Does the American Dream Really Cost $5 Million? Breaking Down the Numbers

Introduction – The American Dream Costs $5 Million (0:00)

Bo: The American dream now costs $5 million, but that doesn’t tell the whole story. We’re going to break down the whole study for you right now because we have thoughts and I am so excited to share those thoughts with you. So, let’s dive right in. Investopedia analyzes data from a whole bunch of places and calculates what they think the typical American dream costs based on that data. Things like owning a home, raising a family, or achieving financial independence. But the term American dream raises a big question. What does each one of those mini dreams cost? Because that $5 million figure isn’t just one lump sum and then boom, you’ve made it. They’re each smaller pieces of the overall sum. So here is Investopedia’s breakdown of cost across the board. But again, we have some problems with this data.

Retirement: $1.6 Million (0:48)

Bo: First, $1.6 million is allotted for retirement. Now, we don’t have a problem with this number, per se, but it does need some context. This is an average across all of America. But the reality is that two people’s retirement numbers can look vastly different. The 4% rule would suggest that that $1.6 million could produce about $64,000 annually. That’s likely a reasonable estimate for some folks as it could replace the median salary of about $60,000 in America. But for other folks, that might not work. If you want to retire earlier or have more cash flow, there’s a chance you’re going to need more. It’s a useful benchmark, but don’t get to $1.6 million and just think, “All right, I’m good.” Make sure you measure twice, cut once.

Cars: The Most Egregious Cost (1:37)

Bo: But the real problem we have with this whole study, and the most egregious thing that we saw in there was cars. The survey estimated a lifetime need of $900,000 for automobiles. The reason they budget so much for cars is the figure assumes buying a new car every 10 years. What? To the vast majority of Americans, I say, “Please don’t do that.” We think it’s a bit insane. Let’s just take your average Toyota for example. That’s a modest, reliable car. Modern Toyotas today can survive for 200,000 miles. And some more reliable models can even go for 300,000. And according to the Federal Highway Administration, the average American only drives about 14,000 miles per year. So that right there means that the average lifespan of 14 years for a Toyota is way more than the 10 years they’re assuming. And it’s realistic to assume that if you take care of it, you could drive a car for even longer if you wanted. As a matter of fact, how long do you guys drive cars?

Bo: And while driving a car for longer can take a massive chunk out of the cost, buying a car at the right time can drop the price tag even further. Remember, the study said they assume that we’re going to buy a new car every 10 years. We actually think that it could make sense to buy a car somewhere between 2 and 4 years old. Because a new car loses 10% of its value the moment it’s driven off the lot. By waiting until the original owner has eaten that depreciation cost, the vehicle’s already taken that big cost out of the car, fellas. Around 30 to 50% of its value, but it still has solid safety features, good reliability, and in many cases still even has warranty coverage.

Weddings: $38,000 (3:26)

Bo: This report also assumed an average cost for a wedding of $38,000. If we’re talking about a $5 million figure, $38,000 seems relatively small, but that’s a huge amount to spend on a wedding. I personally have been a part of and attended many wonderful weddings that cost substantially less than that. I’m not saying that you have to spend what I spend on a wedding or it has to be some sort of shoestring budget. But what it does say is that your lifestyle could have a huge impact on how much you need to be comfortable.

Vacations: $180,000 Over a Lifetime (3:57)

Bo: If we look at some of the other examples from the study, Investopedia said that the total costs of vacation came up to about $180,000 over the course of one’s life. So, if you assume that you start vacationing in your 20s and you live for another 50 to 60 years, that would be about $3,000 a year on average. When you’re later on in life, in your peak earning years, that’s one thing. $3,000 may not be that significant, but when you’re young in your 20s, $3,000 could be a huge cost. And that money used differently could create massive dividends down the line.

Bo: Now, don’t mishear me. I’m not saying that you ought to skip meaningful experiences when you’re young just to save money. Far from it. We are saying that we want you to be intentional about how you spend so that you can create those memories. We call this bedazzling your basic life. Take advantage of free local events. Host potluck dinners instead of going out to expensive dinners. Look at nearby nature trails or plan road trips instead of booking costly flights. These very intentional low-cost experiences can be just as enriching and memorable as expensive ones without derailing the power of compound interest in your army of dollar bills.

Closing – What Do You Really Need? (5:07)

Bo: When we see this price tag slapped on the American dream, the question shouldn’t be, okay, well, how do I get to $5 million? It should be what are the unique financial factors in my life and what do I need to live the life that I want. If you want to know more about the stages on the journey to financial independence, click right here. And as always, keep building towards your great big beautiful tomorrow.