Humanity’s obsession with accumulating one million dollars is a dominant hypnosis. While this threshold of money sounds amusing, truly, what is a lot of money?
The simple answer to this question is it depends. Specifically, it is solely based on perspective. Because most people aren’t educated financially, they lack perspective on money. Subjectively, $1,000,000 is a substantial amount of money. Well, that solely depends on the purpose of the money.
What do I mean by purpose? Suppose you win a million dollars from the lottery. In that case, admittedly, that is a lucrative windfall of money that can be purposed to purchase a home, cover children’s college, pay off a mortgage, and other life-changing investments. However, what if you want to retire early at age 55 and you’ll need to withdraw $75,000 per year for living expenses. Once you reach your targeted retirement age (55), you only accumulate $1,000,000. Is that still a lot of money?
Mathematically, it is only a lot of money if you plan on an early death. If you withdraw $75,000 from $1,000,000 that earns 0% interest, you would only receive these payments for 13.33 years or until 68.33 years old. If the million dollars are invested and earn 5% interest, the $75,000 payment will only last 13.75 years. The math says people are hypnotized by the thought of possessing 1 million dollars without understanding the principles of Time Value of Money (TVM).
Realistically, if people understood and utilized compound interest and began investing in their twenties until retirement, they have a high probability of becoming a multimillionaire. Social media and television portray 1 million dollars as a significant or impossible accomplishment. The truth is, you can surpass this threshold by educating yourself financially.
To put it into perspective, as a former Investment Analyst II, I managed accounts ranging from $250,000 to $40,000,000. Was that a lot of money? Again, it really depends on who you are talking to and the purpose of it. If you have $40 million of assets but $340 million in debt, $40 million is not a lot of money. Understand your perspective shapes your belief.
The 1 million dollar myth has been broken! It’s time to broaden your perspective.
