Wednesday, November 05, 2008

How to be a millionaire?

Based on the recent poll, most people actually got the right answer. I guess it's the way the question is structured and the answers are listed out. So congrats to those who chose the last answer (1.134mn answer).

Btw, the question is "If you save $1600 a month and your money earns you 10% return per yr on average, what is your total savings at the end of 20 yrs?"

So that's the answer, just save $1600 a month, let it grow at 10%pa, in 20 yrs you become a millionaire. I guess most readers would say, hey that's not exactly an easy think to do. Some households don't even EARN $1600 a month. And most households in Singapore can barely save a few hundred dollars. And 10%pa is very high target, what's more you need to make 10%pa for 20yrs!

Well, you are right! It is not easy, it's not meant to be easy. If it's that easy why don't we see millionaires everywhere? (Well actually they ARE everywhere, about 70,000 of them in Singapore.)

Nevertheless, I think there are a few takeaways here.

1) If you are really determined about becoming a millionaire, this is one sure way to reach your goal instead of relying on some lucky event to happen in your life. E.g. waiting for your HDB or condo en-bloc, or punting the stock market, or winning 4D etc.

2) Time is an element that you can control. Say if you are not sure you can hit the 10%pa, but we are sure about 5%pa right (bcos CPF pays 5%) then work with 5%. The same amt, $1600 compounded at 5% will reach $1mn in 27 years. So the trick is to start early. If poss. better start to start at age zero. Start for your children! Hehe.

Btw I have to spreadsheet that will calculate this for you. Send me an email at xtam.sg@gmail.com if anyone needs one.
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