Where to Begin? How about some financial perspective?

If there is one word that permeates talk about people and money it is millionaire. If there is one amount of money that is synonymous with "rich" and "wealthy" it is: a million dollars. Well, I have good news and bad news about millionaires and a million dollars. The bad news is that a million dollars is not what it used to be. The people that most Americans think of as rich live in houses that cost at least a million dollars. So for the average working person whose paycheck just about covers expenses and doesn't leave much room for saving--in fact probably has less that three months of mortgage payments in savings--the idea of a million dollars sounds great. If it were to do so then obviously it would be a big boost one's finances. Now you can afford a million dollar house. But can you afford to heat it--or if it's in Florida--can you afford to keep it cool? Maybe not. When you set aside fantasies and lottery tickets, the best way to look at a million dollars is in terms of the income it can earn. Suppose you use the $1 million to buy tax-free municipal bonds that pay 5.00% per year. These are very safe so you have little chance of losing your million. They would earn you $50,000 per year, about the same as your after-tax income if you have a job that pays $30 an hour (and have a few dependents to claim on your taxes). Not bad, but it hardly fits the 'lifestyles of the rich and famous' bill. Indeed, it is slightly below the US median income for a household of four. So the next time you say "I want to make million" try adding a Z at the end, as in "I want to make millionz." And don't fool yourself that even two or three million will sustain a lifetime full of jet-setting and bling.

4 comments:

  1. Wow!just the thing that was lingering in my mind but I could never put it in words... I live in India and honestly, I think life is much cheaper out here than there but still, value of money is falling here too... i wonder where we are heading to... good article is all I want to say...

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  2. I love your pages Mr. Cobb. Great work.

    Regarding this specific post, it's important to note that a million dollars is still a substantial amount of money. Only six percent of American households and one percent of households around the globe have one million in net worth.

    Take a twister spinner and 3.6 degrees of the arc and color that in. It's going to look quite improbable that the arrow will land in the designated area. That is the likelihood of a living human being having a million dollars on December 12, 2006.

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  3. Very true indeed but supposing you already have a house, and a decent car etc, then a million falling in your laps can be a lot of fun as well...

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  4. I have to say you have a point mmmparsley. One of the things I am still learning is that there is an incredibly huge spread from rich to poor to really poorin America. Indeed, there's a wide spread just between those who are doing okay and those who are barely scraping by.

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