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The Math of Becoming a Millionaire

I don’t place much emphasis on becoming a millionaire. But it’s a healthy net worth goal to have. I think the income stream from investments is more important than the size of the portfolio. But let’s discuss how easy it is to get to a $1m net worth.

Most of us will become millionaires. The question is when and how many times over. Our healthcare jobs are secure and we are able to set aside a lot of money. More importantly, most of us have the intelligence to learn and comprehend the topic of personal finance.

If we can’t make it to 7-figure net worths then everyone else is fucked. Though…. ironically, the easiest way to get to $1m isn’t through a career in healthcare. It’s through saving and investing as early as possible – think, age 18.

To calculate the math of becoming a millionaire we need 3 values:

  • rate of return of investments
  • contributions
  • time in the market

Power of High Income

For the average physician the biggest driver will be their savings rate – the amount they’ll be setting aside from their income. Many might want to focus on their investment return but they might fail to account for the higher risk associated with higher returns. This is dubbed the risk premium.

The amount of time we spend in the market is what allows for compounding rates of return. The more time your investments have to grow, the exponentially less you will need to contribute to your portfolio.

1. Rate of Return

There is only so much risk you can take with your money. Unless you’re a professional investor, you’re going to want to be fairly conservative. After all, you’re able to set aside a lot money every month, potentially. And your income is fairly secure as a medical professional.

Taking the extra risk will likely go unrewarded. Why bother with a possible 10% return if the downside is more than you can shoulder?

2. Contributions

This is the most powerful factor we can control. It’s the disposable money available to you after you paid for housing, food, transportation, and health.

The more you can contribute regularly to your portfolio, the faster you’ll become a millionaire.

3. Duration of Investing

Unlike a banker or professional athlete, we spend over a decade becoming doctors. So it’s unlikely that we’re going to give up on medicine anytime soon. So, we have a long investing horizon.

Well, it’s really not that long, compared to the teenager who lives at home with their parents, they can start investing super young and spend many more decades in the market.

Most of us will get somewhere around 30-50 years, compared to the 50-70 years the young adult gets.

The Math of Becoming a Millionaire

I am going to assume a rate of return of 6%. Use 5% if you want to be more conservative and use 8% if you think you can squeeze out a higher return from the markets. I invest mostly in passive index funds and ETF’s, so 6% feels right to me.

Here are some numbers that I’ve come up with, assuming you start with a $5,000 account. It shown how much you need to invest every month and for how many years to hit the $1m goal.

5 years – $14,500/month
10 years – $6,500/month
15 years – $3,500/month
20 years – $2,200/month
25 years – $1,450/month
30 years – $1,000/month
40 years – $500/month
50 years – $250/month
60 years – $120/month
100 years – $0/month ($5k grows to $1.9m by itself)

The reason I added the 100-year mark is because some of us may want to leave money for heirs. It wouldn’t be unrealistic to calculate 120, 150, and 200-year numbers for some of you.

The Reality

Most doctors will forgo investing in order to pay down student loan debt and mortgages, even car payments. They will then try to pay for their kid’s education because physician parents value education.

The Late Saver

I don’t think that this is bad. It’s just that it decreases the time spent in the markets – a huge factor to building great wealth.

So, as I was saying, the average healthcare professional will probably pay off debt and help out family and not even get serious about saving for retirement until their late 40’s. Fortunately, by the time they are empty nesters or happily divorced, they can shower their portfolio with cash.

This person can set aside $10-15k a month for a few years and still hit a million. By then, they will probably already have somewhat of a nestegg, which means they’ll be in the multi-millions camp.

The Diligent Saver

Alternatively, the diligent doctor will set aside a little bit in the market every month, no matter what. And they like medicine so they keep on practicing until age 70; from full-time to part-time and eventually per diem.

It might only be $2k/month at first. But eventually they ramp this up. They will have invested that $2k for 35 years. Not even accounting for their accelerated investment contributions later in life, they will have a net worth of $2.9m quite easily.

The Burger Flipper

Just for shits and giggles, let’s say your child ends up choosing McDonald’s University over Stanford. They start out at $14/hour flipping burgers and they ramp up to assistant manager at $18. An income north of $25k/year.

They live with you until age 28, playing video games in your basement. But they have always maxed out their Roth IRA and set a little more in their private savings. Let’s say, $7k/year.

They eventually go on to be a manager and shift lead. They maybe become the area director and eventually operations manager. By the time they are 50, they are earning $80k in today’s dollars.

Even if they never increased their retirement contributions from that $7k/year, by age 70 they will have accumulated $3,000,000 and well on their path of becoming a millionaire by age 56. It’s not magic, it’s just math. Math don’t give a fuck whether you’re a doctor or patty flipper.

7 replies on “The Math of Becoming a Millionaire”

I love it when you deliver some basic financial wisdom for us.
As a student in med school and before as an pupil in school noone helps us to develope our financial IQ . That is completely up to us or at best up to our parents.
Which ETFs do you have in your depot?
Because i finished my last exams fot the 10th semester 3 weeks ago i had some time learn more about finance and building wealth in the future (hopefully) and as far as my first inquiries shows, seems MSCI World and MSCI wmerfing markets a good bet for my money.

I have VTI and I have a few indexed mutual funds like VTSAX and VTIAX and VMLTX. I try to maintain a mostly equities portfolio because I seem to tolerate the risk well. Though, the markets haven’t yet tested my supposed courage – if I panic then I’ll increase my fixed income allocation going forward.

You never know… with your plant based diet and healthy lifestyle, the 100-year mark is not entirely inconceivable. And who knows… in 40-50 years medical technology may advance to the point where it can be regular for people to live into their 100s.

I’m planning for a long lifespan and an excellent healthspan with a great quality of life in old age. When I retire from work, I’ll probably select the annuity option of the common plan since it would give my wife and I a floor / base income for as long as we live.

The downside with the annuity is that it’s not indexed to inflation but being in the personal finance space, I’m sure you won’t have a hard time beating inflation expectations by choosing what you’ll spend money on.
I think it’s quite likely that many of us will live well past 100. I’m 40 – there is a lot of changes to come in the next few decades. That said, if I only lived to 45, I’d still be one happy little MoFo …. been an awesome past few years. When I think back to 2015 and how miserable I was practicing medicine, this is like living the MTV lifestyle.

Long ago a family friend (CPA) said: “Don’t go to college. Get a job flipping burgers. Have your parents invest the money for you that they would have spent on tuition.”
30+ years later I’m probably better off for having done college/grad school, because tuition then was reasonable and burger-flipping paid maybe $5/hr.
I’m not sure college/grad school in the US is worth it for many these days.
Physician salaries seem to be higher than ever but I know many who left practice before the age of 50. Did that happen as often 20 or 30 years ago?

These days many need to find a motivation to stay in the workforce which has lost a lot of its meaning. Not to sound too jaded, but having hefty student loan debts is a great motivator. Take it from me, reinventing yourself and your career is very hard to do and you won’t get much support to do it.
Not saying that medicine was bad … the science of medicine is fucking amazing … the human body and connecting with people and all of that… but the practice of medicine, fucking garbage. A great income source but not sure how many people would do it for free in the same manner they are engaged in now.
Physicians aren’t motivated by a higher income. They think they are but if that was the case then we wouldn’t see high burnout rates. We are getting incredibly well but we didn’t go into medicine for money. Nobody goes to school for 15 years for the sake of a high income. Maybe job stability or some prestige but the income only takes you so far.
Much like professional athletes, as physicians you are cursed with having physician colleagues with whom you’ll compete both in advancing your career and the cars you drive and homes you live in.

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