high income, not rich yet

How To Become a Millionaire By Age 40

How To Become a Millionaire By Age 40

Growing up I was raised in a working-class family in Appalachian Kentucky.  My parents were both the first high school and college graduates in my family.  We weren’t quite dirt poor (though some of my relatives were), but we didn’t have a lot of money to spare.  The idea of being a millionaire was as crazy as winning a Grammy or becoming a movie star.

About once a month my dad would stop by a convenience store and pick up a Powerball lottery ticket on his way home.  That night, I’d gather around the TV with my parents and brother, barely breathing with anticipation – six lucky numbers could make us millionaires!

Spoiler: We never won the Powerball lottery, and no one in my family is a millionaire.  The best I’ve won is $10 from a scratch-off once.

Assuming the lottery doesn’t work out, how do you become a millionaire by 40?

First, know that traditional retirement charts show you how to save a million dollars by the time your 65.  Traditional wisdom would hold that a million dollars at 65, plus your social security benefits, will guarantee a comfortable retirement. (We’ll explore how this wisdom may be wrong in later posts.)  For more reading on the traditional route, feel free to check out The Millionaire Next Door.

Here’s the typical chart:



Clearly, the power of compounding interest can make even seemingly small amounts of money into a million dollars. If you’re a 30-year-old graduate, that $6.35 a day is less than the cost of eating out, or similar to a latte and breakfast sandwich (small size, of course).  And it’s an admirable feat in and of itself to save a million dollars by the time your 65.


What if…

You don’t want to wait until your 65 to reach some level of financial independence?

What if you want to travel the world sooner? Not feel beholden to your corporate job for 30 or 40 years? Not worry about what the next round of layoffs might be?

As a 2009 graduate of the recession, I saw firsthand how seemingly stable professions could fail, putting thousands of white-collar Americans pounding the pavement for jobs.

In a matter of months, hundreds of graduates ahead of me were pink-slipped before their first day of work even started.  Even more of my friend’s parents were let go in their prime years, with hefty mortgages and children’s tuition payments still due each month.

Scary stuff.

This “great” recession sparked within me a desire to figure out how I could be financially independent prior to 65. Not because I don’t want to work (I actually enjoy my job a lot and can’t imagine sitting still at home all day), but because when the next recession hits I don’t want to be worried about surviving financially (and I have little faith in the American Government to provide a safety net).

So, how do you get a million dollars by 40?  Let’s look at three examples.

1. The 22-Year-Old Graduate Fresh From College.

If you’re 22 and you’ve just graduated from college, you’ll need to save $2134 each month.  Admittedly, tough to do.  But let’s say you start out making $50,000 a year and an employer with a generous match for your 401(k).  Could you live on half in order to save half to be a millionaire by 40? It would be frugal living, but if this is your situation, then for inspiration take a look at Mr. Money Mustache.

millionaire savings

2. A 27-Year-Old Law School Graduate.

However, let’s say you’re a law student.  You get a later start, but you likely have a higher income to bulk up your savings. $3719 per month will make you a millionaire in 13 short years.  The average lawyer starting salary is $135,000 (recognizing that most attorneys make either $60-80,000/year or $160-180,000 a year to start).  At this point, the young attorney would only need to save 1/3 of their salary (including any employer matches) to be a millionaire by 40.  Hard? Sure. Especially in the high cost of living areas. Impossible? Perhaps not. Rough math would show that after taxes and saving, you’d still have approximately $40,000 a year to live.  Doable and hardly poverty level.


Finally, let’s consider graduates like Mr. Graduate Investor.  As a medical student, he started his attending salary at age 31.  To be a millionaire by 40, he would have to save $6400/month. Once again a huge amount of money, but not entirely outside the realm of possibility for those making $200,000 plus (where take-home pay might be $11,000/month on the low end).


3.  A 31-Year-Old New Physician Attending.


Could you live on half if it would make you a millionaire by 40?

What I think is so powerful about these numbers is that it shows that becoming a millionaire is something that is within the control of most graduates, especially professional school graduates.  At a 4% withdrawal rate, $1 million dollars gives you $40,000 a year to live on from age 40 onward.

For many people, $40,000 would give them financial independence, or at least allow you to cut back dramatically on work.  Or try a new career that you love because you have the investments to support you.

And if 4% withdrawal rate sounds confusing (it’s the amount of money you can safely withdraw from your investment so that your money doesn’t run out during your lifetime, 3-4% is widely accepted as “safe”), or you’re wondering how to get an 8% return on your money over the years, or curious about the light blue “balance after inflation” affects your money in retirement – then subscribe to my email list below. I’ll be exploring all of these topics in future posts.

But for now, let me encourage you to take a look at your budget and determine how you might supercharge your savings – whether it’s to increase your 401(k) contribution by another $100, open a savings account with an automatic withdrawal, or start investing through a roboadvisor such as Betterment

P.S. – The math is relatively easy – go here to plug in your own numbers to see when you’ll become a millionaire!

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