Your net worth will go “crazy” once you reach that financial milestone – even Charlie Munger said you can “take your foot off the gas” once you get there. Here's the magic number and how to hit it
Young Americans can get a one-way ticket to the millionaires' club by harnessing the power of compound interest.
It's simple: You invest a small amount of money each month in a low-cost index fund. When you earn dividends, you automatically reinvest those proceeds to buy more shares, and your returns increase over time.
But according to personal finance YouTuber Mark Tilbury, there's a catch: The magic doesn't really happen until you make your first $100,000.
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“That’s the best advice I’ve ever heard about building a high net worth,” he said, citing a millionaire he looked up to as a child. “Don’t worry about making millions; Instead, focus on the first $100,000 because after that your net worth will go crazy.”
Tilbury joins a large chorus of money mavens to drive home the importance of that first $100,000. Even the late Charlie Munger, a billionaire investor, described it as “off– but you have to do it” because “afterwards you can give it a little gas.”
Here's why the first $100,000 is so important and how you can accelerate your path to personal wealth.
A hard money milestone
It's difficult for young Americans to reach the $100,000 mark these days — especially considering post-pandemic inflation, increased interest rates and sky-high real estate prices due to a nationwide inventory shortage.
A 2023 Deloitte survey found that Generation Z has 86% less purchasing power than baby boomers did when they were in their 20s. They also have more student debt than Millennials, and half of Gen Z respondents said they live paycheck to paycheck.
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Without earning power, it is difficult to invest sensibly to take advantage of compound interest.
“Think of your money as a snowball,” Tilbury said. “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 the higher the compound interest you earn.”
He gave the example of investing $10,000 annually in a low-cost index fund like the S&P 500 with an average annual return of 7%. According to Tilbury's calculations, it would take 7.84 years to grow your money from $0 to $100,000. But going from $100,000 to $200,000 will only take 5.1 years, which is 35% faster. And the trend continues.
Once you reach $100,000, “compound interest stops being lame,” Tilbury says. “The key is to get this part of the money as quickly as possible. […] Once you get to that point, it's almost inevitable that you'll get rich just by investing in a low-cost index fund.”
Read more: Retire Richer – Why People Who Work With a Financial Advisor Retire With an Extra $1.3 Million
How do you make your first $100,000?
Tilbury suggests following what he calls the GROWTH method:
G: Get control of your finances.
R: Root your investments.
O: Optimize your tax management.
W: Eliminate your debt.
T: Open up additional sources of income.
H: Increased self-discipline.
According to Tilbury, there's only one way to take control of your finances: budgeting.
“Budgeting is not a set of rules designed to stop fun,” he said. “It's more like a guide that guides you to make more informed decisions. I’m not saying you need to be particularly frugal with your money, but you need to understand the difference between your needs and your wants.”
As for rooting your investments, Tilbury's all about investing a fixed amount of money – say $250 – every month in an index fund like the S&P 500 and then letting your money grow through the power of compounding.
Once you've put your money to work for you, it's time to optimize your tax management, such as taking advantage of all available tax credits and deductions, maximizing your tax-deferred retirement accounts and tax-deferred savings accounts, or even starting a business and doing business most of the time Depreciation.
“It’s so simple: Avoid paying taxes,” Tilbury said. “Let me make something very clear. Tax avoidance is perfectly fine and something smart people do. Tax evasion, on the other hand, is illegal and not what I’m talking about,” he stressed.
To secure your place in the realm of high net worth, you must pay off any debts that bind you. Tilbury suggests paying off your debt using the debt avalanche method, where you tackle the loans with the highest interest rates first.
The personal finance YouTuber's final two steps are to diversify and increase his income by starting a side hustle and to “find his inner discipline” to put all of these steps into practice.
He explained: “Discipline is the currency of success. The more you imprint, the richer your future will be.”
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This article is for informational purposes only and should not be construed as advice. The provision is made without any guarantee.