Sunday, May 20, 2007

5 Million

When I was a kid, being a millionaire was glamorous and fantastic, something that was aspirational. Coming from an immigrant background, it seemed so out of reach. When I reached that milestone in terms of total net worth last year, it was not as big of a deal as I thought it would be. No alarms went off. I didn't quit my job. I didn't buy a sportscar. In fact, I didn't spend a dime. I shared a bottle of wine with my wife, but not because we reached the million mark. We were just going to have a bottle of wine anyway. It just coincided with me updating our spredsheet and the total showed a seven figure number.

After doing a lot of thinking and playing with numbers, I figured our target number of assets that allow us to independently wealthy and retire would be at least 3 to 5 times that once magical milestone. Turns out I'm in the same range as others who write about this. In the June 2007 issue of Smart Money magazine, the cover story is "How to Make $5 Million", which of course, grabbed my attention. But like most cover stories of the personal financial press, the title overstates the actual content. Sure, the article has some great stories about how some people made their millions and made the $5 million mark, but the article lacks any practical advice on how to get their. The path to the millions is achievable by starting your own company, which is nothing new. Robert Kiyosaki has been writing about the for years. In fact, this article kind of reminded me of his writings. Inspirational - yes. Practical - not really. The only thing that impressed me in the article was that it was not overtly pushing the type of investment products that actively advertise in the magazine, like mutual funds and equity stocks. Normally that is what you see in a lot of the articles in the mag.

But my point here is that $5 million is the new millionaire. $1 million just doesn't do it anymore. Especially if a big chunk of that is tied up in your home equity and you can't do anything with it other than pull it out through a HELOC. So the long of the short of it is that $1 million ain't enough, unless you have it all income generating assets. But even then, at 5%, that's only 50k per year. That might be okay for today, but not in the future.

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