Yes, it is possible. No, it’s not a pyramid scheme. Just the easiest way to make stupid amounts of money.
It’s actually what has been done multiple times in the past, by multiple different people, all the time. While you don’t actively have to do something, you need two very core things in your life:
- A steady income (like a 9-5)
I’ll have a spreadsheet displayed below, where you can see I am not bullshitting. But one key thing: This is mostly a case study to show you the power of compound interest, and how to think differently about money, so that you can know how to make a million dollars.
You’ve been misguided
We all have been. Parents, teachers, society at large, commercials, they all tell you that you can’t reach the millionaire status unless you win the lottery. Or you have a life-changing idea, or you’ve been lucky.
The real secret of how to make a million dollars is: don’t trade your time for money.
And as Naval Ravikant quite perfectly puts it:
You will never get wealthy by renting out your time.Naval Ravikant
That’s simply because there isn’t enough time in the day to actually make you rich. Let’s do some simple maths. Let’s say you work 8 hours a day, 40 hours a week. For simplicity’s sake, we’re gonna calculate with 45 weeks per year of working, even though that’s not quite accurate.
That’s 1,800 hours a year. Divide 1 million by those 1,800 and you get period 555.
This means you would need to earn 555 dollars per work hour to become a millionaire in one year. And that’s not covering expenses. So you prolly need over $1,000 on your hour. I’d say about $2,000 to be truly safe.
How much are you being paid right now for your hour? $20? $30? Quite the grind, right?
The time/money equation
Sure, you could work overtime or an extra job to stress you even more, but even then, there simply isn’t enough time in your life. You need to shift your perception of time and money.
The following example will make 1 million US dollars out of $500. As you will notice pretty quickly, this takes 35 years. Again, this is merely a case study to teach you the difference between renting out your time versus setting up working money.
- You invest $500 once
- You invest $125 into that investment each month
- Result is the money you invested each year
- You get interest from an ETF or something like that, which you re-invest
- You increase your monthly investment according to inflation
- The sum of this year is the basis for the next since you re-invest
As you can clearly see, in the beginning, this doesn’t amount to much. Compound interest always needs time to fully develop. But in the end, you’re making $71,000 out of your ETF interest. 70k out of thin air!
How does it really work?
An ETF is an Exchange-Traded-Fund. It just means you invest in companies in a pool, and this ETF closely mimics the movement of the stock index. They usually drop about 8% interest each year.
Key thing: You re-invest that money into the ETF.
Most ETFs do that anyway, there is however another type of ETF that pays you those gains. I wouldn’t recommend that though. The compound interest effect is way better if you re-invest it.
Dead money each month?
You invest $125 each month in this example. You can play around with the numbers yourself. Depending on how much you can invest each month. I’ve linked the spreadsheet here.
So, yes. You will have less money now, but you exchange that for a shitton of money in the future.
The glory of shit money – inflation
You might have noticed how everything gets more expensive each year, right? This is called inflation, which sits at about 2% each year.
The money loses 2% of its value each year.
This is because the banks are constantly printing money. If there is more of something, it loses value. Pretty basic.
The wise man does not become resentful towards structures forged against him. He embraces the challenge.The conqueror
We can use this to our advantage. Because in turn, this also means a monthly investment of $125 now is a lot of money, but it isn’t much in 10 years. Think about basic everyday things. And then think about how much they cost now, and how much they did cost 10 years ago.
I won’t go too deep into this, check out this blog post about it if you don’t believe me.
Now, in this scenario, we’re using this to increase the amount of money we put into it, each month. As you can see in the spreadsheet, this increases by 2% each year. Just so it perfectly covers inflation. This also means you need to increase your income by at least 2% each year. Here’s why.
After the year, you re-invest the money made into the ETF. Or to be precise, you just keep the money in it. This way you get interest on your interest. Because you already got interest on your money for that one year. Now you get interest for the coming year on that already increased amount of money.
It doesn’t need a rocket scientist to see, that this will grow exponentially over time.
Sadly, we never learn this in school.
Hence why I am here for the rescue.
What to learn?
Check out the spreadsheet yourself, and play around with it. There is also a second sheet with fixed monthly payments over the years. This way you only make around $350,000 in 35 years.
I am not saying this is the best way to become a millionaire. Again, this case study is simply there to open your eyes to how money truly works. And on how to be patient with your money.
Think about it. Come back to this post, and maybe you can come up with a great idea to multiply this. Or set it up for your needs.
Either way, I would recommend you put at least some money into investments each month. The richest man in Babylon invested about 30% of his income in money-making assets. Not everyone can do that, I know. But put some of your hard-earned money to work. This fucking thing isn’t just there to toss around. Make it work for you. Conquer money!
Now you know the secrets of how to make a million dollars.
It’s your turn to go out in the world and apply it.