If you are also passionate about Personal Finance, you surely already know that the first 100,000 Euros are the most difficult to accumulate!
This was stated by Charlie Munger, vice president of Berkshire Hathaway and partner of Warren Buffet, at one of the annual meetings of the American investment giant.
To be exact, Charlie said very colorfully:
The first $ 100,000 is ab * tch, but you gotta do it. ”
It is an absolute truth.
I will tell you that reaching a patrimony of 100,000 euros is very difficult for two reasons.
First of all, when you start saving you don’t know how to do it.
You struggle to save and see even a positive balance in your account.
Second, The Magic Power of Compound Interest doesn’t seem to work until you hit this figure.
Saving is not easy and when it comes to saving such an important amount, many give up before reaching it.
Do you also happen to accumulate some money and then be overwhelmed by sudden expenses?
You don’t know how many times this has happened to me, especially when I was twenty.
Then I learned to distinguish between truly urgent expenses and deferrable expenses.
I also learned how to save automatically.
I understood that it is right to start with small numbers and then raise the bar every day.
And ultimately my income has also grown.
Both the income I get from my main income and what I get from the other businesses I do.
Actually, in my mind, I still don’t think I have reached the first 100,000 Euros.
As you may already know, if you read my financial reports, my net worth including the house I live in is greater than that amount.
However, the house is not an asset on which to obtain certain returns and therefore I exclude it from the count.
In this article
- How many years can I earn 100,000 Euros?
- How can I maximize the first 100,000 Euros?
- Why is it no longer necessary to save at some point?
How many years can I earn 100,000 Euros?
There is no single answer because it depends on how much you can save each year.
I tried to do some calculations and I discovered that investment choices have very little impact on the first 100,000 euros.
You can easily calculate it and realize that to reach your first goal it is not so much how much your investments make, but how much you can save.
Whether you manage to save 10,000 Euros a year, or whether you manage to accumulate 20,000 euros, don’t worry so much about investment choices, but maximize the savings.
Try to reach at least 3% on your investments, which however should be a realistic goal given the yields of government bonds.
Once you reach the first 100,000 euros, the game changes, and if you want to accelerate you have to focus on performance.
How can I maximize the first 100,000 Euros?
Once you reach the first financial milestone, you will find that adding 100,000 new ones will take less and less time.
This is because, hopefully, you will have learned to save. But also because the interest and compounded return will start working for you.
If to accumulate the first 100,000, you could take about 8 years, in 7 you will add another 100, and in 6 a similar sum if you invest at 5%.
This mechanism is even more evident if the rate of return is raised.
If you managed to get 10% net from your investments it would only take 4 years to reach 200,000 and another three 300,000.
Given the two examples, it is clear how important a high return on your portfolio is.
And I’ll tell you it’s not that impossible to get.
This is because as your assets grow you will be able to opt to invest a part of it in riskier instruments.
If I then managed to save € 20,000 per year, the yield achieved would immediately be even more important.
Why is it no longer necessary to save at some point?
If saving 10,000 or 20,000 Euros today may seem like an important figure (and it is), I must tell you that in 20 years, once you reach your first million, perhaps this will not make any sense.
This is because your assets will be able to continue to grow automatically, much more easily.
And saving will no longer be necessary.
Of course, you can continue to do so, but your investment choices will be much more important.
But I would like to say that you have at least 5 years ahead of you to learn everything about investments.
If you don’t have 100,000 Euros yet and you are saving, I recommend that you start studying.
But also to find alternatively a good consultant who can help you draw up a Financial Plan.
As always, the consultancy has a cost, but the wrong investment choices are also paid.
Because obviously in my calculations I have considered always obtaining a positive return from investments, but as you know there is no return without risk.
Writing this article and above all preparing, the support tables helped me, even more, to understand how important savings are.
This is especially in the initial moment in which you are confronted with your Personal Finance choices.
If I was twenty I wouldn’t make so many mistakes I’ve made.
Above all, I would try to save constantly and avoid paying attention to the performance of the chosen tools.
I lost money on the stock market, trying to accelerate my savings plan by achieving exactly the opposite goal.
I invested in forex, in Greek government bonds, in a house that I sold and lost money …
If only I had known that the first 100,000 Euros are so difficult to reach and it doesn’t matter how you invest them but how much you save each month to reach them!
Today, however, I am in time to remedy.
The moment in which to reach the various steps will only move forward.
Saving you must understand that it is not a value in itself, as my parents taught me.
It is not a shame to also spend on luxury goods.
But it is essential if you want to achieve your Financial Independence.
If you want to work until retirement and never be free to choose what to do and how to do it, go ahead and ignore Charlie Munger and me.
If, on the other hand, you have decided to take the first step to start planning your life, start the process that will lead you, when you least expect it, to see your accounts grow automatically from year to year.