You’re dreaming about luxury vacations and nice cars. OH, you can’t wait to be a millionaire.
But I’m here to tell you to think again.
While having more money is never a bad thing, what you’ve probably envisioned and what the reality is don’t match up.
The reality is a lot of people are leading great lives, traveling the world, and living like a millionaire. While others actually are millionaires are miserable, and you wouldn’t even know it.
Let me explain.
What is the Definition of a Millionaire?
By definition, a millionaire is a person or family who has a net worth in excess of $1 million dollars. This answer is very U.S. centric as different countries have their own versions of this answer. For example, it takes 117 Japanese Yen to make 1 USD, so $1 million Yen doesn’t get you very far!
Even though in the U.S. the concept of a millionaire is static, what those million dollars gets you over time can change dramatically.
An example of that is the effect of inflation. A million dollars in 1950 is worth about $10.5 million in today’s dollars. But, the definition of a “millionaire” didn’t change. So, Today’s millionaires have 1/10 the amount of money that millionaires had when your parents were born.
So, the idea of “millionaire” status is really less meaningful than it was decades ago.
Just the rate of inflation will create more “millionaires” every year.
Another thing that messes with the definition of a millionaire is the fluctuation of exchange rates and purchasing power.
Let’s go back to the example above with Japan. We know that 1 US Dollar can get 117 Japanese Yen. We know that $1 can get you a chicken sandwich at a fast food restaurant. If you can go to Japan and get a similar sandwich for ¥ 117 then your purchasing power hasn’t changed.
For a variety of reasons that I won’t get into here, exchange rates can fluctuate as well as purchasing power. So, if the exchange rate is 100:1 but the sandwich costs the same, you have lost purchasing power.
The reason why I bring this up is to show that having a million dollars may be worth a lot in one place in the world but not worth much elsewhere depending on purchasing power.
How Many Millionaires in the U.S.?
There are roughly 325 million people in the U.S. which means that around 4.6% of the US population are millionaires. In other words, around 1 in 20 people are millionaires.
Doesn’t sound like it’s rare, does it?
When you go to the mall, a huge number of cars in that parking lot are owned by millionaires.
In your child’s classroom, chances are one of those children were born to a millionaire family.
Chances are, one of your friends or family members is a millionaire and you don’t even know it.
But, if so many people are millionaires, where are all the Lambos and mansions?
It’s Not What You Think
Net Worth is not cash in the bank. You can’t spend $1m when it’s coming from the value of your home or 401k. Even if it was cash in the bank, it’s not even a lot of money.
$1m doesn’t get very far. You can buy a decent house with it but that comes with expensive maintenance, lawn care, repairs, and a crap ton of new furniture to fill up 5x more space than you’re used to having.
It can get a foreign sports car, but that comes along with $500 oil changes and $1,000 for a new tire (remember, you need 4).
$1,000,000 invested conservatively could earn you around $40,000-$50,000 per year in interested. That’s hardly enough to retire on especially as old age comes with added costs of health care.
But, if most of that $1m is in your home, which is true for most people, it’s not earning any interested. Even if it was, you’d have to sell your home to get that money. Then what?
Don’t Focus on Becoming a Millionaire
Of course, anyone would rather have $1m than not have it. But, don’t make it your focus. Having it isn’t going to get your cars or vacations. Net worth is one thing to measure, but it’s more important to focus on cash flow.
Yearly passive income will buy you anything you want. It’s money you can spend. It’s cash in the bank. Net worth is money locked up somewhere. You need assets, but assets don’t buy you things. If that asset doesn’t produce cash flow, you can only use it by selling it and that’s not a good place to be.
What’s more important is focusing on building up passive sources of income from real estate, side businesses, stocks, or other ventures.
Focus on building up $40k or $100k in passive income rather than focusing on having $1m in net worth.
Focus on having something like asset provide for the lifestyle you want.