun and everyone enjoyed themselves, cracked jokes, and shared hashtags. On its best days, two of three still happen.
As an auditor by profession, I’ve learned the hard way that if I want anyone to listen I generally need to keep my presentations light-hearted no matter how dry the subject matter. To keep this particular presentation humorous, I cited “financial advice” from Aubrey Drake Graham. You all may know him by his stage name, Drake?
Further, you may or may not know that in 2012 millionaire Drizzy Drake tried to stunt on the Twitter with the now infamous quote, “The first million is the hardest.” He was subsequently out-stunted by billionaire oil baron T. Boone Pickens with, “The first billion is a helluva lot harder.”
Life comes at you fast.
How to Become a Millionaire
Marcus, you ain’t no millionaire! #FakeNews!
This observation is both true and false at the same damn time. For clarity, I only recently had an epiphany about the confusion. The funny thing is I’ve been talking about “how to become a millionaire” for years. The only difference is no one listened to me back when I had about 10 instagram followers to my name.
My message hasn’t decreased in volume, our followers grew in magnitude. First world problems, I guess.
What was my “a Ha” moment?
A lot of people believe a “millionaire” is someone who makes one million dollars in one calendar year. Technically, this isn’t inaccurate. It is, however, very limiting in what defines a “millionaire.” For the record, only .1% of the United States population make one million dollars or more in any given tax year.
But, in all fairness, I have never, ever, not once explained that when I use the term “millionaire” I am including the .1% of the population noted here, but typically I am also referring to households with a net worth (assets minus liabilities) of at least $1 million. This distinction doesn’t make the new population of people astronomical by any means, yet it is a larger population than the .1 percent of the United States some people incorrectly assumed I was talking about all this time.
This post is filled with lessons and this is one of them for me: Going forward, I will more clearly explain when I am talking about someone who makes $1,000,000 or more a year versus someone who is worth $1,000,000 or more in total assets less their liabilities (net worth).
What Makes a Millionaire a Millionaire and How Do I Become One?
Now we’re getting into the thicc of it. Pause?
Are you a millionaire after you make your first million or when you keep a million dollars in the bank? Answer: Yes.
For context, not even most of the esteemed 1-percent that the politicians obsess over each election year make $1 million a year. In fact in 2018, “to be among the top 1 percent of U.S. earners, a family needs an income of $421,926.” Although it varies by age and city, an individual *only* needs to make over $381,000 to enter the 1-percent of income earners.
Why does any of this even matter?
Because after a certain point, money starts generating significantly more money if you invest it and enjoy the benefits of compound interest. While making a lot of money is not the only way to achieve wealth, having a lot of money available to invest does accelerate the race to the wealthy finish line. As Erin Lowry, author of Broke Millennial Takes On Investing: A Beginner’s Guide to Leveling Up Your Money, shared on our recent podcast:
Investing lets your money do some of the heavy lifting for you.
Here is a simple example of the benefits of having more money to invest gets you:
- A 7% return on $100 = $7
- On $1,000 = $70
- On $10,000 = $700
- On $100,000 = $7,000
This isn’t meant to suggest that every dollar isn’t fungible. All dollars matter. Yet, if even most millionaires are not themselves making millions of dollars each year, then where does the rest of the money come from?
I’m glad you asked!
It Is Not How Much You Make, It Is How Much You Keep
After thanking BLF founder, Brian Fontenot (PB75: Paychecks on a Plane ft. Brian Fontenot of Driftr Travels), for allowing me to speak a former follower asked the following in the Instagram comments of my title slide, “Have you made your first million?”
It’s not a completely unfair question. I have been talking about money for nearly 15 years. As a result, I am sometimes naive and truly forget that not everyone out there in the “real world” is reviewing financial data, talking about money, publicly sharing their credit score, and openly discussing personal finances each week.
Therefore, I can accidentally make what I think is a passing observation that others–who are not as comfortable talking about money–might find callus, if not outright offensive. To be clear, this isn’t an apology. It is an acknowledgment. We all have access to the same Google to inform our opinions. However, I should have better disclaimed and disclosed before broaching subjects that might reasonably trigger some readers.
Here is where the internet gets weird. It is very possible that this question was one of genuine curiosity. It is more probable this was a public troll. For the benefit of the P&B family, I decided to defer to the better nature of the internet and play devil’s advocate. This led to a lot of research, introspective reflection, and the post you are reading today.
Your Money or Your Life?
In her book, Your Money or Your Life, which I read as part of my read and review of the top 15 personal finance books, Vicki Robin recommends you calculate the exact amount of money you’ve made in your lifetime if you want to gain a true understanding of your values.
Trigger Warning: Having done this for the benefit of this post, I will tell you this exercise is as eye-opening as it was egotistically painful and demoralizing.
Enough is not the minimum amount for survival; it is the exact amount that gives you fulfillment without excess. There is nothing in your life that is more valuable than your time.” – Vicki Robin
If you want to repeat this exercise yourself (I’ll pray for you), you can visit SSA.gov and download your own social security report. For the record, I tried doing that, ran into some technical difficulties, got annoyed and just referenced my old resumes and job offer letters.
Quick Overview of My Methodology: I’ve worked a part- or full-time job since age 16. I graduated from college at age 22 with minimal student loans (about $3,000). I decided to exclude all income made before college. Because I didn’t have access to my SSA report, I used an estimate of my gross income by age since graduation (Bachelors Degree in Business, for the curious).
As I have lamented several times on the podcast, my first job after school, which I thought would be for no less than six figures, paid me less than $20,000 (and it took me nearly 6-months to get that job). The following table does not account for taxes. Accounting for taxes is a whole other analysis I’m far too lazy to do for the purposes of this post. I’m happy to do so in a follow-up (comment below if that’s something you’re interested in). The graphic below is an approximation of my income from ages 22 – 36 with an aggregate gross of about $1.1 million (not accounting for taxes or inflation)*:
Editor Note*: I offer this chart for no other reason than informational purposes. I really enjoy the personal finance community, but as an auditor, I often find the discussions around salaries and wages lacking in detail. While my income experience may not be particularly unique, I can safely say that the way I managed money at age 22 making $20,000–and the advice I was receptive too–was a lot different.
On a personal note, I have always been fascinated by money and the pursuit of a high income. I didn’t start working at age 16 for fun. I wanted the money. If the Federal Government would have let me start working at age 6, I probably would have. I say this to say that I was interested in money long before I was interested in personal finances. I have spent years (or decades) trying to figure out how to make the most money possible; ideally, in the easiest way possible. I have had moderate successes and significant failures in The Pursuit of Happyness.
Making More and Your Savings Rate Determine If You Will Become a Millionaire
Simply touting “spend less than you earn” to someone surviving slightly above the poverty line while you gross six figures a year is, well, disingenuous and unhelpful. This is not a manifesto for everyone to release their income reports. I understand salary and blogging are deeply personal activities having talked about both for over a decade. This is a recommendation that we as personal finance or FIRE (Financial Independence / Retire Early) writers be more thoughtful in the language we lecture with given that our readers may make anywhere from $7.25/hr. to $725,000/year.
This is important to know before the next time you dismiss someone’s financial struggle as merely a failure to pull themselves up by their bootstraps. I actively sought bootstraps and career ladders since age 16 and it still took me a two-decade journey to find them. Imagine if we all kept that same energy to teach eager and willing 18-year-olds to invest in themselves early and often instead of trolling online?
It’s easy to preach. It’s harder to practice. If you don’t want to be known as a reminder of the past you want to selectively forget, then be a part of the change you want to see in the present.
What did I learn from this personal finance exercise? A few highlights:
- If I’m being completely honest, in some ways, most of my income earned to date has been haphazard luck. I qualify “luck” here as where preparation meets opportunity. I was fortunate to stumble into a good career field out of college while avoiding the worst of the Great Recession. However, I didn’t do this with any sort of strategy. I saw a job that paid more than my current job, and I applied. As I talked about with YahooFinance this “strategy,” coupled with a few moves around the country for various job opportunities, allowed me to increase my salary over 400-percent since age 22.
- Salary increases alone are not a pattern I can continue to depend on. Because I’m an auditor, I’ve already crunched the numbers and I know that I’ve likely maxed income gains from salaried employment alone. Sure, I may receive a promotion here or there, but my effective take-home pay will likely never increase at a 40-percent rate as it did from ages 25 to 27. The reality is corporate structures aren’t designed to give employees consistent wage increases. About 90 percent of employee experience their wages plateau by age 48 or sooner.
- My resolution: I’m vested in securing multiple income streams while maintaining a low cost-of-living to “grow the gap” (PB85: Afford Anything ft. Paula Pant) between the money I make in salary, other forms of income, and the money I can save and invest annually.
- Around age 27, having successfully buried myself in $30,000 of consumer debt, I made the choice to reduce my expenses for the purpose of becoming debt free.
- Related: D.E.B.T. Free: A 4 Week Starter Kit
- After a lot of practice (and failure), I self-taught myself how to budget to typically keep my expenses around 50-percent or less while still increasing my annual income. With the exception of a car I bought–and only regret buying on the days I have to pay for it–this still holds true. This isn’t an easy practice. While the math is simple, I’m still human and make mistakes. I admit it’s difficult to delay gratification day-to-day for a retirement I might live to make in 40-years. I go back and forth on this and it shows in my savings rate, which fluctuates between 10 to 20 percent depending on how disciplined I was able to be for the most recent 30 calendar days.
Key Takeaways: Perhaps the most painful observation? While I’ve grossed over $1,000,000 in the first third of my working career, I don’t have anything close to $1,000,000 dollars saved. More on this later
I don’t think I’ve done anything particularly special. In fact, I’m pretty average. As a nearly middle-aged man, I’ve earned roughly half of the average income earnings for a U.S. male in a career with reasonable salary growth potential.
I’m also not ignorant of my good fortune. However, to me, bragging about making a good salary in a field that pays a good salary is like bragging about the ability to breathe oxygen on Earth. My real observation and personal critique here is that had I not mismanaged my money throughout most of my 20s, I would already be financially independent. Any time I am fortunate enough to speak to an audience of 20-somethings, this is the real lesson I try to impart with varying degrees of success.
Do not try to be like me; be better than me.
Where Will Your Million Dollars Come From?
Unlike our upcoming podcast guest, a blogger who grosses over $1,000,000 a year and whom I envy to be like when I grow up, I don’t see any current reality where I will make $1 million in any given year. I’m fine with that because I do believe that making slow money is better than making no money.
At my current rate of pay, assuming no major life changes (knock on wood), completely unaccountable cost of living adjustments, raises, merits or bonuses, I need to work approximately 10 years and 2-months before I gross my next million. That would make me 46 years old. I thought this was good news until I learned 2 in 3 Millennials think they’ll be millionaires by age 45. Here I am a day late and a dollar short, again!
Spend Less Than You Earn to Become Wealthy (Allegedly)
Simply put, net worth = assets – liabilities. This is why I take some issue with people who count their home as an asset when they still owe a significant balance on their mortgage. This is even more (mentally and personally) offensive when you know, “Mortgages are amortized, which means the overwhelming majority of your initial payments are applied towards interest rather than principle” for almost all of the first 15 years of the average loan. A separate explorative analysis I did found only 1 in 5 homes is owner-occupied without a mortgage. Meaning even a generous read of these numbers suggest most people in America never pay off their homes within their lifetime. Saying you own your home because you live in it with a loan outstanding to your bank is akin to me saying I own my university because they issued me a diploma.
One of the most cited financial independence mantras in the personal finance space is “spend less than you earn.” Frankly speaking, I find this saying annoying. It is technically accurate, but it is frequently misapplied.
Another interesting observation: most households who reach the six-figure milestone don’t view themselves as rich, nor do they view themselves as making $8,333/mo. or $1 million every 10 years. In fact, 1 in 4 households making $150,000 a year still report living paycheck-to-paycheck. In my case, if I continue to make smart financial moves and reasonable investment returns, I am on pace with the average millionaire profile outlined in one of my favorite books, The Millionaire Next Door:
Most never become millionaires until they are fifty years of age or older. Most are frugal. And few could have ever supported a high-consumption lifestyle and become millionaires in the same lifetime. But the lavish lifestyle sells TV time.
If not spending money was easy, everyone would already do it. If making lots of money were easy, everyone would do that too. I like the remix, “spend less than you earn, or earn more than you spend” because the latter lends itself to the acceptance that there is always more money to be earned if you can find the appropriate niche, side hustle, passive income, freelance work, or additional job.
To be very clear here by my own definition of net worth I am not a millionaire, yet. My net worth is less than a quarter-million and most of that is tied up in retirement funds I likely won’t or can’t access until age 59+.
How is this possible?
I’ll be completely transparent: it means that although I’ve grossed over $1 million in income in half my lifetime, I have only managed to accumulate less than 1/4th of it in savings, assets, or retirement funds.
Because I’m a Senior Millennial, I was able to gain access to two pension funds during my career. Because I’m paranoid, I also saved money in a 401k I self-managed on the side starting at age 27. Despite all my well-documented financial exploits, I have saved at least 10-percent of my income for retirement since my early 20s. This has gotten me close to $40,000 in my IRA. I still have quite a ways to go to reach my personal finance goal of $100,000 by age 41.
In total, 30-something Marcus has secured elderly-age Marcus around $140,000. That’s not remotely close enough to retire on. It is a decent start. I could take comfort in the fact that I’m not alone in my predicament: One in 3 Americans has $0 saved for retirement. But, there is little comfort knowing others are drowning when I’m treading water in the same sea of uncertainty.
All this earnings talk reminds me of Chris Rock’s stand up on the mindset of wealth, which is why I can say I’ve made a million dollars, but I still feel broke. Broke is a state of mind–you can’t afford what you want. I view poverty as a state of economics; you can’t afford what you need.
If you’re unfamiliar, Chris said that Bill Gates is rich. Oprah is rich. “But if Bill Gates woke up with Oprah’s money, he’d jump out of a window.” I wonder if I woke up Monday with Bill Gates money, and Wednesday with Oprah money would I be happy or sad? When Mark Zuckerberg or Jeff Bezos lose “billions in the stock market in one day” do they tell their wives to cut back on the extra guac and avocado toasts before they eat them into the poor house? Is financial security a matter of perspective or basic math?
I ain’t got the answers.
You Build a High Net Worth Over a Lifetime With Choices You Make Over the Days
I do know this much. Most people barely know how much money they’ve made this month, let alone in their lifetime. This was a painful but necessary exercise for me. I recommend you try it.
For me, it is better to learn late than never. Still, I’d be lying to you if I didn’t admit that it hurts like hell to know that over $1 million dollars have passed through Uncle Sam’s hands in my name when I have less than a quarter left in projected retirement savings to show for my first third of work life or my half lived-life on Earth.
I am also fortunate in another area of life: I don’t hate my job. I accept work for what it is. I go to work to leave work. I work to live. I do not live to work. In my life, work serves only to help me secure the bag and pay the light bill so I can enjoy dessert wine in the club (even though I don’t club, or dance no mo, all I do is this).
Unlike some, I never bought into the fantasy that work equals the dream. Good, bad, or indifferent, I never approached my job search in that manner. For the record, I’ve had several debates bordering on fights about whether work is responsible for making you happy.
Instead, I found my true purpose and personal happiness far removed from the boundaries of my cubicle. I like the job(s) I have had. I do not love any of them. I never have. This is because I never set out to have a love affair with work. I set out to get paid through work, or in spite of it. This is why I’m so passionate and optimistic about the growth of Paychecks & Balances, LLC. It is through the founding of this company that after nearly four decades on Earth, I finally may have discovered the best of two worlds I didn’t think could coexist: doing something I love; getting paid well to do it.
Most of Us Will Have to Work Really Hard Before We Can Hardly Work
My (limited?) life experience has taught me that it doesn’t matter how much I make. I am very capable of spending all of it and then some. If I ever plan to be truly wealthy, and I do, then it matters more how much I keep versus how much I make annually. It took longer than I would like to admit to accept this lesson, but I have adjusted my personal finances and investments accordingly. Namely, I automate everything I possibly can.
When I was a child, I spoke as a child, I understood as a child, and I thought as a child. When I became a man, I put away childish things.
Further, my irresponsible spending habits and reliance on one income stream through most of my early working years — when most millionaires have three or more — contributed to the financial predicament I find myself in today. It doesn’t matter where the income has come from or how slow/fast it arrived, I have proven more than capable of blowing money fast. Realizing this, I have to be honest with myself, “Self, our most consistent financial enemy will rarely lie in wait much further than the next mirror we pass.”
Days pass slowly. Years pass quickly.
While it makes for great clickbait, the 30 under 30 (or even the 40 under 40) profiles that lead us to believe that all successful millionaires arise only from Silicon Valley 20-somethings running startups is false. The truth is the average age is closer to 40-somethin.
As I transition from financial ignorance and the pursuit of instant gratification towards a more developed, long-term strategy, perhaps I am experiencing the natural financial wisdom that comes with age? I will make more mistakes because I’m pursuing the ideal state (attainable) versus the perfect state (unattainable). Most days, I hope for the best, but I plan for the worse.
I spent no less than 27 years of my life spending with reckless abandon. This not only stunted my financial growth, it literally delayed my financial independence. Until I made substantial changes in how I viewed and handled money, I would have remained on the corporate hamster wheel, well, forever. Of course, there are far worse fates.
If you work a job you love, I suggest you keep doing it until you can’t work anymore. If you work a job you hate, I suggest you come up with Plan B through Z, ASAP.
Presently, after several decades of mistakes, my financial vehicle is finally automated. I reflect on the past like visions in a rearview mirror. Behind me are the reminders of my money lessons learned. If I stay in my financial lane and follow the money map I’ve charted for myself, then in front of me lies infinite potential for financial freedom. More money may act as the gas in this scenario in that it will propel me forward–and may even allow me to go faster–yet it will never replace me as the driver. I am confident that the painful financial lessons of my past will accelerate my drive to the financial security of my future.
Even if I still have a ways to go, it is nice to know I’ve made so much progress. Honestly, I like having the perspective. I view the financial transgressions of my 20s not as a reason to give up but as proof I can make mistakes and still get back on the right track. The journey may be slow, boring, and methodical, but it’s not like quitting will get me there any quicker.
Related: Retire a Millionaire
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