How to Build $100K in Five Years

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3:15Today, we're talking about a magic milestone in investing, your first 100K. Now, some of you might have already hit that number, And if so, incredible, please pat yourself on the back for me because it is the hardest financial finish line you will ever cross. For others listening, 100K might feel impossible, but please know this. You can do it and it only gets easier from here. I wish someone had told me this at 18. Your first 100K is the hardest money you will ever make. The next 100K, way easier. And the 100K after that, even easier. And when I say it gets easier, I'm not talking about fuzzy, squishy feelings.

3:52I mean, mathematically, it gets easier. So today I'm going to show you how to hit your first 100K, even if you're earning the average US salary, which is right around 64K right now. We're also going to build a real life doable five year plan to get you there. You can, of course, scale up or down based on your timeline, but I'm giving you five years as a baseline. And just to be clear, this is not going to happen with luck. This also won't happen with a hot stock tip. And it won't happen because your cousin Chad is really into crypto right now. This happens because of strategy, consistency, and I'll be honest, some compromise.

4:27And again, I totally get it. When you're starting from zero or if you're in debt like I was, it can feel like you're pushing this big old boulder up a hill. You're putting money in your 401k, your Roth IRA, an index fund, and nothing feels like it's happening. You start to question everything. Like, is this even working? Am I doing something wrong? Shouldn't I be farther along by now? So let me show you what's happening beneath the surface and why you do need to stick with it. Let's say you invest$1 ,000 a month and your investments have a 10 % average annual rate of return. That's the historic average of the U.S.

5:01stock market. To get to your first$100K, it's going to take a little over six years. But then to go from$100K to$200K, it takes a lot less time, about three years and 10 months. The more money you have, the more money you make. This is how compound interest works. And so let's fast forward to get from 900K to a million bucks. The acceleration of wealth becomes chef's kiss. It will only take you around 12 months, just one year for your investment to grow from 900K to a million bucks with that same monthly investment and the same rate of return. I know the initial slog of investing can feel like the power of compounding is not working for you, but it is.

5:42It just picks up speed later after that 100K mark because of the beautiful, amazing force of compound interest. So let's start there. I'm going to assume we're working with the average U.S. salary, which is around 64K. After taxes, depending on your state, you're likely going to take home somewhere around$48 ,000. That's about$4 ,000 a month. Here's what I want you to do in year one. Learn the game and save$10 ,000. Your goal this year is to build the habit of the 4K a month you're taking home. start by investing 500 bucks a month. That's six grand a year. Now you might be wondering where exactly should I be investing?

6:18I'm assuming 10 % annual growth here, which is the average annual return of the U.S. stock market. In order to make investments that mimic the stock market, pros will invest in S &P 500 index funds. A common low cost example is one with the ticker symbol VOO. Then aim to stash an extra$4 ,000 in a high yield savings account for your emergency fund. You can find that$4 ,000 over the course of the year by negotiating bills, cutting$200 to$300 a month from lifestyle creep, putting your tax refund to work, or if you want, doing a light side hustle. All of that, including a little bit of investment growth, will bring you to around$10 ,500 in year one.

6:58Year two is all about momentum. Raise your monthly investment from$500 to$1 ,000. Make it a goal not just to invest more, but to make more. Ask for that raise. Optimize your side gig. That way, it's going to be much easier to bump up your investment allocation. If you can invest$1 ,000 a month, you'll invest$12 ,000 in year two. But we can't forget year one, which has been growing in the stock market. Add year one and year two, and you'll have$23 ,000 invested. That is nearly 25 % of the way toward$100 ,000. Year three is our growth year. Now that you're comfortable with investing, it's time to invest$1 ,250 a month.

7:37That's$15 ,000 for the year. $15 ,000 that is working just as hard for you as you are working for it. Meanwhile, your existing investments have been growing at 10%. And I'll do the math for you. You'll end year three with$40 ,500. Psychologically, this is where all of this starts feeling real. You can see that snowball forming. Year four, it's all about pushing even harder on those two levers, earning more and investing more. Bump up your investing to$1 ,850 a month. That's a little over$22K for the year. By the end of year four, your$40 ,000 from last year has hit$44 ,000. Add in the$22 ,000 you've invested plus the monthly growth.

8:21And by the end of year four, you'll be at around$68 ,000. And by the way, if you haven't already maxed out your employer match on your 401k, please do that now. That is free money, which means this monthly contribution doesn't have to all be on you. Okay, year five, we are investing$2 ,100 a month and$100K is in sight. At$2 ,100 a month, you'll be investing over$24 ,000 in year five. And as that compounds, your nest egg is snowballing to your advantage. And ta-da, if you add$24 ,000 from year five to your growing brokerage account, you will actually now have a little over$100 ,000. Now, not everybody will be able to do this.

9:00And I completely understand that. Surprises happen. Sometimes the raise isn't possible. Sometimes your paycheck to paycheck. If you can't commit to these monthly investments, look for opportunities to invest one-time chunks of money that you get from things like a windfall, an inheritance, a tax refund, or selling a bigger ticket item that you no longer use. Or give yourself more time. This is just one aggressive investing schedule, but you can and should do what's best for you. But when you do hit that 100k mark, and I know you will, this is the really fun part. Once you get to 100k, compounding becomes noticeably faster.

9:36Your money starts making more money than you do. It's one of the wildest, most liberating feelings in the world of personal finance. At 100k, a 10 % return gives you$10 ,000 in one year. Completely passive. This is why the rich get richer. Not because they're smarter, but because compounding is doing the heavy lifting. And now you're on the right side of the equation. Your first 100k will feel like the longest, slowest, most frustrating phase of your financial life. But after that, finally, finally, the math starts working for you. As long as you stay consistent, keep lifestyle creep low and keep your eye on that long term game you will get there.

10:17For today's tip, you can take straight to the bank. If you want to make your own plan to 100k, you can use the free compound interest calculator that I have on my website for my course, The Money School. You can play around with different monthly investment scenarios or different time horizons, and the calculator will do the math for you. And again, this is completely free, just for you to use as you are plotting your six-figure life. To get started, head over to themoneyschool.com slash tools or check the link in the episode description.