“The first $100,000 is [tough], but you gotta do it. I don’t care what you have to do – if it means walking everywhere and not eating anything that wasn’t purchased with a coupon, find a way to get your hands on $100,000. After that, you can ease off the gas a little bit.” – Charlie Munger
The first step in any serious financial journey is getting to that first six-figure net worth so you can begin to seriously invest, trade, or acquire assets.
Why is the first hundred thousand hardest?
The first $100,000 is the hardest because you don’t have the benefit of compounding or leverage.
The first $100,000 is the hardest as most people only have their income from working a job to use to grow their capital base. So an employee is converting their earned income into a savings or investing account. Your first $100,000 is many times just six figures worth of time, labor, and energy you sold to your employee, this is not an easy path.
Usually your first $100,000 is also after tax dollars you are saving if it’s outside a retirement fund. So depending on your tax bracket your paycheck is after tax dollars you are trying to use after the government takes their share, this slows down the process.
Also if you are young and inexperienced you may not know the best strategies for investing your money early to help it grow.
Usually when people start out in life they have lower income as they begin their careers so a higher percentage goes to bills than higher income earners later in their career. Also starting families is very expensive so it’s not easy for a young person to amass a fast $100,000 early.
Many times that first $100,000 comes from a combination of frugality and long-term discipline, neither of which is easy.
You don’t have compounding of capital working for you as powerfully on smaller amounts of money so that is also hard. A 10% gain on $10,000 is only $1,000 early on when you’re starting out, this is harder to build up versus when you have a 10% gain on $100,000 and that is $10,000, see how it starts hard but gets easier?
How long will it take you to save your first $100,000?
How long it takes to save your first $100,000 depends on three primary things:
How well you manage your personal finances so you can save and invest.
How high you can get your income.
How well you do on early investment strategies to grow you capital.
If you don’t budget and manage your money and spending in a way so you can pay yourself first to save into a designated account you may never reach $100,000. The first step is consistent, disciplined, and focused savings week after week this only happens by managing your personal finances.
The higher your income the faster you will reach your goals. It’s twice as fast to get to a six figure account if you can save $10,000 a year versus if you can save $5,000 a year. Maximize your income opportunities.
You can be more aggressive with your investments when your accounts are smaller. You have time to end up with higher overall money with dollar cost averaging into fundamentally good companies, stock indexes, and companies you are an expert on like ones in your professional industry. Great investments that begin the process of compounding your capital early can get you to your $100K goal faster.
Another two tips for increasing the speed of your first $100,000 in capital is optimizing 401k retirement plans if you aren’t touching the capital for a long time.
In the United States most major corporations and even some big businesses have traditional 401K match programs. These are tax deferred retirement programs where the employer will match what the employee puts in to the account.
Each company is different, some will match up to 5% of your income, others more, other less. If you make $50,000 a year and put in 5% of your income each week by the end of the year you will have contributed $2,500 then the company will have matched with an additional $2,500. Each week around $50 goes into your account automatically and the company also buts in $50. Your $50 becomes $100 a 100% return at the start.
In addition this is pretax money in a standard 401K so you are deferring taxes until you take the money out and use it which may be in 20+ years. You get your 100% tax free return off the top and the capital gains and dividends from investments also grow tax free until you redeem it.
The downside with a traditional 401K is when you do want to withdraw and use the capital you will pay income tax on what you withdraw as well as a an early withdrawal penalty, however it is a fast lane to getting to the $100k.
The upside is you can invest in mutual funds with this capital and when you leave the job you can transfer it to an IRA and trade and invest the money any way you want. So great for creating an investing or trading account you don’t need to spend.
What should I do after my first 100K?
The two things you want to do after you have $100,000 in capital is first keep it safe from large losses and the second is grow it consistently.
Don’t take risks that could cause huge losses. Don’t speculate on things with little fundamental value. It’s unlikely penny stocks and altcoins got you to a six figure net worth and they are a great way to lose a big portion of it. Don’t be a gambler with your capital make smart decisions and always keep it safe.
Look for returns on your capital, this can happen with any investment or trading strategy with a quantified profitable edge over the longer-term. Look at dividend paying stocks, stock index ETFs, trend trading strategies, and to invest in companies with great fundamentals at good valuations.
Get the snowball rolling for compounding, this is where it gets easier. The next 10% return you make after reaching $100,000 will be a much easier $10,000 than your first $10,000 was in saving your income up. At $110,000 your next 10% return will be $11,000, so now your money is making money and growing. This is the leverage of capital used for the advantage of compounding returns. Once I learned this as a teenager it was my focus for growing my money, it worked out well.