Why Net Worth Grows Rapidly After $100K – Explained Simply
introduction
Net Worth explodes after $100k
- Have you ever heard these phrases that money makes money, the rich are getting richer, the more money you have, the more money you make, in this blog I wanted to take you behind the scenes and explain why such phrases happen, why your net worth explodes at 100K and give you tips on what you should do to get to this 100K number and what you should focus on instead..........how to get there faster
- Let’s start with why your net worth increases at 100K, many people believe that reaching a certain threshold suddenly gives you exclusive access to better opportunities and these opportunities mean better investments, which come with higher returns and that is why the rich get richer, there are actually two other important factors that play a role in why your net worth increases at 100K and neither of these are related to the type of investments you use,
1) The first reason: scale of capital
Let us first consider different scales of reinvestment, all of which yield the same 10% return, so let’s say you invest $1,000 with a 10% annual return, after one year your investment will become $1,100, hence a profit of $100, if you invest $10,000 with the same 10% annual return, your investment will become $111,000 after one year, the same percentage return, the same 10%, just a bigger absolute number, so your profit is $1,000 and then look at the $100,000 investment with the same 10% annual return, it will become $110,000, resulting in a profit of $10,000, the investment, risk and period are the same in all three cases
#But the scale of returns is quite different, capital allows for higher returns on a larger amount of your money and as you increase the size of your investment, the size of the investment increases. The absolute return also increases proportionately which means you grow your wealth faster
2) The second reason: compound interest
The second thing is that people call miss the eighth wonder of the world and that is compound interest. Compound interest in simple words is the interest that you earn on your investment. So, with compound interest you are not only earning money on your principal or original balance, but you are also earning money on the interest that you have already built up through that original investment. It is difficult to explain it without using numbers.
Example
You save $1,000 every month and after 7 years with an 8% annual average return you reach a net worth of $100,000 which is a long time almost 7 years to reach the first milestone of $100,000 But this time period reduces significantly to reach the second milestone of $100,000 this time period you will earn 8% return on a bigger amount this time you will earn it on the first 100,000 that you have already saved and you will earn it on the interest also accumulated on the first 100,000 So the time taken to reach the next 100,000 milestone reduces to 4 years which is almost half the time taken to reach the first 100K milestone And then it will take you about 3 years to reach the next 100,000 milestone and you will see
Each additional $100,000 after that will earn you more money there is a reduction in the time taken to
Because you already have money working for you and then money is working for that money and then money is working for that money and then once you reach $1 million it will take you a little over a year to get that additional 100,000 from interest the hardest and most time-consuming part is often at the beginning
because you don't have compounding interest so you have to do a lot of the heavy lifting yourself and that's why a lot of financial content for people at the beginning of the journey is based around optimizing every penny cutting out those oat mills not buying XY Z is primarily focused around deprivation because at this point every little financial win can seem very hard and it seems like it's not moving the needle much but it's those little wins that when you add together get you to that first 100K that every success adds up very quickly and the further you go in the wealth building process the easier it gets so keep these two factors in mind - Scale and compounding of capital - What are the things you can do to ensure you don't get left behind
How to save $100k Faster: Tip -1, how to get there faster
If you don't have 100k savings (net worth explodes after 100k), then firstly you have to increase the time for investing.
Example
- Suppose your salary is 60,000 and you are investing 20% of it, that means you are investing 12,000 per year at 8% average return, after 23 years, you will have around $730,000, but if you invest four more years after that, you will have more than a million, the real profit comes at the end of the journey, not at the beginning, so every day that you are not investing, you are losing the opportunity of time and compounding of time is the most important thing you have, so even if you don't have 100K to start with, but start with as much time as you have, your investment will start earning more interest and then the interest and principal will compound.
- The snowball is rolling down the hill gaining snow getting bigger and bigger the further down it goes the bigger it gets and rapidly gets to the point that it can't be stopped, and the profits grow exponentially Well if you are in a place where you want your savings to do more for you, but you don't know where to start
How to save $100k faster Tip-2, how to get there faster
- Increasing the amount that you can invest. This doesn’t mean you need a lump sum of $100,000 to invest right away, but rather thinking about ways you can contribute on a monthly basis and notice that I haven’t said about finding investments with higher returns at this point. I’ve seen people obsess over what they invest in so they can get 1% or 2% growth per year in their investments.
- Optimizing for the best fund, the best strategy, the best platform, that definitely makes a difference, but the thing that’s really going to drive results is just increasing the amount that you can invest. To put it simply, if you invest $200 per month at 10% for 30 years, you will get just under $400,000, but if you get an additional 2% per year from your investments, you are left with just under $600,000. That is a huge amount,
- But what if instead of focusing on the stock market and trying to optimize for the best returns, which is honestly out of your control, you focus on increasing the amount of money that you can earn day to day and look at the stock market as a place to increase your wealth and park your money that you earn in your day to day life, so maybe by negotiating your salary and making more money through a side business by investing with your partner and let's say instead of getting an extra 2% return in the stock market you are able to double what you invest every month,
Conclusion
So instead of investing $2200 per month you invest $400 per month and you reach $800,000 though there are many rules for wealth building the path is different for everyone my personal way is to focus on earning more through what you do on your day to day basis and at the same time invest a small amount in the stock market on a monthly basis so you can learn investing habits quickly and let the compound interest work for you that way when you have a lot of money and you are ready to invest a larger amount or a bigger amount you won't be starting from scratch and you will already have that edge so don't underestimate how the amount you can invest and the time you can invest for has an impact on your overall net worth .................first 100k savings explained
