Your First $100K: A No Bullshit Step-by-Step Guide

Did you know that the median savings amount for adults in the US is approximately $4,500, while the average is $35,000? So what's the difference?

The average takes into account outliers, such as wealthy individuals or the top 1-2%, while the median excludes them. Keep this in mind.

In January of 2023, the median mortgage payment was $1,964. This means that most Americans are only three payments away from foreclosure.

Despite the fact that people now earn 40% more than they did in the 70s, I would argue that it is more difficult today to reach your first $100K.

That's why it's more important than ever.

Having $100K provides critical mass in your investments, and critical mass is crucial for taking advantage of the exponential growth potential of compounding.

But how can you reach that first $100K?

Let's dive in.

This could change your life.

Today's In Less Than 10 min:

1. Why it’s so hard to get to $100K

2. The importance of getting to $100K

3. Steal Strategies I used for Getting to your first $100K

Why It's Hard to Get to $100K and More Important Than Ever 

Chalie Munger, billionaire, Warren Buffett business partner, and vice chairman of Berkshire Hathaway is famous for saying this in a 1990’s shareholder meeting.

“The first $100,000 is a bitch, 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.”

The reason why the first $100K is challenging is because, when you're aiming for that amount, you tend to focus only on opportunities that can bring you $100K.

So, what are these opportunities when you're just starting out? Well, the first one that comes to mind for most people is getting a job and working for someone else.

To be honest, this is how I did it, and it's probably how you will do it too.

However, the problem with this approach is that you have to trade your time for money, and you also have to sustain your own life.

Since time is limited, your earning potential is automatically limited as well.

Moreover, you have personal wants and needs that compete for your resources.

You still need to eat, have a place to live, and if you have a job, you also need transportation.

If you have a family, multiply this resource constraint by 3 or 4.

On top of all that, there are things beyond your control that make it even harder.

I would argue that in the 70’s it was easier to get to $100K than it is now despite the fact that people make more money now than they used to.

While wages have increased by roughly 40% since the 70’s, costs have increased by 100% (doubled) or more in most cases. The result: a lower standard of living for most.

To put this into perspective,

The Median Cost of a Home:

1972 - $26K ($189,000 in today’s money when you account for inflation)

2022 - $440K or 132% more than in 1972

The Median Cost of College: 1971-72: $10,000 for a public four-year college (inflation adjusted)

2021-22: $24,600 for a public four-year college (146% more)

Median Medical Expenses (Out of Pocket)

1972- $915

2022- $1350

Median Cost of a New Car

1972: $26,100

2022: $48,200

Median Vacation Cost (admission to Disney World) 1972: $1,170 for a three-night/four-day stay at Disney World for two adults and two kids 2022: $2,670 for the same

Median Income

1972 - $33K (Inflation Adjusted)

2022 - $46K

Getting to your first $100,000 is a significant financial milestone that can pave the way for a more secure future.

It is also arguably more important than ever if you want to make a meaningful difference in your life.

While it may seem daunting at first, despite all the headwinds, it's entirely achievable with the right approach and determination.

Next, we’ll talk about why it’s so important and then we'll break down the steps to help you reach your first $100K in a simple and actionable way. 

Why the first $100K is So Important

The first $100K is so important firstly because it is a psychological milestone. People love round numbers. The second reason is that getting to $100K creates critical mass.

Critical mass in investing refers to a point in your investment journey where your accumulated assets and investments have grown to a size that they can generate a significant amount of income or returns on their own, without relying heavily on your ongoing contributions or efforts.

This is why the rich stay rich and the secret to generational wealth. I call this number your Critical Mass Index.

This number is a little different for everyone depending on your goals.

Essentially, it's the point at which your investments begin to work for you rather than you working solely for your investments. Pretty cool right.

The sooner you get to this number and the larger the number, the harder your money works for you in the form of compounding.

This will require exponential thinking rather than linearly thinking.

You can check out my previous newsletter for more on this.

Let me quickly demonstrate with some numbers using an retirement IRA account example.

Assumptions:

Starting Age: 35

Starting IRA Account Balance: $1000

Monthly Contributions: $500/mo ($6500 per year max IRA contribution limit)

Return on Investment (S&P Index Fund): 10.5%

Account Balance:

After 10 years: $126, 750

After 20 Years: $450, 120

After 30 Years: $1,327,773

At age 65: $1,327,773. Not bad right. But you will run out of money by 73…

Now lets change a couple of variables. Lets say instead of starting at $1,000 CMI, you got to $100,000 and let’s say you never contributed another dime to your IRA investment account.

Assumptions:

Starting Age: 35

Starting IRA Account Balance: $100,000

Monthly Contributions: $0

Return on Investment (S&P Index Fund): 10.5%

Account Balance:

After 10 years: $299, 906

After 20 Years: $813, 969

After 30 Years: $1,978,573

At age 65: $1,978,573. Almost 50% more cash! Amazing Right! And you didn’t run out of money.

What happens if you get to $200K by 35?

Use my free CVI calculator to find out.

Now that you know why critical mass is so important, lets talk about actionable steps to get you to your first $100K and as quickly as possible. Here are some strategies that I used which could help you on your way to your first $100K.

Strategies for getting to your first $100K and beyond - this is not sexy but it works

Step 1: Establish a Strong Financial Foundation

1. Begin by creating a solid financial foundation. Get into financial monk mode. This involves doing the things you know you should be doing:
2. Budgeting: Develop a budget that outlines your income, expenses, and savings goals. Allocate a portion of your income towards savings right from the start. Budget apps like YNAB can make this easy and fun.
3. Emergency Fund: Build an emergency fund with at least three to six months' worth of living expenses. This provides a safety net for unexpected financial setbacks. Life is going to eventually feed you a s*** sandwich, have a napkin ready to clean up the mess.*
4. Debt Management: Prioritize paying off high-interest debts, such as credit card balances. Minimizing debt will free up more of your income for savings and investments.

Pro tip: Embrace minimalism as your lifestyle choice. Simplify your life by decluttering both physically and mentally. By reducing unnecessary expenses and distractions, you'll free up resources to save and invest.

Step 2: Consistent Saving and Investment

The second step involves consistent saving and smart investing to grow your wealth. Here's what you can do:

1. Automate Savings: Set up automatic transfers to your savings or investment accounts. This ensures you're consistently putting money aside. You can’t be trusted to do this manually.
2. Diversify Investments: Invest in a mix of stocks to spread risk and potentially earn higher returns over time. I like to use ETF’s like Nasdaq (QQQ) because they inherently diversify my investments.
3. Take Advantage of Employer Benefits: If your employer offers a retirement plan with a matching contribution, maximize your contributions up to the match. If you’re employer matches dollar-for-dollar, this is an instant 100% return on your investment. Also, when you leave your employer, rollover your 401K into an IRA (consider a Roth IRA rollover conversion). There are far more investment options in an IRA than a 401K and Roth IRAs growth tax free indefinitely because they don’t have mandatory distributions.
4. Open a Roth IRA: Once you’re up to the full matching contribution in your 401K, open a Roth IRA (Not a traditional IRA). Roth IRAs use post-tax contributions but earning grow tax free and there are no mandatory distributions. If you believe that taxes will be higher when you get older, this will save you a ton of money.
5. Increase Contributions: As your income grows or when you receive windfalls like bonuses or tax refunds, increase your savings and investment contributions. **You can setup automatic annual increases in your savings. This can help you avoid lifestyle creep. Reward your future self instead of seeking immediate gratification.

Pro Tip: Once you’ve established a nice 401K savings, use it to be your own bank. Borrow from your-self to buy your next car (be reasonable). Don’t pay the bank a 7-10% interest, pay yourself instead. If you don’t pay the bank a 10% interest rate and your pay yourself a 5% interest rate, then your effective rate is 15%. That’s better than stock market returns (10.5% average).

Step 3: Increase Your Income

The third step involves making more money. Sometimes the only way to get ahead is to do more. The more you earn, the more you can save. Here's what you can do:

1. Change your employer (job) every 3-5 years and negotiate: Wage growth for people who switch jobs is 47% higher than that for people who don’t.
2. Buy a fixer upper and put in sweat equity. I did this four times and by the last house I had nearly $200K in equity. Then, you can use some of the equity to buy a rental. Rinse and repeat.
3. Explore diverse income streams beyond your primary job. Side hustles, freelancing, or investing in assets like stocks, real estate, or online businesses can significantly boost your earnings. I almost always have one or two side gigs to supplement my income. When I learned to trade stocks and became successful, I got my series 65 and started trading stocks for other people. Now I make money on my money and get paid to do it.

Step 4: Patience and Long-Term Perspective

Achieving your first $100K requires patience and a long-term perspective. Here's how to stay on track:

1. Set Milestones: Break your goal into smaller milestones, such as reaching $10K, $25K, and $50K. Celebrate each milestone to stay motivated.
2. Avoid Emotional Decisions: Don't let market fluctuations or short-term setbacks deter you from your long-term financial plan. Stay focused on your goals.
3. Continual Learning: Keep educating yourself about personal finance and investment strategies. Knowledge is a powerful tool for making informed decisions. When someone else tells you that you can’t do something, that’s just because they’ve never done it.
4. Regularly Review and Adjust: Periodically review your financial goals and make adjustments as needed. Life circumstances change, and your financial plan should adapt accordingly.

Conclusion:

Reaching your first $100K is a journey that requires discipline, patience, and a commitment to financial responsibility. By establishing a strong financial foundation, consistently saving and investing, and maintaining a long-term perspective, you can steadily progress toward this significant milestone. Remember that financial success is not a sprint but a marathon, and with these four steps, you're well on your way to achieving your first $100,000 and beyond.