Humphrey Yang: Here's What Really Happens When You Become a Millionaire
What really happens when you become a millionaire? While financial expert Humphrey Yang doesn’t think your outward life changes too much upon reaching this milestone, you may find your mental outlook is not the same as it was before.
According to Yang, there are five feelings it’s quite common to encounter after becoming a millionaire. He recently outlined each feeling on YouTube and whether these feelings are rational, so you know what to look out for as you approach reaching this achievement.
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1. You Feel Like Nothing Has Happened
The moment your net worth goes from $999,999 to $1 million, guess what? Nothing happens. A private jet doesn’t immediately whisk you away to a tropical island and there’s no caviar and champagne suddenly at your side.
Yang compares net worth numbers to stock prices. Until it materially changes your lifestyle, you’re not going to feel it no matter what the number looks like.
Though a butler might not have magically appeared out of thin air, a lot has changed regarding your financial situation. Your million-dollar net worth has bought you security, ensuring you will almost never be homeless. It unlocks a new mental level in your head where, according to Yang, you know how to build wealth.
Now you need to keep going and repeating the process.
2. You Feel Like It’s Not Enough Money
It’s not uncommon for someone who has reached $1 million in net worth to save aggressively to hit $2 or $3 or $5 million. What was once a sum which felt impossible to reach is now being compared to others making millions.
Yang cited a study from Harvard Business School where most wealthy individuals believe they need to double or triple their current net worth to reach optimal happiness. What a newly-minted millionaire may not realize though is this target amount is going to continue doubling or tripling until they learn how to be content with their lives.
The way you figure out if a million is enough for you, Yang said, is using the withdrawal rate rule. If you use a 4.5% withdrawal rate, the million dollars in investable assets or a retirement account allows you to withdraw $45,000 a year without ever running out of money in a 30-year retirement.
3. You Question If You’re Doing Things Wrong
By now, you’re probably wondering what’s going on with compound interest. Shouldn’t it be taking over and putting you on the fast track for making $2 million?
If it doesn’t feel like anything is happening, Yang said to consider these numbers. If you have $1 million invested and this amount is earning 7% a year after inflation, your money doubles on its own in about 10 years. To speed things up a bit and hit $2 million, you can contribute another $20,000 a year and hit this milestone in eight to nine years. Compound interest is still working just as it should.
4. You Have Something To Lose
If you experience a 3% drop on a $1,000 portfolio, you’ll lose $30. Now consider a 3% drop on a $1 million portfolio. That’s $30,000. A sudden dollar drop like this would cause anyone pain, especially someone who just hit the millionaire threshold.
As you become wealthy and keep increasing your wealth, you probably will experience an uptick in financial anxiety. There’s more money at stake which gives you more to think about and consider on a day-to-day basis.
To combat this anxiety, Yang said its best equip yourself with knowledge and data to prevent making any impulsive moves. A drop in the stock market is never great news, but you don’t want to make any rash decisions based on emotions. Your portfolio is likely to recover, so the best move is not to do anything but let it ride.
5. You Stop Talking About Money
Consider the people who will know you’re now a millionaire. Telling friends and family usually means preparing yourself to have them treat you a bit differently than they did in the past, especially if they aren’t millionaires themselves.
Many millionaires, as well as people who become wealthy, stop talking about money. If you hit net-worth millionaire status, Yang said you’re technically five times as wealthy as the median U.S. household. Talking about money with someone who has less than you often feels unrelatable, so it’s fair to assume talking about it (money) won’t be well received.
“It’s not a character flaw, even though that’s what most people think it’s going to be,” Yang said. “It’s just a part of attaining wealth.”
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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