What does it take to reach a $1,000,000 net worth? In our case, it took a long time, hard work, saving a large percentage of our income, and putting our money to work for us by investing wisely. Rob from Mustard Seed Money has a great post on how much you have to save each month to reach a $1,000,000 net worth.
I initially was going to title this post “reaching a $1,000,000 net worth by age 40”, but that would have been misleading. Even though I was, in fact, age 40 when I reached this financial milestone, I did not do it alone. Individually, I would not have reached this milestone. My wife and I worked as a team and did it together, so I must give her the credit she deserves.
When we got married, I had over $100,000 saved up in my investment accounts. As far as assets go, she brought our current house to the marriage. There was a mortgage on the house, but she had about $100,000 in home equity at that time. By combining our assets, we started out with about $200,000 based on our investment accounts and home equity.
Over the past 10 years, we managed to double our household salary. Considering that we both have college degrees, we never earned a large salary. When we first got married, my salary was only $30,000 per year. My wife was teaching for a few years and was earning about $50,000 per year. In the past 10 years, our combined salaries have grown to over $150,000 per year.
When we first got married, our savings rate was 38% of our gross earnings. We started by maxing out our Roth IRA accounts, I contributed 15% per year to my 401K, my wife contributed 10% to her 403B, and 8% to her defined contribution pension plan. We also built up a large emergency fund and invested money in taxable accounts.
Every year, we have tried to increase our savings rate by 1% or more. Our current savings rate is 50% of our gross earnings. We still earn under the IRS threshold that allows us to max out our Roth IRA accounts. I now work at a not-for-profit and max out my 403B. My wife is close to maxing out her 403B and still contributes 8% to her pension. We are happy with the size of our emergency fund and now just add to our taxable accounts.
We are always aware of how much we are spending each month. While some lifestyle creep has occurred, we manage it well. We travel, but do not fly first class or stay in 5-star hotels. We buy reliable new or 1-year old certified used cars and drive them for over 12 years/200,000 miles. We eat at home during the week and only go out to eat on the weekends. We closely monitor the cost of monthly subscription expenses such as internet, electricity, Netflix, and other bills. When we do spend money on needs or wants, we always shop around for the best value.
Our approach to investing has been very simple. We have invested primarily in index funds. Our asset allocation has been 25% in bonds and 75% in stocks for the past 10 years. In the stock allocation, it was well diversified with large-cap, small-cap, and broad international index funds that included emerging markets. From 2007 until 2017, that asset allocation averaged a return of 10.5% per year.
House (appraised in 2012): $220,000
PSERS Pension (Cash Value): $100,000
Taxable Accounts: $240,000
Combined IRA & 403B Accounts: $480,000
Other assets not included (cars, firearms, collectibles, jewelry, electronics, etc)
Mortgage Balance: $30,000
Monthly Expenses: $2,800
We have more work to do. We have ambitious goals. Our next goal is to reach $1,000,000 in investable assets. We should be able to reach that in the next 3 years based on savings and historical returns for our asset allocation. We also want to pay off the balance on our small mortgage over the next five years. Our goal is to have $2,500,000 saved by the end of 2028 (see the countdown to FIRE on the right margin). To reach that goal, we have to keep up our savings rate and have our investments return an average of 6.5% per year. That is well within reason with our current asset allocation of 65% invested in stocks and 35% invested in bonds.
The main purpose of this post was to share that it is possible to reach a $1,000,000 net worth by just being average. My wife and I went to average universities, have average jobs, live an average lifestyle, and accept average market returns. Yes, our savings rate is above average, but that too is possible for almost anyone to achieve if they create a solid financial plan.
If you want a more comprehensive list of steps to follow, check out The K.I.S.S. Approach to Financial Independence. That is the foundation of our financial plan. For more reading on reaching financial independence, please check out the Resources page. It is full of a collection of great books, blogs, and forums that will provide you with unlimited wealth building information.
Where are you at on your journey toward financial independence?
Please share your financial milestones and what you did to achieve them in the comment section.