May 26, 2008, 6:00 am

At What Age Do You Want To Become A Millionnaire? Part 2

by: The Financial Blogger    Category: Investment, Market and Risk,Personal Finance
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I have been given the opportunity to write for The Financial Blogger about when I expect to become a millionaire. Mike asked me to write about this topic as to complement his article on when he expects to be a millionaire.

Some of you may already know me, but for those who don’t, I am the blogger behind Million Dollar Journey. I’m not on any Million Dollar Journey though, my goal is have a net worth of $1 million by the age of 35 which is approximately 7 yrs from now. Lets do a financial check up to see if I’m on track.

On a monthly basis, I write do a quick and dirty net worth update to see how I’m doing. Below is the April 2008 net worth summary:

Assets: $574,450

  • Cash: $4,500
  • Savings: $ 37,000
  • Registered/Retirement Investment Account: $ 52,500
  • Pension: $ 22,350
  • Non-Registered Investment Account: $18,300
  • Smith Manoeuvre Investment Account: $25,300
  • Investment Property: $ 124,500
  • Principle Residence: $275,000 (purchase price)
  • Vehicles: $15,000 (2 vehicles)

Liabilities: $279,520

  • Investment Property Mortgage: $93,700
  • Principle Residence Mortgage (readvanceable): $152,700
  • HELOC balance: $25,120
  • Other Liabilities: $8,000

Total Net Worth: ~$ 294,930

In terms of growth over the next 7 years, lets make a few assumptions:

  • RRSP contributions will be $10,000 / year, increasing at the rate of inflation
  • RRSP growth will be 7% /year after inflation.
  • Pension contributions to be $8000/yr, increasing at the rate of inflation
  • Pension growth will be 7%/yr after inflation
  • Cash Savings will grow @ 20%/yr after inflation (accounting for contributions)
  • Non Registered growth will be 6% /year (3% growth 3% dividend) after inflation and tax
  • Real Estate growth 2% after inflation
  • $5000/yr mortgage (16 yr amortization) prepayment increasing with inflation.
  • All tax refunds and dividends applied to mortgage.
  • Non tax deductible mortgage will be paid off in approx 7 years
  • HELOC will be around $220k in 7 years

Using the Smith Manoeuvre calculator spreadsheet and dinky town financial calculators, after 7 years, this is the estimated net worth in todays dollars:

Assets: $1,143,868

  • Cash: $ 4,500
  • Savings: $ 132,525
  • Registered/Retirement Investment Account: $ 170,844
  • Pension: $ 153,536
  • Non-Registered Investment Account: $27,516
  • Smith Manoeuvre Investment Account: $196,047
  • Investment Property: $ 143,011
  • Principle Residence: $315,889

Liabilities: $296,996

  • Investment Property Mortgage: $76,996
  • Principle Residence Mortgage (readvanceable): $0
  • HELOC balance: $220,000

Total Net Worth: ~$ 846,872

There are some big assumptions that I”m making, especially with the short time frame of 7 years. Depending on how the markets go, and our ability to increase or save our income, will most likely result in a different outcome than projected.

Based on the assumptions, it doesn’t look like I’ll quite meet the $1 million mark in 7 years, however the projection also doesn’t account for future real estate projects or other business ventures that I will most likely be involved with. Maybe I’ll eventually have to look at Ferretti yachts for sale online. A yacht can be a long-term investment or a perfect way to travel the world once you retire. Hopefully, I’ll still be blogging about it at that time to report back.

 

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Comments

Hmmm. At What Age Do You Want To Become A Millionnaire? I wanted to be a millionaire yesterday! The goal I am shooting for is 33. Good luck with your goal though, I hope you make it. Remember to keep us posted on your progress. I read your blog too !

[…] We had the opportunity to guest post on The Financial Blogger about one of my favorite topics, net worth! The guest post was about when I expect to become a millionaire. […]

FT;
You mentioned “Cash Savings will grow @ 20%/yr after inflation” while that might be realistic now when the balance is lower, can you imagine how much you have to contribute to keep a 20% after inflation growth in 6 years? or 10 years? 20% growth on your current savings would be around 7800$ a year now. But in 6 years, to maintain your 20% growth after inflation, you’d have to save over $24,000 a year, just to savings. Is that realistic?

by: Cash Canuck | May 30th, 2008 (5:13 pm)

Wow. You’ve definitely got a plan. Good Luck!

-“HELOC will be around $220k in 7 years”

Have you built in any assumptions about the interest rate on your HELOC?

Hey Nob, yea, I agree, it’s a pretty aggressive assumption. I made the assumption based on the fact that I expect our income to grow which will increase our savings over the next several years. Also, the assumption is only for the next 7 years which I “think/hope” will be achievable.

Cash Canuck, I have no idea where interest rates will be in the next 7 years. However, economists predict (famous last words?) that rates will remain on the lower side (<8%) for the foreseeable future because of demographic trends.

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