Why Net Worth Goes CRAZY After $100k!

0:00This is the best piece of advice I've ever heard about building a high net worth. It came from a millionaire I looked up to as a kid and it stuck with me ever since. I was worrying that I'd never have enough money to afford the things that I'd always dreamed about having. His exact words to me were, don't worry about earning millions, instead focus on the first hundred thousand because after that your net worth will go crazy. I didn't fully understand him at the time but I did what he said and low and behold it worked. So why is the first hundred K the hardest? Well there are two main reasons for this. The first one is your earning power. Think of this like your level in a video game. You just haven't been playing long enough to build up your skills and therefore can't compete with the more experienced players. This is the exact same when it comes to making money when you're younger. This issue is actually getting even worse. A recent study found that Gen Z have about 86% less buying power than my generation. The boomers

1:02did at the same age. This is partly due to older people standing in the workforce for longer meaning that higher paid positions are harder to come by. But it isn't all doom and gloom. As the internet offers a great way for younger people to make far more money than the older generation as most of them don't understand how to use Instagram let alone build an online side hustle. When it comes to tech there aren't that many boomers that can keep up with you guys not like me. The second reason your first hundred K is the hardest is your lack of compound interest. Think of your money like a snowball. You roll it down a hill by investing money and as it rolls it picks up more snow which is your compound interest. The bigger your snowball gets the more snow it collects and therefore the more compound interest you make. Sounds amazing right? Well yes and no let me explain right now if you don't have at least a hundred K then your snowball isn't big enough for it to pick up any significant income. You essentially can't really benefit

2:04from compound interest. I mean let's say you invest 10K in an S&P 500 index fund and get an average yearly return of 7% which has historically been the amount investors can expect. After five years your money will have grown from $10,000 into $14,176. That's five whole years to earn $4,176. That's why it's so hard to reach the first hundred K. It's all about how much you can contribute to your investing pot rather than how much compound interest you're making. This means you're going to have to make more money anyway you can honestly it was no different for me. I remember doing at least three different side hustles at the same time in order to earn enough money. Working this many hours and also resisting the urge to spend it on vacations and the latest designer clothes is really a killer but trust me it's worth it as once you hit that first hundred K it's way way way easier to grow your money. So why does net worth go crazy after

3:11a hundred K? The answer because compound interest stops being a lame and it actually starts to sound pretty unbelievable. Take a look at this chart. If you invest 10K annually with a 7% average yearly return going from 0 to 100K will take 7.84 years. However going from 100K to 200K will only take 5.1 years. So overall it'll take 2.74 years less to make the second hundred K compared to the first. That's 35% faster to make your second hundred grand than the first and it gets even better. If we expand things to go from 200K to 300K only takes 3.78 years then 300K to 400K takes three years and 400K to half a million is only 2.5 years. We could keep going but I think you get the idea.

4:16Just look at how the chart starts to go crazy but it all happens after the first hundred K. Getting that chunk of money as fast as possible is the key. Just think if you can shave just a couple of years of how long it takes you to reach that hundred K mark how much quicker you'll become a millionaire. Once you get to this point it's almost inevitable that you'll be wealthy. If you just invest in a low cost index fund if all you wanted to do was save up this hundred K and invest it in an S&P 500 index fund and never invest again let's say you completely forgot about the account. You would still become a millionaire within 33 years. That's how powerful compound interest is. Once you've made that first 100K so how do you make your first 100K? Well all you need to do is follow the growth method. I actually came up with this myself and it helped me in those early days of wealth building so hopefully it can help you too. The G stands for gain control of your finances.

5:21There's one way and one way only to gain control and that's budgeted. Yep I said it now don't get it twisted. Budgeting isn't a rule book designed to stop you having fun. It's more like a guide which navigates you towards more informed choices. I'm not saying you have to be super frugal with your money but you do need to understand the difference between your needs and your wants. The R stands for root your investments. Let's say you invest $250 a month in an S&P 500 index fund and get an average yearly return of 7%. In 40 years you'll have 656K but what's even more impressive is that 536K of this is from compound interest. In other words you only have to put in 120K of it yourself. I know what you're probably thinking. That's all well and good but by that time I'll be over 60 years old and dribbling into my dinner. I fully understand. That's why if you can get this first 100K invested as soon as possible then you'll do much better than this example.

6:25Now you're making some money. You need to focus on the O which stands for optimize your tax management. It might sound fancy but in reality it's as simple as this. Avoid paying tax. Now let me make something very clear. Tax avoidance is completely fine and something that smart people do. Tax evasion on the other hand is illegal and not what I'm talking about. But Mark if you're only more you should pay more tax. I agree with you and the rich do pay the majority of the taxes but there should also be an incentive for someone to become an entrepreneur as they provide jobs for the rest of society and luckily there is. Entrepreneurs are taxed off the profits they make at the end of each year which means they can deduct expenses from their earnings. These are called write-offs. This is different from an employee as their tax off their monthly salary. So say you're really passionate about the latest tech like the new iPhone. You can start a YouTube channel reviewing gadgets

7:27and once it's generating you money you could deduct the cost of your tech items from your profit and get them tax-free. Essentially the government has helped you to pay for the item you want. However you can only do this within reason. Your business or side hustle has to have a need for this item. In other words it must be a justifiable expense. That's why starting your business around your passion can be a great way to save a lot of tax. It's what I did with my radio control model shops and my son also does with his video production company. If this sounds interesting to you we're going to be talking about this even more in my 2K challenge I'm running on discord. I'll leave a link in the description if you want to save your spot. It's completely free and there's even opportunities to win some great prizes. So next up we have W. Weed out debts. Did you know the average American carries 21,800 dollars of debt. So if you're in debt then you're not alone. As soon as possible list out all your debts and prioritize them based on

8:30their interest rates. So all the debts that you own with the highest interest rates are the ones you need to tackle first. This is the dark side of compound interest. If you don't understand it then it can actually start to work against you. Think of it like the hot sun beating down on the snow you're trying to collect to make your first 100K. If you have too much debt melting it away then you're never going to get to the stage where your money is working for you. So my advice for this one is to make tiny snowflake payments where possible because every little helps. Don't give up though because neglecting your debt will cause you a lot of stress in the future. So although it feels like you're losing money from the payments think of it as an investment towards your first 100K. Teasedance for tap into additional streams of income. Yes I'm talking about starting a side hustle. As of 2023 50% of Americans have a side hustle even if they earn over 100K per year. A side hustle gives you multiple advantages by diversifying your income. You'll have more money

9:33to put into your tax advantage account. So more investments and again you're just adding more snow to your snowball allowing for compound interest to take its course. H stands for heightened self discipline. To put all these things we've discussed into effect you need to find your inner discipline discipline is the currency of success. The more you mint the wealthier your future will become. If you want to know how to build your wealth from zero dollars then I'm going to leave that video right up there but don't click on it just yet. Make sure to subscribe if you want to grow your wealth. Okay I'll see you over there.