It feels amazing to see my Vanguard brokerage account hit over $100k at such a young age. I have worked hard in both the earning and expense side in my investing journey. It feels great to see the progress and growth to hit over $100k in such a short amount of time. Here are four things that were critical for me to hit this major milestone!
The first and most important thing I have done is ensuring my money is also making money for me. This is my first of three core principles that are fundamental to my values.
If you are keeping your money in a savings account earning less than .03%, your money isn’t working as hard for you as you are working for it. If you are keeping your money in cash stashed under your bed, again, your money isn’t working hard enough for you. Keep your money invested in assets so it can work as hard for you as you work for it.
A key to having a lot of money to invest is by saving. The largest expense for 99.9% of American’s is housing. If you house hack, there are a few things you are doing. First, you are eliminating your largest expense. This allows you to automatically save that money, if you are smart. Next, if you buy a home, you are building equity in the home by having your tenants pay your mortgage for you. Finally, there are tax advantages to owning real estate. I won’t bore you with all the details on the advantages here, but you can read this article to understand a little more on the tax advantages of investing in real estate.
Item #4: I Focused On Both Sides Of The Equation
Too often, I hear people talking about cutting the small expenses. What they sometimes forget is the fact that there are two sides of the equation. The first side is expenses and the second is expenses. I have put a heavy focus on both increasing my overall income as well as decreasing my living expenses. This focus on both sides of the equation has been a critical part of being able to get to $100,000 in my Vanguard brokerage account.
Sometimes it is good to take a step back and celebrate how far you have come. I am often very hard on myself that I am not doing enough and need to do more. I am often slow to celebrate the amazing progress I have made in trying to do big things with my life.
To fully grasp this accomplishment, if I were to not touch this account for 30 years, let’s see what it could look like. If we were to use a 7% interest rate compounded yearly, in 30 years, my $101,000 would look like this.
That’s right, if I were to not touch this account (no adding money and no removing money), it would be worth $774,000 in 30 years. Now, I don’t plan to stop here. I am going to continue automating my investments every week. At least, until I hit a number where I feelfinancially independent.
So for a very short period of time, it is time to celebrate! $100,000 let’s get it! Time to get to $200,000 and on!
Ensure your money is always working as hard for you as you work for it.
Invest early to realize the power of compound interest
House hack to eliminate your largest expense
Focus on both increasing your income and decreasing your overall expenses. It isn’t enough to focus on only one or the other.
Have you ever wondered why people talk about investing early in your life? The simple reason is the power of compound interest. If you start investing early in your life you will realize the power of compound interest and will greatly speed up your path to FI. This is an incredible way to build wealth at a young age.
Want to see what the power of compounding can do? You can see a simplified compound interest calculator here, you can input a few numbers to see what the power of compound interest looks like. Let’s take the below example over a 30 year timespan:
You started with an investment of $500
You add $100 to this investment every month
Let’s assume this investment earns you a 7% return
What Does Compound Interest Look LikeIn the above example, here is what your money would look like after 30 years!
What are we looking at? The y-axis indicates the dollar value. The x-axis indicates the number of years. The blue/green line shows the amount you contributed over time and the red line shows the future value of the money after compounding.
Here is what I find most interesting about compound interest. Early on in the investment, you won’t see much difference between the red and blue/green lines. For example, in the graph above, you don’t see much difference in the two lines until year 14. This would make most believe the strategy isn’t working. Some would quit. Some would think they wasted a bunch of time. But wait, there is more.
It is the later years where you begin to truly see the separation. Beginning around year 14 we begin to see exponential growth take place. Growth compounded on more growth will only speed up this curve faster as you look further out.
Don’t believe me, let’s look at what a 50 year time horizon would look like:
But What If I Didn’t Start Early?
This is a very common question I get. Many believe if they don’t start early then they should not start at all. This is part of the challenge of having a Fixed vs Growth mindset. If you want to read more about what the difference of theses mindsets, click here.
Don’t let the fact that you didn’t start young stop you from starting! You learn new information every day. Take the new information you learn each day and figure out how to apply what is relevant. Investing in your future self and the ability to become financially independent will always be relevant.
The power of compound interest is real. Be patient and start early!
If you haven’t started yet and you aren’t young, SO WHAT! Start now. Don’t let this be the excuse to never get started.
The longer you look out on a compound interest timeline, the more compounding you see. This is true for any scenario you plug into the calculator.