Lifetime Maximum Earnings

After thinking about the Orders of Finance philosophy for a few weeks, I realized I have some million-dollar level goals – a large house in an expensive area, security for my extended family, and financial freedom to spend my money and time as I please. I have been working hard for a decade toward these goals, and have done pretty well – I’ve paid off all my debts and been able to set aside some extra every year.

But I started to wonder: if I have million-dollar level goals, is my current earning level enough to get me there? So I created a simple calculator to figure out the total amount of money I will earn across my entire career:

The Simple Calculator

Plug in some numbers and try it yourself. If you saved every cent from every paycheck – no food, no housing, nothing – how much would you have at the end of your career?

But let’s be even more aggressive: instead of just saving 100% of your income, what if you invest a portion of it as well? Plug in some numbers below to find out how much money you would end up with.

The Complex Calculator

The point of this calculator is not to accurately estimate your nestegg at retirement, or anything like that. The point is to identify the ceiling for your personal finances: if you never spent a single penny of your paycheck, and even invested some of it, what is the absolute maximum amount of money you could possibly have?

3 Takeaways

1 – Are my goals realistic?

I created this calculator as a tool to help establish and set realistic goals. If I plug in the default numbers above

  • 40 years of earning a salary
  • $50,000 every year
  • Invest $5,000 every year
  • Earn 6% annually compounding interest

and never spent a cent of it, I would have about $3,860,000 in the bank.

If those are my numbers, and I have a goal of retiring on the California coast, or dream of buying a brand new Bugatti (each $1 million +), I might need to set a more realistic goal – spending over a quarter of my total lifetime earnings in one purchase is not realistic. However, it is realistic to buy a new $40,000 muscle car and visit the coast a few times a year instead, if that’s what I want.

Alternately, if I decide I really do want to be making some million-dollar purchases, I need to start making some $100k-level changes now, while I still have time to build wealth and make that dream a reality.

2 – Investing+Time is hugely important

Using the simple calculator above, if I save $50,000 a year, for 40 years straight, I will have $2,000,000.

However, if I invest just $5,000 a year at 6% interest, and don’t save anything beyond that, at the end of that 40 year period I will have $2,057,143.

That’s right: over a long enough time period, it’s actually more profitable to invest 10% of your income and spend the rest, than it is to save 100% of your income!

(You can use the second calculator above to calculate just principle + compounding interest by setting the “yearly income” to the amount you want to invest – “5,000” in this example – and the “investment rate” to “100%”)

3 – Hard work will only get you so far

Unfortunately, working at a high paying job for a long time is simply not enough to become seriously rich, say the $10 million dollar level. Using the simple calculator above, I can see that even earning $180,000 a year – that’s 3x the national median salary – I will only amass $7.2 million after a lifetime of work. Yes, $7.2 million is a lot of money, but it’s less than I would intuitively expect for the life’s work of someone earning that high of a salary.

I’m still thinking through the full implications and plan to revisit this concept in a future post. My primary takeaway, after punching in a range of numbers into both calculators, is:

  • Increasing salary/income, and saving, are very important factors in the $10k – $100k Orders of Finance.
  • Salary/income is somewhat important, saving is minimally important, and investing is very important in the $1mil – $10mil Orders.
  • Some other factors beside salary, saving, and investing are required to reach and surpass the $10mil Order.