When It Comes To Wealth, How Much Is Enough?

Seven figures means literally, $1 million to $9 million. For the purpose of this blog, net worth means the total of all your assets minus all your debts. So a seven-figure net worth means that if you sold everything you had and then paid off all your debts, the wealth you'd have left would be between $1 million and $9 million.

Let's take a look at the impact of having that kind of wealth. I've put together a few "lifestyle budgets" to show you how life would "feel" at several seven-figure net worth levels.

The purpose is to help you choose a specific goal for yourself - and hopefully help you realize that you may not need as much money as you think.

Of course, when you're setting wealth-building goals at the age of 40 or 50, you have to be realisitc. Creating a $9 million net worth in seven years is harder than achieving a million dollars of wealth. It's not nine times harder, but it's harder.

Now, let's figuree out how rich you are going to be. Seven figures, as I mentioned, means $1 million to $9 million. That's a pretty big range...to big to be useful as a target. Studies show that people who set specific goals have the greatest chance of achieving them. So let's make your seven-figure goal more specific. Let's pick a number - a nice, round, seven-figure number between $1 million and $9 million.

Four Levels Of Seven-Figure Wealth

To help you make the choice, let's narrow down your choices to four:

• 
  
  $1 million
• 
  
  $2.5 million
• 
  
  $5.5 million
• 
  
  $9 million

As you'll see from the following scenarios, each of these levels will give you a different lifestyle. You may find that you'd be content with a fortune of $2.5 million or even less. If you can be happy with a smaller number, you are better off because that objective will be easier to reach and maintain.

One final note before we compare the four seven-figure lifestyles: in figuring how much income each of these fortunes would provide, I used 10 percent of the entire net worth number. Obviously, a considerable portion of your net worth - the part that is tied up in your home - will not be earning income. It should be appreciating (making you more wealthier by becoming more valuable) but it won't give you an active income.

Coping With A Mere Million

To begin at the beginning, ask your self: "Would a net worth of $1 million be enough for me?"

A million dollars earning 10 percent yields $100,000 in annual income. Take away about $35,000 for federal, state, and local taxes. That leaves you with about $65,000 in cash. (The amount of tax you pay depends on where you live and what kind of deductions you have. )

What kind of lifestyle would $65,000?

Let's start with housing. You could spend a lot, but a good rule of thumb is to never spend more than 25 percent of your income on housing.

Twenty-five percent of $65,000 is $16,500, or about $1,350 a month. What kind of housing would that give you?

Transportation would be your next-biggest expense. Figure $600 a month for two medium-sized Toyotas.

Those are your major expenses. Do the math and you'll see that you are left with about $2,000 for things like travel, entertainment, dinners out, and other nonessentials. Those expenses vary greatly, depending on your personal preferences. If you can be happy with a good meal at a local restaurant, you my be able to budget meals for two people at $80. If you prefer fancier places, you'll have to figure on spending two or three times that amount.

The $2.5 Million Lifestyle

Living on a nest egg of a million dollars could be completely satisfying...so long as you are content with modest choices. If you have a family that is larger than two people or if you want to be able to live on a somewhat higher level, you may want to target your net worth at $2 million or $3 million. We'll pick a number in between: $2.5 million.

What will a net worth of $2.5 million buy you? Again assuming a 10 percent ROI and a tax burden of 35 percent, you'd end up with disposable, after-tax income of about $160,000 a year.

And again, figuring that 25 percent of that $160,000 will go to housing, ask yourself if you could be satisfied living in a house or apartment in your chosen neighborhood that would rent for about $40,000 a year or $3,300 per month.

Figuring, again, that you'd spend 30 percent of your housing budget on associated living expenses, you'd budget about $12,000 a year for utilities, repair, maintenance, and upkeep. Other associated expenses - food, clothing, and so on - might account for another $13,000 a year, for a total of $25,000.

Subtract the cost of housing ($40,000 a year) and associated living expenses ($25,000 a year), and you are left with about $95,000 to spend on luxuries.

Again, this budget is based on the assumption that you are a two-person family.

The Next Level: Living On A $5.5 Million Nest Egg

If you have a net worth of $5 million or $6 million, what would your life look like?

A $5.5 million net worth returning 10 percent is $550,000 a year, or $357,500 after paying 35 percent in taxes. Deduct $90,000 for your housing expenses, another $30,000 for upkeep and utilities, $27,500 for food, clothing, and miscellaneous...and you'd end up with $210,000 a year to spend on discretionary items.

Living like this takes of effort. Spending this much money requires diligence, determination, and imagination. For one thing, you must be willing to eat our four nights a week. You must devote nearly all your spare time to golfing, tennis, spa treatments, and professional basketball games. You would have to eschew low-cost leisure activites like reading, hiking, and fishing (except for deep-sea fishing in luxury spots), and you'd have to...

Okay, I'm kidding - or at least half-kidding - to make a point. You don't need $5 million or $6 million in the bank to enjoy a very good lifestyle.

But since this blog is called Seven Years to Seven Figures, let's pust on and describe the sort of lifestyle you'd have to maintain to be able to spend the income generated from a nest egg of $9 million.

The Ultimate Lifestyle

Again, $9 million at 10 percent will yield an income of $900,000. After paying 35 percent of that to Uncle Sam, you'd have $585,000 to spend on yourself and your spouse.

If you spent 25 percent of that (or $146,250 a year) on housing, you'd be living in luxury even in California, Florida, or Manhattan.

figure $45,000 a year for upkeep and utilities, a whopping $50,000 a year for food and clothing (let's stick to Italian designers, please), and you're left with about $345,000 a year.

How could you get rid of $345,000 a year? Here are just a few ideas to get the point:

10-day Hawaiian vacation for two: $10,000

10-day London vacation for two:   $10,000

10-day Istanbul trip for two:           $15,000
4 four-day weekend in NYC:         $24,000
52 very fancy meals at $500 each:  $26,000
52 semi-fancy meals at $200 each:  $10,400
104 meals local meals at $100 each: $10,400
lease upgrade on two Mercedes:      $14,400
way overboard holiday party for 100: $20,000
ultra-extravagant Christmas gifts:       $10,000

So far, we are only up to $150,200!

As you can see, you can live on reasonably well - without working - on a net worth of a million dollars. Having $2 million or $3 million in the bank makes life easy. If you target the $5 million to $9 million range, you'll be able to enjoy all the luxuries you have ever imagined...and still have money left over that you won't know what to do with. (Of course, if you decide to target the higher end of the seven-figure range, you'll have to work harder and take more risk to achieve your goal.) $


[Ed. Note: If you're not happy with your financial situation, you're in the perfect position to change it for the better – right now. Ray has just released a special video that covers an online business system that you can use to start growing your wealth. To watch this short video, click the following link: http://www.raybuckner.com]