Math for Millionaires

For readers who aren’t afraid of the math, and want to go a little further, here are the four basic formulas every investor should know.


Future Value of a Single Sum: To find the future value (FV) of an amount you invest today, or present value (PV), here is the formula for the future value of a single sum:

FV = PV(1 + i)n)

FV is the future value of the investment
PV is the present value of the investment
i is the interest rate you expect to earn each investment period
n is the number of periods you plan to invest.

For example, if you want to know how much money you will have in 20 years, if you invest $1,000 today, earning 10% each year:

FV = $1,000/(1 + 0.10)20
FV = $6,727.50
Your $1,000 (PV) investment will grow to $6,727.50 in 20 years, if it earns 10% each year.

Present Value of a Single Sum: To find the present value (FV) of an amount you will receive in the future (FV), here is the formula for the present value of a single sum:

PV = FV(1/(1 + i)n)

For example, you plan to retire in 15 years, and want to know how much your $1,000,000 retirement nest egg will be worth in today’s dollars, adjusting for 3% inflation:

PV = $1,000,000(1/(1 + 0.03))15
PV = $641,186.95

That is, a $1,000,000 retirement nest egg 15 years from now, after adjusting for 3% inflation, will feel like having $641,186.95 of today’s dollars.

Future Value of an Annuity: To find out how much a regularly scheduled investment (R) will grow to in the future, here is the future value of an annuity (FVa):

FVa= R [((1 + i)n-1)/i]

FVa is the future value of an annuity (an annuity is a constant amount invested at regularly scheduled intervals),
R is the regular amount invested (also called a Rent),
i is the interest rate you expect to earn each investment period
n is the number of periods you plan to invest.

For example, how much money would you have if you retire in 30 years, having invested $5,000 each year, earning 13% each year.

FVa= $5,000 [((1 + 0.13)30-1)/0.13]
FVa  = $1,465,996.08

That is, if you invest $5,000 at the beginning of each year for the next 30 years, and it grows at 13% each year, you will retire with $1,465,996.08. 

Present Value of an Annuity: To find out how much a regularly scheduled investment (R) is worth today, here is the present value of an annuity (PVa):

PVa= R [1-(1/(1 + i)n)]/i

For example, if you win the lottery that pays out $50,000 each year for the next 20 years, and you could earn 12% on that money, what are your winnings worth today?

PVa= $50,000 [1-(1/(1 + 0.12)20)]/0.12
PVa= $373,472.18

That is, receiving 20 payments of $50,000 at the beginning of each year for the next 20 years is the same as receiving $373,472.18 today, if you could invest those winnings at 12% today.

Seven Tips for Highly Effective Budgets

Here are seven tips for helping you to see a budget with new eyes.

  1. Prioriteyes: List everything you need and want next year, and then put them in order, from most important to least important. Everyone is different, yet odds are that food and shelter will be near the top.  And if God is first in your life, give your tithe first. You'll be amazed at how much further your money will go when you start with what matters most.
  2. Annualeyes:  Seemingly small expenses add up quickly when they recur frequently. So annualize everything.
  3. Incentiveyes:  Build in rewards for meeting or beating your budget. Annually, monthly, weekly, daily.
  4. Unioneyes:  If you're married, you can't build a budget solo.  You've got to work together. Marriage is a holy union. If one person sets all the priorities, your budget is sure to fail.
  5. Coloneyes:  Surround yourself with friends who are making similar choices. "As iron sharpens iron, so one man sharpens another." (Proverbs 27:17).
  6. Mobileyes:  Get a job. Regardless of what it pays. Even if it is beneath you. If you are doing nothing, then nothing is beneath you. And look at the whole picture, because a dollar saved is two dollars earned. 
  7. No compromeyes:  Once you've set up your budget, stick with it. It will work if you stay the course. This isn't to say you can't make changes. As priorities change, change your budget. But stick with it.

How To Become a Millionaire

Millionaire: Miracle or Mundane?

When the old game show asked the question, “Who wants to be a millionaire?” it presumed the answer was simple. Everybody. And it proposed to answer the bigger question, “How do I get there?” by being a means to that end.  The contestants were the lucky dogs who had the chance to live the dream. America was enthralled. The impossible was suddenly made possible. People watched for the same reason they play the lottery.  They dream of riches, and it’s their only shot.  They’re praying for a miracle. 

If only they knew that becoming a millionaire is mundane.  It doesn’t take a miracle. Just a plan.  With just three little ingredients—investment, rate of return, and time —anyone can become a millionaire. By multiplying those three together, you get interest. Keep doing it and you get compound interest. Interest on your interest.  And presto! You’re there. 

At the Academy, we demonstrated to the cadets that if they made an investment just $2,000 a year in the stock market each year for the first seven years after they graduated, from age 22 to age 28, and never saved another cent, earning 12% annually, they could retire at age 65 with $1.3 million. 

Of course, it helps to start early. That’s the time ingredient. Because if they waited for seven years after graduation to start saving for retirement, and then put away $2,000 every year from age 29 to age 65, they would have less at retirement than in the first scenario. Even though they made 37 contributions compared to just seven. 

And last, the rate matters.  The higher percentage, the crazier it gets.  Financial guru Dave Ramsey, in his “Financial Peace” seminars, demonstrates this with an illustration showing what an investment will grow to at 10%, 12%, then 15% rate of return over a long period of time. When challenged that he couldn’t get that rate of return, he rebuts with a great sleight of hand. “Perhaps you’re right. But what do you pay on your credit cards?”  The same principle that works for you also works against you.

At this point, you can’t help but wonder, if it’s so easy, then why doesn’t everybody do it?

Quite simply, like everything in life, there is more to doing than knowing. Take all those smart cadets, for example. The Academy was loaded with some of brightest students the world had to offer.  Students who didn’t have to pay for college, and were guaranteed jobs at graduation.  Yet when we surveyed ten 2nd Lieutenants one year after graduating from the Academy, we found that, on average, they spent close to $2,000 more than they made.  They did the exact opposite of what we taught them to do. 

How could this happen? As a faculty member, the answer was obvious to me.  Guest speakers.  Like top Academy grad Tony Tripp.  Stud linebacker, Greek god. Tony was an officer stationed at LA Air Force base, living the life. 

When a student asked him, “How can you afford a new motorcycle and a place on the beach?” Tony replied, “Hey, you only live once. You gotta go for it!”

There went the whole semester in five minutes.  Because you can’t just know what to do. You have to do it.

The recipe is simple. Earn more than you spend.  Eat less, exercise more. 

You might say to me, “John. You’re crazy. There’s no way you could live off of my measly little paycheck.” 

And you may be right.  But I’ll bet somebody in Burundi could.  Because the average person in Burundi lives off of just over $200 per year. 

Christian financial counselor and founder of Crown Financial Ministries Larry Burkett, who provided financial advice to thousands of people with a huge disparity of income levels, found that most of the people he talked to about finances needed roughly the same thing to make ends meet.  About 10% more.

The hardest thing about a budget has nothing to do with math, and everything to do with emotions.   We struggle with a budget when we get it all backwards. When we see all the things we can’t afford, rather than all the things we can.  We see a budget as restricting, rather than freeing.  Accountants reverse that. Check out, “Seven Tips for Highly Effective Budgets,” at to learn more.

Truth be told, most people don’t want to become a millionaire. They want to be one. And the difference is huge. Most people want to be a millionaire so they can spend a million dollars they didn’t earn. To become a millionaire, you have to save a million dollars more than you spend.