Race to $1,000,000
The first $100,000.00 is the hardest to make when you are building wealth. This is not a matter of opinion; this is a fact. That is why making the first $100,000 is such a significant milestone when you are on the journey to building significant wealth.
But what does the first $100,000 lead to? How far are you going to take it? Well I guess that is only up to you and your personal requirements. How much do you want to retire on? What sort of retirement do you want to have? A pretty common number is $1,000,000 for people to be aiming for. I guess it just has a nice ring to it, a million dollars, say that again, A MILLION DOLLARS. Isn’t that basically the epitome of personal wealth? They even have game shows about it! Who Wants to be a Millionaire, Million Dollar Minute, Awake: The Million Dollar Game, Million Dollar Drop, Million Dollar Mile….I could go on, but I think you get the picture.
So a lot of people have a FIRE number of $1,000,000 or around that number anyway (mine is currently at the $1,250,000 mark), but for the sake of this post let’s just pretend we are aiming to reach that $1,000,000 mark.
So how much harder is it to reach the first $100,000 compared to the second $200,000, or the third, fourth, or the last? Well, as you will see, the first is the most difficult by far, and each subsequent milestone becomes exponentially easier the further you go along.
Psychological Barrier to Reach $100,000
I will get into the numbers later but let us also look at the psychology side of things first. Trying to achieve the FIRE life will mean a significant change in your lifestyle and spending habits to reach a savings rate that will get you to your goals in the future. For a lot of people, these lifestyle changes are unnatural, you almost need to FORCE yourself not to spend money on unnecessary things. It is a consumer driven society; we are constantly encouraged to spend the money we have in our bank accounts. We feel the urge to keep up with our neighbours and our friends and because of this, our savings rate is forced to suffer. As people in the FIRE community know, we need to maximise this savings rate as much as we are prepared to do to reach our FIRE life.
Once we reach this first $100,000, we have proven to ourselves that we do not need to fit in with the social norm. We can resist the temptation to spend frivolously, and we have the evidence in our investment portfolio. It takes a lot of work, and a lot of commitment, and most importantly it takes a lot of time. So, if you are able to reach $100,000 you have been doing it for so long that it now becomes second nature. You do not need to think twice about saving money, it just becomes natural and it will serve you well on your journey to the next $100,000 and finally up to the $1,000,000 goal.
Evidence in the Numbers
Now to look at the numbers to show you how much easier, and quicker, it is to save subsequent $100,000 milestones. First, we need to set up some parameters:
Monthly Savings: $1,000 per month
Return on Investments: 7.00% per annum
So with the above numbers, how long will it take to reach $100,000 – using compound interest calculators you can see it will take you 6 years 7 months. In this time you will have invested $79,000 and $21,000 will be made as returns on your investments.
So you have spent over 6 and a half years getting to this amount, you are well set in your ways, you know what it takes to build wealth. So how long does it take to reach the subsequent $100,000 milestones using the same parameters as before, and the next milestone, and the next…until you reach that elusive $1,000,000.
Look at just how fast quickly it accelerates after you reach $500,000.00!
In fact, the first $300,000 takes 14 years 5 Months to reach. The final $700,000 will only take 13 years to reach! I have talked about the power of compound interest, but these sorts of examples are really great ways just to explain how important it can be.
The final $100,000 will take just over 1 year to reach, and if you wanted to save more than $1,000,000, you will only need to invest an additional $12,000 per year (still the $1,000 per month) and you will reach each new milestone in around an extra year.
Imagine being able to tell your friends and neighbours, that to add $100,000 to your net worth, you could easily do it in around one year’s time? They wouldn’t believe you; they never changed their spending habits which you did all those years ago.
If you want to see a spreadsheet which you can input your own parameters for your own “Race to $1,000,000” then have a look at the spreadsheet page HERE.
Conclusion
My main point of this post is just to ensure people can keep their spirits up even through the difficult journey of growing the first $100,000. It is not easy to get that first $100,000, but as I have shown you, it is the easiest. And over time, it will only get easier, you just need to stick with it and in the future, you will reap the fruits of your labour.
When you are only sitting at $50,000, when you have been working hard for 3 years, saving as much as you can and look in your investment portfolio. It can be frustrating to see; it should be higher by now shouldn’t it? I have worked so hard; I have done everything I can and really do not have much to show for it. Do not lose hope, just keep at it, you are building something significant, Rome was not built in a day and true wealth isn’t either. It will become easier, I assure you, just stick with it.