The Economist put out an interesting chart highlighting how long it takes the median household income to earn $1 million dollars before tax. Have a look.
Given the median US household income is roughly $52,000, it will take roughly 19.3 years for the typical household to earn $1 million gross. That’s pretty good if you think about it. Let’s say you graduate college at age 22. By the time you are 41, you could have earned over a million bucks gross!
But as we know in personal finance, it’s not what you make, it’s what you keep. If the typical household saves 10% of their gross earnings, then one can expect a $100,000 – $200,000 net worth by the time the head of household is 41 years old. Not bad, but certainly no million bucks!
OTHER KEY TAKEAWAYS FOR EARNING $1 MILLION
1) Work in a developed country. Despite higher cost of living, one should aim to work in developed countries like the US, Norway, Switzerland, Australia, Denmark, and Canada. Once you’ve earned and hopefully saved more than you could elsewhere, then relocate to a cheaper country to retire such as Mexico, Turkey, or Romania. My bias is towards Mexico given the weather, the amazing diving, the food, the proximity to the US, and the friendly people.
2) Move to the wealthiest parts of developed countries. As we saw from the top income earners by state, there’s a huge difference in income generation potential across the United States. Go where the money is. The money is currently being earned and hoarded in the Northeast, Virginia, North Dakota, Texas, Wyoming, and California.
3) Avoid certain countries for work. If you live in Chile, Turkey, Bulgaria, Mexico, and Romania, it takes well over 100 years to earn $1 million in gross income. Given the life expectancy nowadays is still under 90, chances are high you will never earn $1 million in your lifetime living in these countries. I’d skip Portugal too.
4) Marry a foreigner. If you’re scraping the bottom of the chart above, it’s prudent to strategically target foreigners at the top of the chart. Perhaps go on a study abroad program and fall in love. Or definitely target a top 10 country to vacation every single year to increase your chances of meeting someone from a wealthier nation. Of course not everyone from a top 10 country is rich. The average is just richer than the average of your country. Related: How To Get A Rich Man To Be Your Husband
5) Becoming a millionaire takes longer than you think. Thanks to taxes and varying money habits, it takes much longer to become a millionaire. A person saving 50% of their median household net income after paying a 25% effective tax rate could be able to amass roughly $375,000 after 19.3 years excluding any investment performance. In other words, it’s not good enough to just save. You’ve got to invest your money as well.
The Economist’s chart is not comprehensive. They should include countries like China and India with well over a billion population, each. The per capital GDP in China is $6,800 a year. Therefore, a typical Chinese citizen will take roughly 147 years to earn $1 million. Meanwhile, the per capita GDP in India is only $1,500. The typical citizen will take a whopping 667 to earn $1 million! I’ve been to India for a couple weeks on two occasions, and I must say that India’s poverty is immense. The different between the haves and the have nots is the widest I’ve ever seen.
EVERYBODY REALIZES THEY ARE LUCKY RIGHT?
Now that we realize America is sitting in pole position on our way to earning $1 million gross, I hope Americans realize how lucky we are to live and work here. The same goes for readers from Australia, who already have the world’s leading inheritance amount at $500,000+, as well as readers from England, Canada, and other English-speaking countries.
There is so much opportunity out there. Imagine if we tried a little bit harder than the standard 40 hours a week, saved more money until it begins to hurt every month, and invested smartly. Surely we could reach $1 million in gross earnings before 19.3 years no problem!
THE ROAD TO ONE MILLION DOLLARS
* Start Your Own Website, Be Your Own Boss: You can make a million dollars much quicker if you have multiple income streams. There’s nothing better than starting your own website (tutorial on how) to own your brand online and earn extra income on the side. Why should LinkedIn, FB, and Twitter pop up when someone Google’s your name? With your own website you can connect with potentially millions of people online, sell a product, sell some else’s product, make passive income and find a lot of new consulting and FT work opportunities.
Financial Samurai started as a personal journal to make sense of the financial crisis in 2009. By early 2012, it started making a livable income stream so I decided to negotiate a severance package. Years later, FS now makes more than I did as an Executive Director at a major bulge bracket firm with 90% less work and 100% more fun. You never know where the journey will take you!
* Manage Your Finances In One Place: One of the best way to become financially independent and protect yourself is to get a handle on your finances by signing up with Personal Capital. They are a free online platform which aggregates all your financial accounts in one place so you can see where you can optimize your money. Before Personal Capital, I had to log into eight different systems to track 25+ difference accounts (brokerage, multiple banks, 401K, etc) to manage my finances on an Excel spreadsheet. Now, I can just log into Personal Capital to see how all my accounts are doing, including my net worth. I can also see how much I’m spending and saving every month through their cash flow tool.
The best feature is their Portfolio Fee Analyzer, which runs your investment portfolio(s) through its software in a click of a button to see what you are paying. I found out I was paying $1,700 a year in portfolio fees I had no idea I was hemorrhaging!
They’ve also come out with their incredible Retirement Planning Calculator that uses your linked accounts to run a Monte Carlo simulation to figure out your financial future. You can input various income and expense variables to see the outcomes.
Post updated for 2017 and beyond.