Most of us dream of living the life of a millionaire. Many of us regularly buy lottery tickets, and more of us buy them when jackpots get larger than normal. However, few of us have a good sense of what is truly a large amount of money.
Imagine a young guy named Jack who is 25 years old and starting a new job. We look into a crystal ball and see that Jack will average an inflation-adjusted income of $50,000 per year for the next 40 years. If you’ve never done the math, it can be surprising to realize that this amounts to two million of today’s dollars.
Now if Jack were to win $1 million in a lottery, this would be only half as much as his total 40-year income. Even with investment returns, Jack would risk running out of money if he were to quit his job and spend $50,000 per year. Even if he kept his job, he would risk running out of money if he spent $100,000 per year.
So, unless Jack spends his winnings quite modestly, his good fortune will be temporary, and the money will be gone in a few years. We see this fate befall many lottery winners. Sadly, many end up spending themselves into huge debts after the money runs out. They simply didn’t understand that their big prize wasn’t so big compared to the length of a human lifetime.
For the average person to be able to quit working and live large, a lottery win of about $5 million or more is needed. Even then caution is required. A sequence of poor choices, such as buying a money-losing dream bar or restaurant, can easily wipe out $5 million in a few years.
The truth is that most millionaires accumulated their money while living frugally. Their financial habits are an important part of what has made them wealthy. Ironically, most real millionaires don’t live like millionaires.
The next time you encounter found money, whether it is a large sum or small, try figuring out how much it represents per day over 50 years of life. So, a $50,000 inheritance divided by 50 is $1000 per year, and divided by 365 is $2.74 per day. Doing this might make you hesitate before wasting “found money.”
Some may find this “dollars per day” idea depressing, but I don’t see it that way. It comforts me to realize how long my expected lifetime will be.