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How Does A Typical Millionaire Really Look Like?

What goes through your mind when the word ‘millionaire’ is mentioned? Is it fast cars, designer bags, holidaying in exclusive Banyan Tree resorts, or high-paying flashy jobs?

I had recently read a column about how a couple, who are both working and commanding more than S$ 20,000 a month in household income, is actually neck-deep in debt even after working for a decade. If people who have five-figure monthly salaries and cushy jobs are not the millionaires of the world, then who is?

Who’s a millionaire?

Let’s do a little experiment here. Let’s imagine two typical households that have two salaried employees each. The first household has a couple who earns S$8,000 a month in total; let’s call them Couple A. Meanwhile, the second household is made up of a couple earning a big monthly wage of S$20,000 in total; we shall name them Couple B. And for completeness, both couples are of the same age of 30.

Couple A is thrifty and are able to live within their means. They spend only about S$3,000 a month and are able to save the remaining S$5,000. They are also somewhat knowledgeable about investing and have been able to compound their yearly savings of S$60,000 at a compounded annualised rate of 6%. For comparison, the Straits Times Index (SGX: ^STI) has a compounded annual return of 5.2% over the past 26 years since the start of 1988 at its current level of 3,194 points. So, a long-run return of 6% is not something that’s out of this world.

Couple B lives a more extravagant lifestyle and spends close to S$14,000 a month. But due to their high salaries, they are still able to have monthly savings of S$6,000. Then, we come to a crucial difference between Couple A and B: Couple B knows nothing about investing and often speculates with their money, and from sheer luck alone, have been able to break-even on their speculative trades. Let’s assume overall though, that their money is only able to maintain its face value throughout the years.

    Couple A  Couple B
   Savings  Savings
Year 1  $               60,000.00  $         72,000.00
Year 2  $             123,600.00  $      144,000.00
Year 3  $             191,016.00  $      216,000.00
Year 4  $             262,476.96  $      288,000.00
Year 5  $             338,225.58  $      360,000.00
Year 6  $             418,519.11  $      432,000.00
Year 7  $             503,630.26  $      504,000.00
Year 8  $             593,848.07  $      576,000.00
Year 9  $             689,478.96  $      648,000.00
Year 10  $             790,847.70  $      720,000.00
Year 11  $             898,298.56  $      792,000.00
Year 12  $         1,012,196.47  $      864,000.00
Year 13  $         1,132,928.26  $      936,000.00
Year 14  $         1,260,903.96  $   1,008,000.00
Year 15  $         1,396,558.19  $   1,080,000.00
Year 16  $         1,540,351.68  $   1,152,000.00
Year 17  $         1,692,772.79  $   1,224,000.00
Year 18  $         1,854,339.15  $   1,296,000.00
Year 19  $         2,025,599.50  $   1,368,000.00
Year 20  $         2,207,135.47  $   1,440,000.00
Year 21  $         2,399,563.60  $   1,512,000.00
Year 22  $         2,603,537.42  $   1,584,000.00
Year 23  $         2,819,749.66  $   1,656,000.00
Year 24  $         3,048,934.64  $   1,728,000.00
Year 25  $         3,291,870.72  $   1,800,000.00
Year 26  $         3,549,382.96  $   1,872,000.00
Year 27  $         3,822,345.94  $   1,944,000.00
Year 28  $         4,111,686.70  $   2,016,000.00
Year 29  $         4,418,387.90  $   2,088,000.00
Year 30  $         4,743,491.17  $   2,160,000.00

Looking at the table above, we can see that Couple A actually ends up with more than twice the savings of Couple B when both eventually retire at 60. That’s despite the fact that Couple B earns more than twice what Couple A does and saves a $1,000 more per month.

Foolish Bottom Line

So although Couples A and B are simplified examples of reality, it does prove three points: 1) The average millionaire might be more ordinary than what most of us assume; 2) it’s important to know how to invest; and 3) being a millionaire is more achievable than you might think – but you’ll have to start with thriftiness first!

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.