Your First Million

I woke one day a few years ago and realised money was a solved problem for us. We had figured things out to the point where we had enough that even if we were able to work all our basic living costs would be covered. This had been my goal since my first full time job, at age 21 – to build our assets up enough so hard work is optimal, not essential. I hadn’t noticed when it happened, life was busy with new babies and our finances were on autopilot at the time, but when I realised it was an incredibly freeing moment. 

Since that time I’ve mentioned to a few people how we did it, each time it gets strange looks – I’m not really sure if it’s because it’s quite odd to talk about your money, or if people thought it very strange that 20 year old Mark would have been thinking about ensuring he had enough money in his late 30s and 40s. Because of  this I’ve decided to write up this series of posts, aimed at my kids in their late teens, who I hope will read these and realise that nothing stops them from also figuring out how money works, building wealth and solving the money problem.

Mix and match your way to a million

This is a the first in a series of articles on how to easily to get to your first $1,000,000, while still enjoying life and making a contribution to the world around you.

Note: You are unlikely to actually need a $1,000,000 for a comfortable and satisfying life. In a few days I’ll write a How much do I need article for more about how to decide how much money you really need. No matter how much your goal is you need a plan so that you don’t turn around and find yourself broke and with few options in your 40s.

We carry the legacy of the roaring 1920s where millionaires were being minted and show boated by the press of the time (this was the beginning of the press worship of celebrities and billionaires that we have today*). Around about then the idea of a million dollars become wedged in our cultural psyche as a symbol of impossible wealth achieved by a very few, and the reference point for financial success.

The dreams have been watered down a little now. A million is not what is used to be. In the 1920s the average wage was $27.40 a week and million dollars meant a lifetime of wealth and happiness.  Nearly a hundred years later it can mean just a nice house on the outskirts of London, New York or Auckland, or if you choose wisely it can mean financial independence and early retirement.

No matter how you choose to use it there is a lot of truth in the old adage that the ‘first million is the hardest’. To get it you need to have a plan. You also need to have made a lot of daily decisions about your money (mainly not to spend it) and lived a little different from your peers.

The good news is that by the time you have it you’ve learned the discipline and skills to have your money sorted for the rest of your life, and your wealth only grows from there.

So how can you make sure that you find yourself with a million when you need it?

Here’s a series of paths you can travel to achieve the goal, there is no need to think there is only one way to financial security:

The Hyper Savings Route
The idea here is to save between 40 – 80% of your income. Invest the savings and watch your money grow to astronomical heights.
Risk of this approach:  low
Time to a $1,000,000: Typically 5 – 15 years
Pros: Teaches financial discipline, very high chance of success, allows for a lot of life to enjoy financial freedom.
Cons: Constrains lifestyle choices a lot during the accumulation stage. Is easiest put in place before you have kids.

The Other People’s Money route
The idea here is to borrow heavily to buy investment assets that will provide an income stream once the loans are paid off. You use the increasing value of your  assets to borrow and build more.
Risk of this approach: Moderate to high depending on how quickly you expand your borrowing.
Time to a $1,000,000:  15-25 years
Pros:  This can be done largely on automatic pilot. Once you have your assets growing and systems set up you can use most of your disposable income as you please.
Cons: Slow – you get to use your income a more freely  while your assets grow but you have to wait to mid-life before you have your $1,000,000. Risk levels can be high if you get it wrong – lot’s of people have gone bankrupt going this route. There are going to be stressful moments along the way. Another problem is that you can ended up with assets concentrated in one investment class, exposing you to risk of a downtown that wipes you out or delays you. Many people owning 10 houses in the US in 2008 have had a hard time of it when the market crashed and the Global Financial Crisis came along**.

The business building route
Walking this path sees you building (or buying) a successful business that gets up over $1,000,000 in size and throws off a healthy income each year.
Risk of this approach:  High to very high
Time to a $1,000,000: 3 – 10 years, often a lot longer
Pros: Building a business is lots of work and many people find this very satisfying. The rewards can be huge and the time to reach a $1,000,000 can be very short.
Cons: Unlike the typical investment path business don’t have the general population effect working for them, most businesses in the start up phase require a whole of life commitment. The failure rate is high. Many small businesses do not grow and it can take several tries to find a winning formula. The risk associated with this path can be lowered a lot by buying an established business with debt. This includes professional practices for doctors, lawyers, etc.

Some people have a few other things going on, including:

The ever growing career
On this path people seek a higher and higher income by growing their career, with the plan that one day they will have such an income that putting aside a $1,000,000 is trivial.
Level of risk: Very high
Time to get your first $1,000,000: Typically 10-15 years, can be much shorter.
Pros: Many people find their career very satisfying and rewarding.
Cons: It’s not really much of plan, more of a reason not to think much about your money. Achieving a household income of high six figures usually takes a lot of hard work, a lot of lifestyle sacrifices and a fair bit of luck. You and your loved ones also need to keep your health, which can fail suddenly prohibiting your ability to work.

The lucky luck route
The plan here is to win your one million dollars. You can buy lottery tickets, hope to have a high value lawsuit  go your way, or find a spouse who has already made their million.
Pros: Are there any?
Cons: You have no financial security. The odds of winning the lottery are 38 million to one, a lawsuit of this value means you’ve lost your quality of life, and Mrs Right might find you boring in a few years. This only applies in litigious societies (eg the US, but no NZ or Australia).

The ‘wait for someone to die route’
The plan here is to inherit a $1,000,000.
Risk level: Very very high
Pros: It’s essentially free money for you.
Cons: You could be disinherited, you’re likely to get a reputation as a golddigger and you’ll miss out on the deep satisfaction of earned wealth.

The write it, play it, sing it route
With this route you earn a $1,000,000 very quickly through the overnight success of your record/acting skills/novel/blog. This is not a financial plan. A career in the arts is a great thing but it’s fickle industry shouldn’t be your only plan for financial security.


*This is really well described in Lucy Moore’s book about the 1920s: Anything Goes (Amazon affiliate link). In 1925 there were 207 Americans who reported an income of $1,000,000 or more for tax purposes. Presumably there were quite a few more who managed to keep their taxable income lower than a million.

** The best book about the US housing industry’s role in the GFC is The Big Short. It’s a really good read. Or you can watch the movie.

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