2757: Becoming a Millionaire Is a Letdown by Chris Reining on Personal Finance Goals & Financial Freedom

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[00:00:53] This is Optimal Finance Daily, Episode 2757. Becoming a Millionaire is a Letdown by Chris Reining of ChrisReining.com. And I'm your host and personal finance enthusiast, Diana Merriam. Now let's get right to today's post and start optimizing your life.

[00:01:32] Becoming a Millionaire is a Letdown by Chris Reining of ChrisReining.com. One Thursday night, I logged into my brokerage account and saw an extra digit I'd never seen before. $1,004,845. When I was in my early 20s, I didn't think becoming a millionaire at 35 was

[00:01:53] even possible. Back then, I didn't have much money. But the little extra that I did have, I saved and invested. So this is proof of what can happen when you do that. You might think when your account rolls over to seven digits, that fireworks light up the sky,

[00:02:10] confetti falls, and the champagne starts flowing. I can tell you that doesn't happen. In fact, it was pretty anticlimactic. I was like, oh, cool, and then went back to work. Honestly, the financial milestone that really mattered to me was making my first $1,000 from

[00:02:29] investing. That meant investing could make me $10,000, which meant it could make me $25,000, and so on. Recently, a 25-year-old reader emailed me to ask where I was financially when I was his age. If you find value in benchmarking yourself against me, and it's probably irrelevant,

[00:02:48] know that at the time, I hadn't even hit six digits. Getting to a million isn't a straight line. There were times I lost a lot of money in the market. For instance, before the financial crisis in 2008, I had $175,000. Just nine months later, I had $120,000. When that happens,

[00:03:09] it's scary because you think you'll never get the money back. But you have two choices when the market is falling. You can flee in fear or you can stay the course. If you let fear take

[00:03:21] a hold of you, then you're likely to make the wrong choice. Psychologically, it's pretty normal to equate price volatility with risk, and ironically end up doing risky things like selling out at the worst possible time. Anyways, during the crisis, I remember the talking heads

[00:03:38] saying to invest 100% in safe treasury bills or bank CDs. For the people who took that advice, they're now earning essentially nothing on their savings that they thought would support them in retirement. If they hadn't acted out of fear, they could have built a great retirement portfolio.

[00:03:55] I was fortunate to reap the rewards of staying the course. And now when my investments drop $70,000 in a month, which recently happened, I recognize it's just part of the process of building wealth. How long does a million dollars last? The right answer is, it depends.

[00:04:13] The so-called experts will say that you need $3 million before retiring in order to draw a reasonable $120,000 a year. So that's a true statement if you spend $10,000 a month. But when I plug my numbers into the retirement calculator, yearly spending of $36,000,

[00:04:32] a million-dollar portfolio, and 51 years left to live based on the US government's death calculator, it says there's a 98.9% chance the portfolio won't be depleted before I die. And that means I never have to work again. Even better, there's a few key assumptions

[00:04:50] not in this calculation. When my 15-year mortgage is paid off, my spending decreases. If I cohabitate, my spending should decrease. And Social Security benefits can start at age 65. What I worry about is having kids and their impact on spending. I think I could raise a

[00:05:10] kid for like $100,000. But what do I know when the USDA says it can cost $500,000? I just don't know. But my best guess is that my finances would be okay. What's the secret to becoming a millionaire?

[00:05:24] I didn't win the lottery. I didn't inherit any money. And I didn't start a company. If you're in the same situation I am, then the fastest way to a million dollars is to earn more while spending

[00:05:35] less. Those are the two levers you have control over. I found the best approach was to go after big wins. People trying to earn a million dollars quickly should consider getting rid of lifestyle creep, earning more at their job, learning how to invest, or starting a side business.

[00:05:54] Those are the big wins. It's where a lot of money is hiding. So tackle those first before moving on to saving money in the produce aisle. Now if you're pulling on the earning and spending levers,

[00:06:06] you're going to want to see the results, right? How to track your income, spending, and investments. I know what you're thinking. Boring. Nobody wants to plug numbers into a spreadsheet.

[00:06:18] I'm weird because it might be one of my favorite things to do. The reason you should at least try it for a month is because you'll learn at least one thing about your finances that you didn't know.

[00:06:28] For example, in the late 2000s I knew I was spending a lot but I didn't know it was almost as much as I was earning. I gained this awareness and that led me to making a decision in 2010

[00:06:40] to set a goal to become financially free. Not surprisingly, after decreasing my spending and increasing my income, the amount of money I was able to save exploded. I went from having about $10,000 a year to invest to having over $40,000. To become financially free, you need

[00:06:57] to reach the crossover point. That means if you withdraw 4% of your investments, it meets or exceeds your yearly spending. On average, I used to spend $4,000 a month but by decreasing my spending to $3,000, I was able to reach the crossover point faster. To say that another way,

[00:07:16] the higher your expenses, the more money you'll need to accumulate to reach financial freedom. Benefits of a million dollars I know I'm fortunate to be where I am. While I wasn't excited about reaching my goal,

[00:07:29] it does allow me to live life in a way that seemed impossible just a few years ago. I don't have to stress about work or layoffs or getting fired or office politics. If I choose

[00:07:40] to work, I can be extremely selective, only taking jobs I'm passionate about. Or if I wake up and decide I want to take one year or 50 off, that's what I can do. Most importantly, I've learned that

[00:07:53] money is infinite. If you work, you can get more of it. Or you can let your investments compound. You can turn a million dollars into 2 million. There's always more of it out there.

[00:08:04] But time is finite. We all have a limited number of years left. And what's most valuable is having the freedom how you spend it. You just listened to the post titled, Becoming a Millionaire is a

[00:08:20] Letdown by Chris Reining of chrisreining.com. And I'll be right back with my commentary. Looking to part ways with complicated, expensive and uncertain shipping? Then give your business the edge it needs with USPS Ground Advantage Shipping from the United States Postal Service.

[00:08:39] Keep everything simple with clear upfront pricing and no unexpected surcharges. Keep things affordable with some of the lowest prices out there. And keep it all reliable with on time ground shipments. It's time to turn shipping to your advantage. Learn how at USPS.com

[00:08:59] slash advantage. USPS Ground Advantage, simple, affordable, reliable. For a lot of people, it can be stressful and confusing to manage their finances. Even I used to feel this way when using different finance apps. But then I tried Monarch Money and everything got so much easier. Maybe

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[00:09:29] wouldn't be able to allocate my finances or plan as clearly without help from Monarch. In fact, Monarch is the top rated all in one personal finance app. It gives you a comprehensive view of all of your accounts, investments, transactions and more. Create custom budgets, set goals and

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[00:09:59] personal finance app. And right now get an extended 30 day free trial when you go to monarchmoney.com slash OFD. That's monarchmoney.com slash OFD for your extended 30 day free trial. Despite the fact that only 8% of Americans are millionaires, a comprehensive survey by Ramsey

[00:10:23] Solutions revealed that 75% of millionaires attribute their financial success to regular, consistent investing over an extended period. The survey also found that 80% of millionaires invest in tax advantaged retirement accounts. And for 95% of them, it took 28 years to achieve millionaire status. A long term investment horizon significantly increases the likelihood

[00:10:47] of becoming a millionaire, even without a high income. For instance, by investing $500 monthly in market matching index funds with an assumed average return of 10%, you can reach millionaire status in 30 years. Interestingly, only 31% of millionaires had an average annual income

[00:11:05] exceeding 100 grand. And a third never earned six figures in any single year. It's understandable that people might hope for a quicker path to wealth than simply spending less than they earn and investing the difference. However, there are no reliable shortcuts to building wealth.

[00:11:23] It's akin to improving physical health. Without mindful eating and regular exercise, there's no magic solution or pill to achieve the desired results. And that should do it for another edition of Optimal Finance Daily. I'll be back tomorrow

[00:11:36] as usual, so I'll see you there for the Wednesday show where your optimal life awaits.