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.
How long will it take you to save your first $100,000?
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 to 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 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.