Millionaire Dream!

Bob dougler

Rob Berger - Dough Roller

Here is where we calculate how long it will take you to be a millionaire. Let’s start with the Rule of 1.5, also known as Felix’s Corollary. This rule states that for a stream of investments (we’ll assume annual investments) where the number of years times the interest equals 72 (the Rule of 72 is back!), the ending value will equal approximately 1.5 times the amount invested. For example, investing $10,000 per year for 8 years at 9% interest (8 * 9 = 72), the value of the investments at the end of year 8 will equal about $120,000 ($10,000 * 8 * 1.5).

We can now use this information to create a How Long Will It Take You To Be A Millionaire calculator (the Rule of 1,080,000). Using Felix’s Corollary, all we need to do is figure out how long it will take you to save $720,000 at a given interest rate. Why $720,000? Because 720,000 times 1.5 equals 1,080,000 (which explains why I didn’t use 1,000,000). Trust me, this is easier than it looks.

For example, over 8 years to save $720,000 you need to save $90,000 per year. And at 9% annual interest, you would accumulate $1,080,000 over this 8 year period. Now I know must of us don’t have $90,000 per year to save, which is why most of us won’t accumulate a million dollars in 8 years. So let’s stretch it out to 16 years. Now what do we need to save to be a millionaire, again assuming a 9% rate of return? Well, using our friend the Rule of 72, we know that whatever we have saved over the first 8 years will double over the next 8 years because 72 divided by our interest rate of 9% equals 8.

So we can break the 16 year savings period into 3 equal portions: (1) what we save the first 8 years; (2) the doubling of this amount over the next 8 years; and (3) what we save the second 8 years. So 720,000 divided by 3 equals 240,000, which is what needs to be saved each of the two 8 year periods, or $30,000 per year. That comes out to $2,500 per month, which is doable for some.

If you want to estimate what it will take to be a millionaire in 24 years, just divide 720,000 by 7 (a question about this 7 comes at the end) and then again by 8. So, 720,000 divided by 8 equals 90,000 divided by 7 equals about $12,800. Thus, investing just over $1,000 per month at 9% interest over 24 years will make you a millionaire.

So the question for this last example is where does the number 7 come from? For 16 years we divided by 3, so why for 24 years are we dividing by 7? Leave a comment to let us know what you think. And finally, if the Rules of 1.5 and 1,080,000 on a Monday morning are just too much to take, you can always check out this Millionaire Calculator.