what to do with 100k at age 20
iii min read
I love when high-net-worth bloggers share their fiscal journeys because I always come across a like tendency: It takesyears to save the first $100k, just after crossing that threshold, compound interest starts pushing net worth higher at a faster and faster rate equally each year passes.
Today I want to explore the math that explains why cyberspace worth begins to take off like a rocket send afterward crossing the $100k threshold.
Related:Theonlypersonal finance tool I personally use to rails my net worth is Personal Capital . It's completely complimentary to use and it makes tracking your net worth a breeze.
The Math
Consider our friend Shannon who saves and invests $10,000 every yr. At a 7% annual interest rate, her internet worth will grow to $100k in seven.84 years.
If Shannon continues to invest $10k per year at a 7% interest rate, she'll be able to save her next $100k in but 5.one years.
As time goes on, Shannon volition exist able to salve each additional $100k in shorter and shorter amounts of time.
Although she is saving the exact same amount each year, the money she already saved is working for her backside the scenes, pushing her net worth higher at a faster rate each yr.
Here is a nautical chart that shows how long information technology would have to salve each additional $100k (upward to $ii million) based on different annual interest rates:
If we stick with the example of Shannon investing $10k each year at a seven% interest rate, in that location'due south a mind-extraordinary stat to be seen: To increase her net worth from $0 to $100k, it will take her 7.84 years. But to increase her net worth from $600k to $one one thousand thousand, information technology will only have six.37 years.
This illustrates only how insanely powerful compound involvement is once you have a few hundred thousand dollars saved upward. As Charlie Munger said, getting the first $100k is a b*tch, merely once you cross that threshold, your savings begin to do the heavy lifting for you.
Observe in the chart above that it takes 7 – 8 years to save the kickoff $100k no matter what almanac interest rate your savings grows at. This is considering the amount you salve matters far more than your investment returns when you're just starting out.
As an additional resource, hither'south a chart that shows how long it will have to save each additional $100k based on dissimilar annual savings. This chart assumes a seven% almanac interest rate on investments.
The Math Works at Every Level
Saving $10k per year at a vii% interest rate is just a hypothetical scenario I chose to explore hither. The math holds true for every amount of savings and every interest rate, though. As fourth dimension goes on, your cyberspace worth will ramp upwards faster and faster each year due to chemical compound interest.
Unfortunately, the magic of chemical compound interest doesn't tend to reveal itself until yous cantankerous the $100k net worth marking. It'due south around that point that you lot have enough savings for interest to have a noticeable impact.
There'due south an important lesson to exist learned here: Don't be discouraged if it takes you longer than you hoped to salvage your beginning $100k. This is by far the hardest $100k to relieve and volition likely take you the longest to save. I'm all the same chasing it myself. I recently crossed this milestone myself! Only once you cross that indicate, the road only gets easier from at that place.
I should also mention that I didn't account for any increases in income here. More than likely, as you get older your income will increase, which ways you'll be able to save more and more each year. This increased savings combined with compound involvement will help you increase your net worth even faster than what these charts prove.
Further Reading:
Charlie Munger: The First $100,000 is a B*tch
Purchase Less Stuff. Purchase More Assets.
Working One Day a Week Can Be Worth $100,000
- Author
- Contempo Posts
Zach is the author behind 4 Colonnade Freedom, a web log that teaches you how to build wealth and proceeds freedom in life.
He quit his day job as a information scientist in 2019 because he was able to earn enough income from assisting websites to replace his salary. He now teaches people how to showtime and abound their own assisting websites from scratch in the Income Community.
Zach'south favorite free fiscal 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'southward 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 gratuitous, has no trading or maintenance fees, and fifty-fifty allows him to fix automated target-allocated investments.
Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to purchase or sell any securities, delight see my Terms & Conditions page for a full disclaimer.
Source: https://fourpillarfreedom.com/the-math-behind-why-net-worth-goes-crazy-after-the-first-100k/
0 Response to "what to do with 100k at age 20"
Post a Comment