Anyone can become a millionaire, given enough time.
No, really — if you set aside $165 per month and earned a long-term average 10% return (similar to the S&P 500), you’d become a millionaire in just under 40 years. Even someone earning minimum wage could potentially swing $165 per month.
Of course, many of us want to join the two-comma club far faster than 40 years. So what does it take to become a millionaire in five, 10, or 15 years?
In your quest to grow your wealth, three variables work to your advantage.
First, the more money you save and invest each month, the faster you’ll build wealth. It sounds obvious, and it is, but no one wants to hear it. They want to spend up to the limit of what they can afford rather than saving and investing. Resist that urge if you want to build wealth faster.
Second, higher returns help you reach your financial goals faster. Investing in an index fund mirroring the S&P 500 will likely earn you around a 10% average annualized return. If you want higher returns, you’ll need to look further afield. For example, our fractional real estate investing club gets together every month to vet potential syndications, funds, and notes, typically targeting 15% or higher annualized returns. We hope to build wealth faster than the average person by using our collective knowledge and skill to find high risk-adjusted returns.
Because remember, firm returns exist only in hindsight. You can’t predict the exact future returns you’ll earn when you decide to invest. You can only analyze the potential returns, taking risk into account.
Finally, more time lets compounding do more of the heavy lifting for you. You could get away with investing less of your own money (like the person investing $165 per month to become a millionaire in 40 years).
But what’s the fun in that? That sounds suspiciously like normal retirement planning — which is not why we’re here.
You get it — higher monthly investments and higher returns get you to a seven-figure net worth faster.
To illustrate with specifics, I ran the numbers on how much you’d have after five years, 10 years, and 15 years at different monthly investment amounts and returns.
It shouldn’t shock you that it takes a lot of monthly savings to become a millionaire within five years. But the numbers to reach millionaire status within 15 years aren’t nearly so intimidating.
At different savings amounts and investment returns, here’s how much you’d have after five years:
|
Monthly Investment/Return |
6% |
8% |
10% |
12% |
14% |
|
$500 |
$35,359 |
$37,189 |
$39,136 |
$41,209 |
$43,414 |
|
$750 |
$53,038 |
$55,784 |
$58,704 |
$61,813 |
$65,122 |
|
$1,000 |
$70,718 |
$74,378 |
$78,273 |
$82,417 |
$86,829 |
|
$1,250 |
$88,397 |
$92,973 |
$97,841 |
$103,022 |
$108,536 |
|
$1,500 |
$106,077 |
$111,567 |
$117,409 |
$123,626 |
$130,243 |
|
$1,750 |
$123,756 |
$130,162 |
$136,977 |
$144,230 |
$151,950 |
|
$2,000 |
$141,436 |
$148,756 |
$156,545 |
$164,834 |
$173,658 |
|
$2,250 |
$159,115 |
$167,351 |
$176,113 |
$185,439 |
$195,365 |
|
$2,500 |
$176,795 |
$185,945 |
$195,681 |
$206,043 |
$217,072 |
|
$3,000 |
$212,154 |
$223,134 |
$234,818 |
$247,252 |
$260,487 |
|
$3,500 |
$247,513 |
$260,323 |
$273,954 |
$288,460 |
$303,901 |
|
$4,000 |
$282,871 |
$297,512 |
$313,090 |
$329,669 |
$347,315 |
|
$4,500 |
$318,230 |
$334,701 |
$352,227 |
$370,878 |
$390,730 |
|
$5,000 |
$353,589 |
$371,890 |
$391,363 |
$412,086 |
$434,144 |
|
$6,000 |
$424,307 |
$446,268 |
$469,635 |
$494,503 |
$520,973 |
|
$7,000 |
$495,025 |
$520,646 |
$547,908 |
$576,921 |
$607,802 |
|
$8,000 |
$565,743 |
$595,024 |
$626,181 |
$659,338 |
$694,631 |
|
$9,000 |
$636,461 |
$669,403 |
$704,453 |
$741,755 |
$781,460 |
|
$10,000 |
$707,179 |
$743,781 |
$782,726 |
$824,172 |
$868,288 |
|
$11,000 |
$777,896 |
$818,159 |
$860,998 |
$906,590 |
$955,117 |
|
$12,000 |
$848,614 |
$892,537 |
$939,271 |
$989,007 |
$1,041,946 |
|
$13,000 |
$919,332 |
$966,915 |
$1,017,544 |
$1,071,424 |
$1,128,775 |
|
$14,000 |
$990,050 |
$1,041,293 |
$1,095,816 |
$1,153,841 |
$1,215,604 |
I assumed quarterly compounding, by the way.
While not trivial, the numbers get less absurd when you extend your time horizon to a decade:
|
Monthly Investment/Return |
6% |
8% |
10% |
12% |
14% |
|
$500 |
$82,309 |
$91,707 |
$102,446 |
$114,733 |
$128,805 |
|
$750 |
$123,463 |
$137,560 |
$153,670 |
$172,099 |
$193,208 |
|
$1,000 |
$164,618 |
$183,414 |
$204,893 |
$229,466 |
$257,610 |
|
$1,250 |
$205,772 |
$229,267 |
$256,116 |
$286,832 |
$322,013 |
|
$1,500 |
$246,927 |
$275,121 |
$307,339 |
$344,199 |
$386,415 |
|
$1,750 |
$288,081 |
$320,974 |
$358,562 |
$401,565 |
$450,818 |
|
$2,000 |
$329,235 |
$366,828 |
$409,785 |
$458,932 |
$515,220 |
|
$2,250 |
$370,390 |
$412,681 |
$461,009 |
$516,298 |
$579,623 |
|
$2,500 |
$411,544 |
$458,535 |
$512,232 |
$573,665 |
$644,025 |
|
$3,000 |
$493,853 |
$550,242 |
$614,678 |
$688,397 |
$772,830 |
|
$3,500 |
$576,162 |
$641,949 |
$717,125 |
$803,130 |
$901,635 |
|
$4,000 |
$658,471 |
$733,656 |
$819,571 |
$917,863 |
$1,030,440 |
|
$4,500 |
$740,780 |
$825,363 |
$922,017 |
$1,032,596 |
$1,159,245 |
|
$5,000 |
$823,089 |
$917,070 |
$1,024,464 |
$1,147,329 |
$1,288,051 |
|
$6,000 |
$987,706 |
$1,100,484 |
$1,229,356 |
$1,376,795 |
$1,545,661 |
|
$7,000 |
$1,152,324 |
$1,283,898 |
$1,434,249 |
$1,606,261 |
$1,803,271 |
A working professional with a strong income could achieve it if they keep their living expenses relatively low.
With 15 years to compound, the numbers get much more approachable:
|
Monthly |
6% |
8% |
10% |
12% |
14% |
|
$500 |
$145,544 |
$172,718 |
$206,187 |
$247,526 |
$298,714 |
|
$750 |
$218,315 |
$259,077 |
$309,281 |
$371,289 |
$448,072 |
|
$1,000 |
$291,087 |
$345,436 |
$412,375 |
$495,052 |
$597,429 |
|
$1,250 |
$363,859 |
$431,795 |
$515,468 |
$618,815 |
$746,786 |
|
$1,500 |
$436,631 |
$518,153 |
$618,562 |
$742,578 |
$896,143 |
|
$1,750 |
$509,403 |
$604,512 |
$721,655 |
$866,341 |
$1,045,500 |
|
$2,000 |
$582,174 |
$690,871 |
$824,749 |
$990,104 |
$1,194,857 |
|
$2,250 |
$654,946 |
$777,230 |
$927,843 |
$1,113,867 |
$1,344,215 |
|
$2,500 |
$727,718 |
$863,589 |
$1,030,936 |
$1,237,630 |
$1,493,572 |
|
$3,000 |
$873,262 |
$1,036,307 |
$1,237,124 |
$1,485,156 |
$1,792,286 |
|
$3,500 |
$1,018,805 |
$1,209,025 |
$1,443,311 |
$1,732,682 |
$2,091,001 |
Almost no one can afford to save $14,000 per month. But far more Americans could save and invest $2,500 per month.
When you can leverage other people’s money to build your own portfolio of assets, the numbers change.
For active investors, the BRRRR strategy lets you recycle the same down payment over and over again. The acronym stands for buy, renovate, rent, refinance, repeat — you force equity through renovations, then pull your initial down payment back out when you refinance. You could literally reinvest the same $50,000 to add dozens of properties to your portfolio, given enough time to repeat the cycle.
It would still be a challenge to reach a million-dollar net worth within five years, but it wouldn’t require investing $14,000 a month. And if you added three properties per year through the BRRRR strategy, it’s perfectly conceivable to reach a seven-figure net worth within 10 years.
You can do something similar on the passive investing side, although the timeline takes longer. Some syndication deals target “infinite returns” in the same way, with the sponsor refinancing to return investors’ capital. You get your money back out of the deal, but you keep your ownership in it and keep earning cash flow and appreciation.
The strategy works well to pay for your kids’ college education, and it works just as well for building personal wealth.
It does require you to play the long game, however. Lane Kawaoka, the syndicator behind The Wealth Elevator, puts it like this: "Over my decades in real estate investment, I've learned that success requires a calculated, long-term strategy. From rental properties to syndications and commercial assets, the key is combining sound investments with sophisticated tax strategies (such as depreciation from real estate)."
The bottom line: With real estate, you don’t need to invest every penny yourself into compounding investments. Other people can fund most or even all of your purchase. But it still takes time for these assets to appreciate and cash flow to lift your net worth to seven figures.
The more you show off or spend your wealth, the less of it you actually accumulate.
It takes discipline to spend less and to set aside a high percentage of your income for investing. You have to keep driving the old jalopy while your friends show off their ritzy new rides.
But in exchange for your discipline, your net worth will grow while theirs barely budge.
“Be careful where you put every penny,” advises Maria Bressett of Trusted Company Reviews. “Restrict your spending to what delivers a high ‘return on happiness,’ and put the rest where it will grow your wealth long-term.”
Real wealth doesn’t exist in your clothes, your car, or even your home. It exists in your investments. You can’t show it off on your ring finger or by hosting dinner parties. Yet over time, you’ll build true, lasting wealth.
Wealth that you can use to buy back your time, or reach financial freedom. When you can cover your living expenses with passive income from investments, you can kiss your job goodbye — while your show-off friends are still enslaved to their 9–5 jobs.
About the Author:
Brian Davis is a real estate investor, personal finance writer, and co-founder of SparkRental with over two decades in the real estate and finance industries. He owns fractional shares in over 2,000 units and regularly contributes as a real estate and personal finance expert for Inman, BiggerPockets, R.E.tipster, and more.
Disclaimer:
The views and opinions expressed in this blog post are provided for informational purposes only and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.