Yearly Interest on 1 Billion Dollars: What Does it Look Like?
Kimberly Studdard
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We often hear about millionaires that can live off interest and dividends during retirement. But what about a billion dollars? And what is the interest on a billion dollars? Is the amount really as obscene as it sounds?? (Spoiler alert…it is! ;))
Let’s talk about it and see what it would be like to have a billion dollars!
Can you live off a billion dollars?
The first question that’s circling the internet right now is, “Can you live off a billion dollars?”
The answer…Of course!
I’m sure you could find plenty of uses for a billion dollars. And honestly, a billion dollars could take care of you and the next 4-5 generations after you (with money to spare!).
Let’s take a look at what you could spend a billion dollars on.
Besides your regular cost of living, healthcare, etc., you could also:
You could donate $25 million to end homelessness in Texas
And that’s just a start.
There is so much that could be done with $1 billion dollars. And as you can see, all of the above payments STILL wouldn’t get you close to spending a billion dollars.
How long would it take to spend 1 billion dollars?
Based on the above, you can see buying even the most beautiful audacious thing still doesn’t cost a billion dollars. So what would it take to clear away all that cash? How long would it take to spend 1 billion dollars?
Let’s say you decided to spend $10,000 a day for the rest of your life.How long could you live on 1 billion dollars before you ran out of money?
By spending $10,000 a day, you would go through $3,650,000 a year.
Even if you earned no interest on your billion dollars and spent $10,000 every single day of your life, you could still live for 270 years on 1 billion dollars! In other words, you’d NEVER run out of money!
That’s simply insane!
What do billionaires invest in?
Billionaires don’t often put their money in index funds and step away. They like to make things a bit more interesting. Instead of dull slow-growing investments, they might invest in real estate, art, or collectibles.
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What about a million? Can I retire with a million dollars?
Okay, maybe the billion dollar goal isn’t quite right for you. The second question many are asking (once they realize they’ll never earn a billion dollars…) is “Can I retire with a million dollars?”.
The answer — Yes.
Just because you’re not a billionaire, that doesn’t mean you can’t retire and live comfortably. Many people retire with a million (or less!) and are able to keep up with their current lifestyle.
The key is to be able to spend your money wisely and not let “lifestyle creep” start to affect you.
“An individual with assets or a net worth of at least one billion currency units such as dollars, euros, or pounds”.
In other words, you don’t need a billion dollars in cash — just a billion dollars in assets. This includes real estate, land, businesses, money market accounts, and more.
Alright. So how do people do it? How on earth do they earn $1 billion dollars?
People earn $1 billion one of two ways:
They build a business that becomes insanely successful
They inherit the money from their business building parent
That’s really it.
You’re not going to earn a billion dollars by investing $1,000 a month into mutual funds. Sorry, it’s just not going to happen.
If you want to be a billionaire, you’re going to have to start a business, work your butt off, and constantly re-invest the majority of the profits back into it.
Now, let’s talk about how long it would take to make 1 billion dollars in the first place. Unfortunately, most people, no matter how hard they work, will never earn a billion dollars in their lifetime.
Let’s put earning a billion dollars into perspective here:
If you made minimum wage your entire life, it would take you 69,000 years to make $1 billion dollars
If you earned the average American income, or $50,000 a year, it would take you 19,000 years
Even if you made mid-six-figures (ie. Let’s say $500,000) a year, it would take you 2,000 years to earn 1 billion dollars!
The only way to truly earn a billion, without interest or inheriting any money, would be to earn $20 million dollars a year. Even then, it would still take you 50 years to earn $1 billion.
How Long Would It Take You to Earn 1 Billion Dollars With Investing?
As Einstein supposedly once said, “compounding interest is the 8th wonder of the world”. So what if you consistently invested a fair amount of money? Then how long would it take to make 1 billion dollars?
Let’s say you could invest $2,000 a month starting at age 16.
And, let’s just say that you average a 10% return on your investments every year.
Then how long would it take to make a billion dollars?
The answer…
If you invested $2,000 every single month, never spent a dime, and always earned 10% a year, you would become a billionaire on your 100th birthday!
With the scenario above, it would take you 84 years to become a billionaire via simple investing.
That’s actually not too bad!
Sure, you’d never get to enjoy your money, but you’d leave a tremendous amount of wealth to your family!!
Investing a Billion Dollars – Where Do Billionaires Put Their Money?
As we said before, most billionaires are business men and women.
They work tirelessly. They love what they do. Heck, they simply live and breathe their businesses.
And, it should come as no surprise that much of these individuals’ wealth is tied up in those businesses! Where do billionaires invest? In themselves! In their business!
And, as we already stated above, the same goes for most of America’s wealthiest individuals. But why?
The answer is quite simple.
If they cashed in on their holdings, that would make their wealth “realized” and they would be taxed on their gains. BUT, if they just leave their wealth in the value of their business, they aren’t personally taxed on those gains!
So, if they don’t need the money (and, as we established before…no one needs 1 billion dollars), then why take it out and pay taxes on it?
You may as well just be a well-known billionaire and enjoy the fame while it lasts!
Other Questions People Ask When Thinking About Billions of Dollars…
When researching the data for this post, I quickly realized that people have quite the array of questions when they ask about billions of dollars!
Most questions came back down to earth a bit and revolved around saving up millions of dollars, which is totally fine! No one needs a billion dollars. For many, saving up a couple million does the job quite nicely!
What is the yearly interest on 2 million dollars?
And, what is the yearly interest on 2 million dollars? Considering that many millionaires reach 1 to 2 million before retirement, you may be wondering how much you could earn on your money.
The yearly interest on $2 million would be $160,000 a year (when assuming an 8% earnings rate). That could easily be money to live on year after year!
Now, with $10 million dollars, you obviously won’t earn as much in interest as you would with a billion.
The average 8% annual interest on 10 million dollars would result in about $800,000 a year. That’s still more than what many people will save in a lifetime though, so it could be worse. 😉
What about using multiple banks? You’ve heard that some wealthy people use more than one bank to house their money. Should you keep all your money in one bank? Or split it up?
That depends.
If you have less than $250,000 dollars, sure! But, if you have more than that, it’s recommended to split it up. This helps ensure that you have full FDIC insurance coverage in case your bank fails.
Forget billionaires for a second. Where exactly are millionaires keeping their money?
Considering the fact that FDIC insured banks only insure $250,000 each person, they have to have the rest somewhere — right?
Well, that would be correct. Millionaires put their money in many different places and classifications. This includes…
real estate,
stocks,
mutual funds,
and other accounts.
Of course, it’s important to keep your hard-earned money safe. If you’re thinking about storing your millions, it’s important to talk to tax professionals and even a financial advisor.
What Is The Interest on a Billion Dollars? Summing It Up!
As you can see, the interest on a billion dollars is a lot. More than what most people could spend their entire lives.
If you would earn just 1% on a billion dollars, you’d earn $10 million a year. That’s simply insane.
Chances are, you’re not going to be a billionaire, but even if you save up just $1 million bucks, that’s still a heck of a lot better than nothing. And, you could still live a very fulfilling, happy life!
So what about you? Do you think you’ll be living off the interest of a billion dollars? Or something less?
*Personal Capital Advisors Corporation (“PCAC”) compensates LAM Finances for new leads. LAM Finances is not an investment client of PCAC.
Kim Studdard is a project manager for online entrepreneurs and small businesses. When she isn't spending time with her daughter and husband, or reading her growing pile of horror books, you'll find her working on her HR degree and working towards FIRE.
2 Comments
steveark
I’ve got several billionaire friends and they do not spend huge amounts of money. Yes, they have jets and islands and nice cars and multiple houses but except for the jets and cars all that stuff is really just part of their investments. And the jets they can write off since they use them for business. Their whole family is a business in a sense. Their palatial homes aren’t going down in value, nor are their islands or beach vacation compounds. Even their multimillion dollar luxury yachts hold their value pretty well with inflation. These people do not keep tons of money in cash in savings accounts, their money is invested by their family offices into ownership of other companies and in real estate, sometimes art as well. In each case these billionaires were born into huge family corporations that they worked hard in and helped grow to be even larger corporations. Really good people, at least the ones I know. But, yes, insanely rich.
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2 Comments
I’ve got several billionaire friends and they do not spend huge amounts of money. Yes, they have jets and islands and nice cars and multiple houses but except for the jets and cars all that stuff is really just part of their investments. And the jets they can write off since they use them for business. Their whole family is a business in a sense. Their palatial homes aren’t going down in value, nor are their islands or beach vacation compounds. Even their multimillion dollar luxury yachts hold their value pretty well with inflation. These people do not keep tons of money in cash in savings accounts, their money is invested by their family offices into ownership of other companies and in real estate, sometimes art as well. In each case these billionaires were born into huge family corporations that they worked hard in and helped grow to be even larger corporations. Really good people, at least the ones I know. But, yes, insanely rich.
Love the comment, steveark. Thanks for the additional context!!
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