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welcome to family finance in this video i answer the question why the first 100k is the hardest this will include running the numbers on investing 10k a year looking at how long it will take us investing 30k a year and i'll share a table using different amounts in case these numbers don't relate to you and i'll share a way you can calculate these numbers using an online compound interest calculator and i've mentioned this quote quite a few times now but charlie munger has famously said that the first hundred thousand is a 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 100k after that you can ease off the gas a little bit and i must mention that the information in this video is for entertainment and general information only it is not financial advice you can read my full disclaimer in the description box below so to begin with we are going to run the numbers on how long it would take to save and invest 100k contributing 10k a year there are a few assumptions here and that's that the money is invested into the stock market so that it can grow because bank interest rates are so low at the moment my preferred choice of investments is etfs or lics but everyone is different and that's just what suits my risk tolerance in these examples i'm going to use a rate of return of seven percent which i think over an extended period of time is more than achievable however as always please remember that past performance is not a reliable indicator of future performance these compound interest calculators were done using excel so in this formula the amount invested was invested as a lump sum and the compound interest was added at the end of the year although you might be investing more regularly than once a year plus in the share market compound interest is compounding more than once a year as the share market rises and falls each day the market is open but these calculations will give you an idea of how long it takes to save a hundred thousand dollars so in our example of saving and investing 10k a year it would take 7.84 years to reach 100k and if that person continues to invest it would take 5.1 years to reach the next 100k now let's see how long it would take for this person to reach the next 300k the 300k would take 3.78 years which is less than half the time that that first 100k took and if you are liking this video so far don't forget to give it a thumbs up because it really does help to support my channel and in this scenario for that amount to reach 1 million dollars it would take 30 years so now let's have a look at the breakdown of each 100k and how long the following lots of 100 000 dollars took the fourth 100k took 3.01 years the fifth took two and a half years the 600k took 2.14 years the 7th took 1.87 years the 800k took 1.66 years the ninth took 1.49 years and the last 100 000 took 1.35 years but i find it even more interesting to see the amounts as percentages as i can't believe that it takes more than a quarter of the time to reach the first 100k that is mind-blowing the best part about looking at these percentages is that you can also apply it to some other amounts you could also apply it to saving a hundred dollars annually to get to a thousand dollars and then eventually ten thousand dollars or you could also apply it to saving one thousand dollars annually to get to ten thousand dollars and then eventually one hundred thousand dollars and another great thing about these milestones is that it can happen quicker quite often someone might start off saving a certain amount but over time they're able to increase their savings this means that over time that 10k a year might increase to 15 000 or even twenty thousand dollars we plan to invest thirty thousand dollars a year so now i'm going to have a look at how long each 100k will take us the first 100k will take 3.1 years and the second will take 2.56 years and the 3rd 100k will take 2.18 years the fourth 1.9 years and the fifth 1.68 years and that would be a total of 11.42 years we have already made it to our first 100k although that took 4.25 years as we haven't always saved this much so it looks like our next 100k will take us about two and a half years that means for us to reach 500 000 invested it would take us eight point three two years we plan to reach financial independence and retire in ten years time so that does fall within the time period but don't worry we do plan to use our superannuation as part of our financial independence plan and i have made a video about it if you want to check out that one after this one so if we do include everything we have including our retirement savings we actually do have four hundred thousand dollars invested in the market and if we include our employer contributions to super we are contributing about 40 000 each year to our investments so let's see how long each 100k will take us if we're investing 40 dollars a year so we have about four hundred thousand dollars invested so it looks like each hundred k is going to take us about a year and a half i've made a table outlining a few additional amounts in case the amount that you are contributing hasn't been mentioned in this video i'm not going to go through all of these numbers so if you want to have a closer look just pause the video now if you're not savvy in excel you could also do some of these projections in a compound interest calculator if amount you are saving is different you all know i'm a fan of moneysmart's compound interest calculator so i'm going to use that one you could add in your regular deposit for this example i've used five thousand dollars a year you can change the interest rate and then choose the number of years i chose 40 years because in that time the amount would grow to be a tiny bit under 1 million dollars how cool is it that this would be only 200 000 of your own money invested and the rest is investment growth so then you can just hover over the graph with your mouth until the total amount reaches 100k and in this example it has reached 100k after 13 years which would be 32.5 of the total journey and then you can continue to hover to see how long each next 100k takes in this example 200k took 20 years so that's 13 years for the first 100k and seven years for the second and we're now fifty percent into the total journey that's crazy and then the third hundred k was reached after twenty four and a half years which is four and a half years after that second hundred k as i mentioned earlier we were fortunate enough to reach 100k back in september 2020.
although not entirely invested in the stock market this amount is made up of forty five thousand dollars invested into our stock market account and fifty five thousand dollars in our home loan offset account which is also our emergency fund it's now been three and a half months since we hit that number and it does feel like the second hundred k is happening a lot faster because we have already made it up to just under a hundred and eighteen thousand dollars in just three months and this amount was made up of sixty three thousand nine hundred dollars invested and fifty four thousand 000 in our home loan offset account i have made a video outlining our journey from 0 to 100k and how much we saved each year because we haven't always saved as much as we do now so you might want to check out that one next thanks so much for listening don't forget you can also find me on instagram and facebook see you next week
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