Limited Edition Monopoly Light Purple Set with Gold Hotels

Kennon-Green & Co. Fiduciary Financial Advisor, Wealth Management, Global Value Investing

Following the calculations I did last week, adjusting Monopoly for inflation as if it were real life, I began to speculate about what it would take for the average, regular, typical American citizen to “feel” rich.

[mainbodyad]I think the average American would feel really, really well off at the equivalent of a light purple Monopoly with hotels.  That would generate $37,128 in monthly pre-tax income, or $445,536 per year.  Of course, the government takes a big chunk of your money.  If you lived in a no-income tax state, that should leave roughly $300,000 per year or $25,000 per month in cash income (that figure would be much higher if you were smart enough to use tax-sheltered retirement accounts, etc.)  That is the same annual income as a brain surgeon who is considered in the top 20% of his field.  If you didn’t have the medical background, it would take a net worth of $4,500,000 earning 10% annually, which is reasonable, to achieve that level of passive income.

If you wanted a new Mercedes, you’d just wait a few months and the cash would be in your checking account.  Want to drop $10,000 at Bergdorf Goodman or Saks?  No problem – just wait 12 days and your investments would have generated it for you.  You would never need any debt.  You could do things like buy the uniforms for your kids’ little league team or a new grand piano for the church choir without feeling any hit to your personal budget.

Limited Edition Monopoly Light Purple Set with Gold Hotels

To take it one step further, I think the average American would feel “rich” – as in truly wealthy – at a net worth of $10 million because it would generate $1 million in annual income before taxes at a 10% rate of return.  After taxes, you’d be looking at roughly $650,000 without using tax shelters such as a SEP-IRA or pension.

[mainbodyad]That means someone with a $10 million net worth would earn nearly $54,200 per month in cash after taxes.  It’s enough to afford the payment on an $8 million sea-side mansion in Newport Coast, while still building your personal investments every day without working a single hour. You’d be driving a Bentley, eating on solid-gold rimmed china, and wearing the finest cashmere if you were really good at managing your personal finances and knew how to get the most value for your dollar.  Of course, if you knew nothing about budgeting, it wouldn’t be nearly enough to afford that lifestyle because you’d be stupid enough to pay retail for everything.

Even better, if you’re like Warren Buffett and live in a nice house in a normal neighborhood, drive a normal car, and avoid debt, you’d be able to grow your net worth sky high in ten or twenty years!

I could be totally wrong but I think that is the point at which a lot of people just don’t want to focus on making more money.  The people who continue to compound, like those who end up on the Forbes list, are motivated by building something rather than cash.  The money is just the scorecard.

What interests me is that is the point a which the capitalist class begins.  It is also the point that is the same as the 1950’s millionaire, back when being a millionaire was a big deal (to be precise, it would take $8 million today to equal $1 million back then).