While working towards financial independence $1,000,000 is often seen as a coveted milestone. This is a goal that can take a lifetime to achieve, but we know with a high savings rate this can be achieved much faster. Saving your first $100,000 is the hardest and takes the longest. Fortunately, each $100,000 after that becomes easier and comes faster. Compound interest becomes more and more impactful the larger your money grows.
We all know that $100,000 is only 10% of $1,000,000. What’s more interesting, is what percentage of the total time taken to get to $1,000,000 is occupied by the first $100,000. We’ll look at the $300,000, $500,000 and $750,000 milestones as well.
$300,000 is Half of $1,000,000
If I told you that $100,000 is 25% of $1,000,000, or that $300,000 is 50% of 1,000,000, you would probably look at me like I’m crazy. You would inform me that $100,000 is 10% and $300,000 is 30%, respectively, of $1,000,000 and ask me what I’m talking about?
What I should say is that $100,000 requires 25% of the total time that it takes to get to $1,000,000. And $300,000 requires 50% of the total time that it takes to get to $1,000,000. How is this possible? Compound interest! Take a look at the chart below:
| $5,000 | $10,000 | $20,000 | $30,000 | Average | |
| $100,000 | 12.37 Years – 31.64% | 7.44 Years – 24.91% | 4.19 Years – 19.52% | 2.92 Years – 17.07% | 6.73 Years – 23.29% |
| $300,000 | 23.57 Years – 60.28% | 16.06 Years – 53.77% | 10.11 Years – 47.11% | 7.44 Years – 43.48% | 14.30 Years – 51.16% |
| $500,000 | 29.87 Years – 76.39% | 21.46 Years – 71.84% | 14.33 Years – 66.77% | 10.90 Years – 63.71% | 19.14 Years – 69.68% |
| $750,000 | 35.19 Years – 90% | 26.26 Years – 87.91% | 18.32 Years – 85.37% | 14.33 Years – 83.75% | 23.53 Years – 86.76% |
| $1,000,000 | 39.1 Years – 100% | 29.87 Years – 100% | 21.46 Years – 100% | 17.11 Years – 100% | 26.89 Years – 100% |
The top lines of $5,000, $10,000, $20,000 and $30,000 represent amounts invested each year earning an annualized 7% return. The side columns of $100k, $300k, $500k, $750k and $1M represent investment milestones.
The purpose of this chart is to illustrate how long it will take different annual investment amounts to hit each milestone, in years and what percentage of the total time to reach $1M each of these milestones will occupy. For example, looking at the $10,000 annual investment, it will take 7.44 years to reach $100,000 and 29.87 years to reach $1,000,000. The 7.44 years that it took to reach $100,000 was a total of 24.91% of the total time of 29.87 years it would require to reach $1,000,000. Making $100,000 25% of 1,000,000! In the same $10,000 column, it would take 53.77% of the total time required to reach $300,000. This means that half of your time would be spent earning the first $300,000 and you would earn the next $700,000 in that same amount of time! This is what I meant when I said that $300,000 is half of $1,000,000.
Average
I took the average between each of the annual investment amounts time and percentage required to reach each milestone. With that information I created the chart below:
This chart illustrates how much faster each milestone past $100,000 is reached. You can notice how much flatter the line to $100,000 is compared to the rest of the milestones. The averages worked out to be 6.73 years – 23.29% to $100,000, 14.30 years – 51.16% to $300,000, 19.14 years – 69.68% to $500,000, 23.53 years – 86.76% to $750,000 and 26.89 years to $1,000,000.
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Using these averages, it took 6.73 years to reach $100,000. Another 7.57 years to reach $300,000. Just another 4.83 years to reach $500,000. Only another 4.39 years to reach $750,000. Finally, another 3.36 years to reach $1,000,000. The difference is pretty remarkable. It took 6.73 years to accumulate the first $100,000 but only 3.36 years to accumulate the final $250,000.
Conclusion
The power of compound interest is incredible. The sooner you can let it start working for you the sooner you can achieve financial independence. Each milestone will come exponentially sooner than the last. Hustle and grind to your first $100,000 so that your journey becomes easier! Tell all your friends that $300,000 is half of $1,000,000 and let me know the crazy remarks that they give you before you explain!
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