Why Saving $100k is 25% of the Way to $1 Million

Why Saving $100k is 25% of the Way to $1 Million

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Charlie Munga once said that the first $100,000 is the hardest to earn but it Is the most crucial in Building Wealth And I totally agree with that statement If you follow what some might call Normal math $100,000 is 10% of 1 million But in the investing world when we are Talking about Building Wealth 100,000 is Actually 25% of the way to a million do And in this video I'm going to show you Why welcome to the show guys I'm Ben Hedges aka the credit Shi I talk about All things personal finance credit and Luxury travel on this channel and if you Like the sound of that do subscribe now Charlie Munga was the partner of Legendary investor Warren Buffett and The reason he said that the first 100,000 is the hardest is because of Something called compound interest when You are investing in the stock market or Any type of investment where you are Getting annual returns and reinvesting Those returns you get something called Compound interest you're not just Earning interest on the original amount Of money but you're earning interest on The interest that was accumulated in Previous years and because of this $100,000 is actually 25% of the way to a Million do let's look at an example if I Invest $10,000 in the S&P 500 at an 8% Return which is the long-term average When you reinvest the dividends and then

You add $10,000 per year after 7 years You will have over $100,000 you have 113 In fact you get pretty close to 100,000 In year 6 at9 $5,000 but you actually Break through the 100,000 Mark in year 7 I'm not going to get into fractions of Years in this example we're going to Keep it simple so we'll just say 7 years Now let's look at what happens if we Keep going so we have our $113,000 and we're going to add another 7 years so that's now 14 years again Still adding $10,000 each year growing At 8% and that takes us to $290,000 Let's then add another 7 years So 21 years in total that takes us up to $594,000 and then we add one more 7-year Period so 28 years total and that takes Us to $1,115 th000 and thus that first 7-year Period when we saved up $113,000 through investing represents 25% of the total it took to get to a Million on this spreadsheet that I've Made you can see how much the money in Our account increases by each year as we Go up through the 47-year period so we Have both annual additions and interest Being added in the first 7 years it's $113,000 okay from the money you add Plus the interest then in the next 7-year period the value of the account Goes up by $177,000 so by quite a bit more than it

Went up by in the first year and that Amount is made up of the $10,000 you add Each year for 7 years the interest on Those payments plus the interest that You're still earning from all the money You added in the previous 7-year period Then in the third 7-year period it goes Up by $34,000 and in the fourth and final 7-year period our account value Increases by over half a million dollar And you can see it visually on this Graph as we approach a million dollar How much interest is being added Compared to the amount of principle that Is being added which basically stays Constant the whole time the interest Increases and the whole thing increases Exponentially as we approach a million Dollar that is the power of compound Interest and that's why Einstein said This about it compound interest is the Eighth wonder of the world he who Understands it earns it he who doesn't Pays it if you understand it you invest Your money and let compound interest Increase your wealth exponentially just Don't be the other guy who gets into Debt on credit cards or other loans and He isn't even managing to pay off the Interest he owes and he's getting Charged each month and then he has to Start paying interest on the interest That he's accumulated from previous debt

And it all spirals out of control if Compound interest is really use to your Advantage then $100,000 really is 25% of the way to 1 Million and if you've got $100,000 in The bank pat yourself on the back cuz You're 25% of the way there guys if you Are looking for a way to invest your Money do check out Weeble the sponsor of Today's video it's a commission free Investing app where you can invest in ETFs like vo for example that track the SMP 500 so you could do basically what We displayed in this video okay an S&P 500 Index fund at 8% on average over the Long term you can also invest in Individual stocks and even crypto it has Way better charts than the competition Not naming any names Robin Hood and if You move $500 worth of your money into a New webull account you'll get 20 yes 20 You heard that right 23 fractional Shares okay and they could be worth Between $3 and $3,000 each so that's a Minimum value of $60 but it could be Worth a lot more luck of the draw what You get link is below please subscribe To the channel if you're new and we'll See you next time bye-bye

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