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Thursday, April 27, 2017

A Million Isn’t What It Used to Be

Posted by Tim Stobbs on February 6, 2017

I sort of find it bit odd that people have a fixation on being a millionaire.  While it sounds like a lot of money you have to keep in mind that over the years inflation keeps dragging down that benchmark so it gets more and more diluted as being a lot of money.  After all I had to even look up what is a millionaire and there isn’t even a standard definition.  Anyone with a million dollar net worth technically counts, including myself.

Pardon? Yep, I don’t really pay attention to the millionaire target other than it happens to be roughly around my retirement amount.  Yet I also tend to ignore our true net worth as it includes our kid’s RESP account balance, rather than what I post on the blog where I leave the RESP balance out.  Yet the other day while I was on Mint cleaning up our transactions from over the holidays I happen to look down at our true net worth and was a bit shocked to see a seventh digit.  So without really meaning to or even paying attention we drifted over that imaginary line in the sand.

Of course the issue is people still tend to consider a millionaire rich, when in fact, as I noted above it becomes less and less meaningful as time goes on.  For example, my father retired roughly ten years ago now.  Let’s pretend he had exactly a million saved, even with a modest degree of inflation over the last ten years that money would be worth $1,177,655 today.  So even if I wanted to retire I would technically be doing it with less money than him.  The further you go back the worst this gets, so 20 years ago a million would now be worth $1,433,667 when you adjust it for inflation.  So in general the older you are the more likely you are to think a millionaire is something impressive.  So your grandparents might find that impressive, but your kids won’t really care at all.

But on a functional level in your everyday life it is utter meaningless.  It really just is a number or a line in the sand that mainly for popular culture references gets a lot more attention than it should.  After all, what happened the day after I found our we were a millionaire? I went to work.  Yes, totally anticlimactic.

Yet on the other hand, getting here is a big deal.  As there is only 1,117,000 millionaires in Canada (according to this story) out of population of 36.4 million or just 3% of the population.  So crossing that threshold tells you that you really are well off compared to the majority of people.  But I don’t consider us rich.  Perhaps well off, but not rich.  After all ‘rich’ is highly subjective.

Another problem with the word millionaire is it ignores the quality of your assets.  After all there are a number of millionaires in Toronto and Vancouver just based on home equity, but selling a home isn’t easy or quick.  Thus some people think the term should only be used with those with investments of $1 million or more excluding home equity.  Which is sort of a logical but doesn’t tend to ignore the popular culture references which dominate the word: millionaire.  Beside the banks solved that issue years ago with the term: High Net Worth Individual.

In the end, a millionaire title is a bit of fun, but I don’t take it too seriously.  If nothing else, it tells us we are heading the right direction for my retirement plans.  So what do you think of the term millionaire? Useful or meaningless?

Comments

5 Responses to “A Million Isn’t What It Used to Be”
  1. RB says:

    Keep up the great work on the blog !
    Twenty years ago, when I had just graduated and just landed a full time job, the term ‘millionaire’ meant a lot. I was raking in a generous $30,000 salary, living in a $495/month bachelor apartment and driving a used Ford Escort. After paying other basic necessities of life (ie. frozen dinners and dial-up 28K internet) I even had enough to max out my RRSPs !
    Being a ‘Millionaire’ at that time would have meant a LOT. Not because of inflation, but simply because at that time I was (and didn’t know it) a minimalist. #Mustachism . At that time, having $1 million would have allowed me to keep the same level of lifestyle… WITHOUT having to work !
    Fast forward to today. Sure, inflation has eroded some of that ‘Millionaire’ title luster. Like yourself, that ‘Millionaire’ milestone came and went without big fanfare. The key to the Executive washroom didn’t show up in my mailbox. I live in a house, my wife and I each have a car and we had roast beef tonight with a glass of wine instead of of a ‘frozen dinner’. We have gigabit internet service and a few cell phones with data plans. We pay to have our son enrolled in piano and swimming lessons. But being a millionaire now (on paper), doesn’t mean as much now as when I was just starting off out of school.
    But still… it’s a nice milestone. It’s not enough to kick into a ‘retirement’ career today… but it’s a hell of a good feeling knowing that if we had to, we could REALLY scale things back if neither of us were working.

  2. Meaningless, obviously. I wrote that it wasn’t really what I thought was enough.

    If you spend like crazy, having a million is nothing. If you spend nothing, having a million is a lot.

    We’re lucky in that we are young, and we’re already millionaire.. (no “S”, it’s just one right now), but are planning on having a few more just in case..

    I also don’t like having our net worth in a home (about half of it approximately) because you never know what you’ll resell it for, not to mention realtor’s fees, staging, fixing, etc.

  3. K McGarrett says:

    One of the first lotteries, at least in Canada, was the Irish Sweepstakes, based on a horse race. You had to know someone, who knew someone, to get a ticket. I believe the prize was about $140,000. That was a lot 40 years ago and we spent many a pleasant hour trying to figure out how to spend all of it. That was before governments realized how much money they could make from getting into gambling.

  4. Matt says:

    Achieving financial independence should definitely have some level of “feeling rich” to it. You aren’t far from it!

    Having the freedom to quit your job at a young age is one way to feel rich. If buying expense items or travelling a lot makes you feel that way, you can choose to work an extra 5 years and retire richer! Depends on your priorities of what feels right.

  5. FreedomFighter says:

    Rich is having the freedom to quit your 9-5 and follow your passions! Not buying useless junk to impress people you don’t like.

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