How you could become a millionaire before 50

As I was telling my friend about how my primary goal is to be a millionaire, he looked at me as if I was crazy and simply wished me luck. Although being a millionaire is not easy, I sincerely believe it is possible. The purpose of the article is to show how an average Joe like myself or readers of my blog could be a millionaire.

First of all, let me clarify that it is extremely difficult to become a millionaire before 50 by simply saving cash. Assuming that you start working around 20, you would somehow have to manage to save over $30,000 annually. I believe this is not very attainable for most middle-class.

In order become a millionaire before 50 without living with your parents or winning a lottery, you need to invest your savings and get compound returns. It is surprisingly difficult to find a good video about compound interest but here is a clip:

With the help of compound interest in your investment, becoming a millionaire becomes a lot more achievable. You can use online calculators to test out various assumptions to see how you could become a millionaire.

I believe the assumptions are more or less reasonable.

I believe the assumptions are more or less reasonable.

Annualized return of S&P 500 http://www.moneychimp.com/features/market_cagr.htm

Annualized return of S&P 500 http://www.moneychimp.com/features/market_cagr.htm

Assuming that I add $500/month to my current 80K investment and earn 10% total return, I should be a millionaire around 50. 10% total return may be somewhat ambitious but considering that historical return (CAGR) of S&P 500 is about 10%, it should be possible. Besides, I’m planning to save more than $500/month as my income increases over time, I should be able to be a millionaire before 50.

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Have a child in Canada? Get over $500/year in 4 simple steps!

As my wife got pregnant (yay!), I started to do some research to prepare for my baby’s future. As I was doing some research, I found a way to get significant savings for the baby’s future and wanted to share with fellow parents/parents-to-be.

Assuming that your kids will one day go to college/university, the parents would need to save decent amount of money for the upcoming tuition (unless they are planning to let the kids have student loans). RESP (Registered Education Savings Plans) is a great tool to do so.

Here is the 4 simple steps to get over $500/year:

(1) Get a SIN for your kid.

(2) Open a RESP account with a bank or other financial institutions, registering your child’s SIN to associate with the account.

(3) Deposit $2,500/year into the account. Invest the money in your preferred investment vehicle (e.g. stocks, EFTs, bonds, GICs, etc.)

(4) Canadian government deposits $500-$600* (depending on your income) into the account.

The above figures may change depending on the government’s policy. Check here for the latest info. Think of RESP as the education version of RRSP, with incentives provided by the government, not the employer. If your income is less than $46K/year, you may also want to check out the Canada Learning Bond. There are additional incentives for those who have relatively low income. This is why I love Canada. Canada is pretty nice to poor people.

My wife laughed at me for how I even started thinking about the baby’s education more than 6 months before she is even born but I am very excited to use this program to get extra savings to prepare for my baby girl’s bright future.

Are you wondering what to invest for RESP? Check out my valuation articles to find great investment opportunities. Follow and subscribe my blog to keep being posted on my latest investment ideas and personal finance tips!!

Economic Value of Housewife

Since my wife and I got married, my wife stopped working and became a housewife. We often argue as I ask her to get back to the work force to make our life easier, but then I stopped for a second and decide to give a deeper thought on this matter. The purpose of this article is to assess the economic value of my wife’s work as a housewife.

Assumptions:

  • Breakfast

Our usual breakfast menu are smoothies, toasted bread, fried eggs, tomatoes, avocado, cheese and bunch of fresh fruits. The closest meal I could think of was the Power breakfast ($10) and Smoothies ($6) offered by Aroma. It’s difficult to measure cost of the ingredients but let’s assume $3 per meal as an estimate. The incremental saving per meal is $10 + $6 - $3 = $13

Economic Value Added (Annual): $13 per meal x 2 people x 365 days = $9,490

  • Lunch

Lunch menu has a large variation. For simplicity, I assume the average value of lunch at $15 and costs of ingredients at $3 per meal. The incremental saving per meal is $15 - $3 = $12

Economic Value Added (Annual): $ 12 per meal x 2 people x 365 days = $8,760

  • Dinner

Lunch menu has a large variation as well. For simplicity, I assume the average value of dinner at $25 and costs of ingredients at $10 per meal. The incremental saving per meal is $25 - $10 = $15

Economic Value Added (Annual): $ 15 per meal x 2 people x 365 days = $10,950

  • Cleaning

According to my wife, she cleans our room twice a day, an hour each. I assume the value of the work to be $15/hour, current minimum wage in Ontario.

Economic Value Added (Annual): $15/hour x 2 hours x 365 days = $10,950

  • Laundry

Laundry machine and dryer do most of the work, however, my wife folds, store and organize clothes. I assume the time spent on laundry to be 1 hour each time. We do laundry every 2 weeks, which translates to 26 times per year. Same as the cleaning, I assume the value of the work to be $15/hour.

Economic Value Added (Annual): $15/hour x 1 hour x 26 times = $390

Result

Based on the calculations above, the total economic value added of my wife’s work as a housewife adds up to…$40,540 annually!! If we had children, the value would be even a lot higher. Since my wife would most likely not find a job which pays over $40,000 per year, I suppose it makes economic sense for her to stay home and keep being a housewife. I should buy something nice for her this Christmas thanking her…