Most multi-millionaires and billionaires all say the same thing: the first million is the hardest. But for most folks, the first $100k is the hardest. In fact, guru investor Charlie Munger even proclaimed “the first $100k is a b*tch.”
Why exactly is it so hard to save your first $100k?
Because your first $100k is basically dependent on how much of your income you can save. When you’re just starting out on your financial journey, you probably have very little money in the bank earning interest or dividends, so the only way to increase your net worth is through hard work and a high savings rate.
Just to illustrate why saving the first $100k is so hard, let’s look at the math behind it.
Here’s how many years it will take to save $100k based on monthly savings and different annual interest rates:
Notice something incredible here: If you save more than $1,000 per month, your investment returns hardly make a difference on how long it takes you to save $100k.
For example, if you save $1,200 per month and earn 3% investment returns on your savings, you will reach $100k in 6.4 years. If instead you earn 9% investment returns, you’ll reach $100k in 5.63 years, which is not even a year sooner!
There’s a trend here: The more you save per month, the faster you will save $100k and the less investment returns influence how long it takes you to save that $100k. The math proves a point: going from $0 to $100k is dependent on your ability to save money, not earn impressive investment returns.
Visualizing the Path to $100k
Let’s visualize this data.
Assuming a 5% annual interest rate, this graph shows how many years it takes to save up $100k based on different monthly savings amounts:
Going from saving $200 to $600 per month helps you reach $100k nearly 15 years sooner, but after that the differences become marginal. For example, going from saving $2k to $3k per month only helps you reach your goal of $100k about a year sooner.
The lesson here is simple: The best way to save $100k is through becoming an income machine, not an investment guru. Focus on your income: gaining promotions, increasing your salary, and picking up side hustles. Don’t stress over investment returns when you’re just starting out. Your savings rate is significantly more important.
Zach is the author behind Four Pillar Freedom, a blog that teaches you how to build wealth and gain freedom in life.
Zach's favorite free financial tool he's been using since 2015 to manage his net worth is Personal Capital. Each month he uses their free Investment Checkup tool and Retirement Planner to track his investments and ensure that he's on the fast track to financial freedom.
His favorite investment platform is M1 Finance, a site that allows him to build a custom portfolio of stocks for free, has no trading or maintenance fees, and even allows him to set up automated target-allocated investments.
His favorite way to save money each month on his recurring bills is by using Trim, a free financial app that negotiates lower cable, internet, and phone bills with any provider on your behalf.
His favorite micro-investing app is Acorns, a free financial app that takes just 5 minutes to set up and allows you to invest your spare change in a diversified portfolio.
His favorite place to find new personal finance articles to read is Collecting Wisdom, a site that collects the best personal finance articles floating around the web on a daily basis.
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