Let’s Check Back In With Our Artist Friend, or Why Inflation Sucks

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Those of you who have been following us for over a year might remember “A”, our mysterious artist friend who made only $700/month, but who also found a way to set herself up for a luxurious retirement in the future. When that article came out, some people were understandably pissed. It “isn’t applicable or attainable for everyone, and is really more based on fortune than hard work”, one reader said. Well, she’s not wrong. Living like we do isn’t attainable for anyone not willing to put in the work to optimize their lifestyle. And “hard work”? Please. Smart work is where it’s at, and being frugal is the result of a lot of that smart work.

“A” is still out there plugging away, and two things have happened since we last spoke with her: 1) She makes more now, and 2) some modest lifestyle inflation has crept in! Let’s take a look at her numbers.

A year later, her art is still her main source of income, but “A” is also knee-deep in side hustles. She now teaches art a few times a week, and professionally walks dogs on the side. Her monthly income is now $1,000. Rent is now $300, up from $200 last year. (She started making more, so felt it was only fair she contributed more to her household.) She eats well, though frugally. Her personal spending budget went up to $75 from last year’s $50. Her vacation fund is currently $100/month, and that all goes into planning future trips. As if that wasn’t enough, she also donates 10% of her income to charity – apparently, you don’t need to be a billionaire to pull a Jim Pattison – and somehow, through ALL THESE ADDED COSTS, she HASN’T tapped her $14,000 emergency fund, and she’s actually ADDED $5,000 to her savings and investments! With roughly $60,000 in the bank and her investments churning away at 7% return, she’s now on track to have $839,000+ by 65!

Now, for some people, this might all seem pretty extreme, but what if I told you a lot of math is actually working against her, and us as well? What if I told you WE SHOULD ALL BE SAVING LIKE THIS IF WE WANT TO RETIRE? Unfortunately, because inflation is a key concern for retirement, we should all be aiming for close to $1M in 30-40 years! (Here’s a post to help you with that.) Assuming an average of 2% inflation per year, “A’s” future $839,000 is worth only $387,000 of today’s buying power when she turns 65 in 2056! Because “A” is somewhat of a genius though, she’s accounted for this. Assuming even that she spends all $12,000 of her annual income to support her current lifestyle, her “$387,000” is enough for 65-year-old her to live on FOREVER as long as it’s invested in something generating just 3.1% interest, which could be a VERY real number for someone investing conservatively in old age! For “A”, the math checks out! For the rest of us, we need to save and be frugal AT LEAST as much as “A” is doing!

At 26, “A” has saved and invested enough that no further contributions are needed to support her lifestyle in old age. She could just blow all her work income until 2056, then sit back and relax. I want this for you too!

If you’re a millennial, you NEED to account for inflation in your retirement plan. Here’s a handy calculator. The reality is becoming a millionaire in our lifetimes is no longer an unattainable dream, but PRACTICALLY A REQUIREMENT to Retire For Good someday! How well prepared are you?

If you need help running your numbers, message us on our Facebook. We’re already helping followers plan for their future, and it’s a lot of fun for us! Seriously, we just want to help.

Is full-on retirement seeming unattainable now? It’s not the end of the world. In our next post, we break down MY plan for the future. I expect it to seriously annoy the naysayers.

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So You Want to Be a Millionaire…

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No 18-year-old has $41,600, but that’s pretty much the only thing standing between a high school grad and them becoming a millionaire in their lifetime. Yep, through the magic of compound interest, that’s all it takes to get to seven digits. Here’s how much money you’ll need to become a millionaire by retirement depending on your age. This data assumes you’ll retire at 65 and have your money invested in something that generates 7% interest. (You can find my justification for that number here and here.) It also assumes that: 1) You make no further contributions toward your nest egg, and 2) you make no withdrawals until you’re 65. This is presented as data ONLY. I hope you find it as interesting as I did.

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All of these equal $1M:
18 – $41,600 x 47 years of 7% growth
19 – $44,500 x 46 years of 7% growth
20 – $47,700 x 45 years of 7% growth
21 – $51,000 x 44 years of 7% growth
22 – $54,600 x 43 years of 7% growth
23 – $58,400 x 42 years of 7% growth
24 – $62,500 x 41 years of 7% growth
25 – $66,800 x 40 years of 7% growth
26 – $71,500 x 39 years of 7% growth
27 – $76,500 x 38 years of 7% growth
28 – $81,900 x 37 years of 7% growth
29 – $87,600 x 36 years of 7% growth
30 – $93,700 x 35 years of 7% growth
31 – $100,300 x 34 years of 7% growth
32 – $107,300 x 33 years of 7% growth
33 – $114,800 x 32 years of 7% growth
34 – $122,800 x 31 years of 7% growth
35 – $131,400 x 30 years of 7% growth
36 – $140,600 x 29 years of 7% growth
37 – $150,500 x 28 years of 7% growth
38 – $161,000 x 27 years of 7% growth
39 – $172,200 x 26 years of 7% growth
40 – $184,300 x 25 years of 7% growth
41 – $197,200 x 24 years of 7% growth
42 – $211,000 x 23 years of 7% growth
43 – $225,800 x 22 years of 7% growth
44 – $241,600 x 21 years of 7% growth
45 – $258,500 x 20 years of 7% growth
46 – $276,600 x 19 years of 7% growth
47 – $295,900 x 18 years of 7% growth
48 – $316,600 x 17 years of 7% growth
49 – $338,800 x 16 years of 7% growth
50 – $362,500 x 15 years of 7% growth
51 – $387,900 x 14 years of 7% growth
52 – $415,000 x 13 years of 7% growth
53 – $444,100 x 12 years of 7% growth
54 – $475,100 x 11 years of 7% growth
55 – $508,400 x 10 years of 7% growth
56 – $544,000 x 9 years of 7% growth
57 – $582,100 x 8 years of 7% growth
58 – $622,800 x 7 years of 7% growth
59 – $666,400 x 6 years of 7% growth
60 – $713,000 x 5 years of 7% growth
61 – $762,900 x 4 years of 7% growth
62 – $816,300 x 3 years of 7% growth
63 – $873,500 x 2 years of 7% growth
64 – $934,600 x 1 year of 7% growth
65 – $1,000,000

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Well, how’d you do? Don’t worry if you fell short. Remember, THIS IS IF YOU MAKE NO FURTHER CONTRIBUTIONS. You could be 35 with only $80,000, and you’d still hit $1M if you put in $4,000 every year until you’re 65. Also, $1M IS AN ARBITRARY NUMBER. Here’s why I’ll never need a $1M net worth. For more proof that $1M is arbitrary, consider inflation. If I have $1M when I’m 65, that’s only a buying power of today’s $480,610!

Whaddaya think? Does this make you want to become a millionaire more or less? Does this seem doable now? Are you now dreaming of yachts and underwear models? Let us know.

It’s not that difficult becoming rich. That’s why rich people are everywhere!