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.