The Easiest (Long Term) Way To Become a Millionaire

Though patience and investing is required, it really isn’t that hard to do, over the long term!

Many people don’t know how to become a millionaire, or how to even live a financially stable life. This isn’t always due to the lack of perseverance or hard work, (though it does help to have the last two!) It is more of a lack of financial understanding and awareness of tools to get there.

The main thing that will be focused on this post is how to become a millionaire the long-term way, and the easy way. This isn’t going to talk about ‘get rich quick schemes’ but rather how anyone that’s dedicated with patience and the willingness to diversify can become a millionaire. This isn’t bad advice, especially for the younger crowd, (like 17-year old’s like me!) This will be explained later…

First off, before I go on, I need to cover a topic that many of you haven’t heard of this… Drum roll please…. ‘Compound Interest.’ Basically, in a nutshell, compound interest is interest off of interest. It is something that grows exponentially, not just 10+10+10 and so on. Here is an example of the magical power of compound interest. Remember this is just an example of compound interest, not the real thing that I am going to teach!

Here is a commonly used example– Say I were to offer you 2 prizes, one is to take a penny that is doubled 30 times, and another is 1 million dollars. Which would you rather choose? I’m sure there are a good majority of you that would rather just go ahead and take the 1 million dollars. However, many of you would be surprised. The penny doubled 30 times would end up being preciously……

1 0.02
2 0.04
3 0.08
4 0.16
5 0.32
6 0.64
7 1.28
8 2.56
9 5.12
10 10.24
11 20.48
12 40.96
13 81.92
14 163.84
15 327.68
16 655.36
17 1310.72
18 2621.44
19 5242.88
20 10485.76
21 20971.52
22 41943.04
23 83886.08
24 167772.16
25 335544.32
26 671088.64
27 1342177.28
28 2684354.56
29 5368709.12
30 10737418.24

over $10,000,000! Very neat how one penny could end up being over 10 million dollars.

Now the way this applies to the real world is having your money grow with compound interest, except but this time in the stock market.

In case you don’t know what the stock market is, which by the way it’s always good to learn new financial vocabulary, it is the market as a whole of all the stocks out there. A stock is basically the share-hold of a company and is a type of investment. The stock market is risky though, especially if you buy just one stock.

The real way to easily become a millionaire, for simplicity and for being more guaranteed over the long run, is by diversifying your stocks as much as possible. This would be preferably being done by doing an investment such as an index fund. This is something where you a whole market of stocks is compiled into one fund.

On average over many decades the most popular index funds like the S&P 500, have on average returned roughly 10% a year. That means that a $1.00 one year could end up being 1.10 the next year.

Compound interest applies to the stock market very well, your money over many years can grow into something big. Now can I tell you exactly when you can become a millionaire? No, since there are so many variables involved, like how much you invest into the stock market. Ideally you should invest as much as possible on a monthly basis, but don’t put in more than you can afford to lose! There is always risk involved, and when a recession hits, the stock market can go down drastically, but will recover in the long run.

The idea is to follow the ups and downs, and hold onto your investment for as long as possible, and again, diversify. As long as you do all of that, you could be a millionaire with a pretty high probability in a matter of decades. This may sound like a long time, but the more you put in and the earlier you do it, the sooner you will reach 1 million dollars.

I hope you found this helpful, and since this was just a introduction to the amazing world of investing and the stock market, continue to learn and do your research, future millionaires!

 

Maybe Happiness Doesn’t Just Peak at a Certain Income Level, But Rather This…

I believe something more in detail is left out, and should be considered on income verses happiness.

        

  As a teenager, I should have a broad look out on the rest of my life ahead and see what I can do to make the rest of my life happy and fulfilling. I want to make my happiness distributed out throughout my life, with a diverse portfolio of things that make me happy. Whether it be long term relationships, or a secure financial life, or even a successful career, whatever it takes to have a happy life. 

Positive psychology is a interesting topic, which is relatively new and is currently very popular. One thing in particular that I notice researchers are focusing on lately, is how much money does it take to be happy. The studies in general concludes that it peaks around a certain level, and after that it tends to stabilize and is not worthwhile to have a higher income. They often say arguably around 75k a year. Of course, you need the necessary tools for survival, and enough to have a life of flexibility and security, as well as a descent standard of living. On the other hand, you don’t need so much where its only buying you endless material possessions that won’t make you any happier, and only greedy. However, maybe it isn’t so simple.

Though I don’t have any data or studies to back my theory up, I do believe I have one that isn’t too frequently brought up in studies like these. I believe that more specifically, some parts of people’s budgets require higher amounts to reach that happiness peak, verses other parts not so much. For example, someone may only need to spend a little bit each year to reach their maximum amount of happiness in terms of transportation and a safe car, but things like education and health care you need a much higher amount to reach the maximum ROI with your happiness!   

You may say that each factor being spent on the income does add up to how much money you make, because each component of how the budget is broken down and how much you need for each amount to reach maximum happiness adds up to a certain income. (Though that might not be a bad way to study this topic and if you did want to find a simple income level…)  However, there are more external factors that may affect what level of happiness you reach with certain things, like a nice house or healthcare. I would believe this to most likely be location, specifically the economy and type of government you live in. 

Two good examples could be Norway verses the United States. In Norway, you won’t need to spend nearly as much in healthcare and education, since the government gives it to you. (Maybe some things left out in these studies is how much the government gives to their citizens, and how much money this is valued at.) However of course, in Norway housing in general is way more expensive, and you may need to spend a lot more of that aspect of your budget to reach the peak of happiness for that factor. In the U.S, you won’t get many generous benefits on health care and even welfare and public assistance for a safety net, but certain things may be cheaper such as housing, or goods at grocery stores such as food. Also, the taxes are very different in these two societies, and what is tax deductible as well, which could lead to the happiness level of certain factors in how your income is spent. These two examples hopefully paint a bigger picture in general on my theory. Different countries and economies may be a major aspect of my theory on individual factors that you spend on, require more money than other things to reach high happiness levels.

Remember my theory is just a theory, but I do hope that researchers on positive psychology and economists take this idea into consideration, that it’s not about how much you make per se, but rather the different parts of the income reaching different levels of happiness, whether it be transportation, housing, or even savings.