Why the First $100,000 are so Hard to get (And the Next is Easy)

The first 100.000 were the roughest to archive in my financial journey, but with discipline and living below my means, I eventually made it.

By the end of this post, you’ll understand why the first $100,000 are so hard to get and what you can do to speed up the process.

I will dive into the reasons behind this financial hurdle and provide practical strategies to overcome it. Following these tips will help you build your first $100,000 more efficiently, setting the foundation for your financial success.

Introduction

I’ve often heard the saying that the first $100,000 are the hardest to amass.

Legendary investor Charlie Munger, the Vice Chairman of Berkshire Hathaway, has echoed this sentiment.

Many others who have grown significant wealth share the same belief – that reaching that initial six-figure milestone is the most challenging part of the journey.

But why is this the case?

And more importantly, what can we do to speed up the process of building that critical first $100,000?

Why the First $100,000 are so Hard to get

There are a few key reasons why accumulating the first $100,000 tends to be so difficult.

First and foremost, when you’re starting from scratch, you simply have less capital to work with.

Whether you’re saving from your regular paycheck or investing small amounts, the compounding effect is muted in the early stages.

It takes time to build up that initial base of capital.

Additionally, the psychological barriers can be significant.

Seeing your net worth stuck at low four-figures or even five-figures for an extended period can be demoralizing.

It’s easy to get discouraged and lose momentum.

The finish line of $100,000 can feel impossibly far away, especially when life’s expenses and other financial obligations are constantly competing for your limited resources.

Another factor is that in the early stages of wealth-building, your income is typically lower.

You may be just starting out in your career, or perhaps you’re an entrepreneur building a business from the ground up.

Either way, your earning potential is usually more limited when you’re younger.

This makes it harder to save aggressively and redirect a significant portion of your income towards investments and wealth-building.

Opportunities

The good news is that once you do manage to cross that $100,000 threshold, things tend to get easier.

The power of compounding really starts to kick in, and your money begins to work harder for you.

Suddenly, that next $100,000 seems to materialize much more quickly.

There are a few reasons for this. First, with a larger base of capital, your investment returns (whether in the stock market, real estate, or elsewhere) will be more substantial in absolute terms.

With an average annual return of 7-10%, your compounding interest growth much quicker in absolut terms when you have $200,000 or $300,000 invested versus just $50,000 or $10,000.

Example of net worth growth after 5 years at 10% return:

• Year 1: $10.000 -> Year 5: $16.105
  
  
• Year 1: $50.000 -> Year 5: $80.525
  
  
• Year 1: $100.000 -> Year 5: $161.051
  
  
• Year 1: $200.000 -> Year 5: $322.102
  
  

When looking at the list, you realize what I mean when I talk about the effect of compounding interest. The development of the $200.000 is hard to believe but its just math working in our favour.

You may also qualify for lower fees or more personalized service from financial institutions.

Perhaps most importantly, the psychological barriers start to melt away.

Reaching that first $100,000 milestone is a major accomplishment that can provide a huge boost in confidence and motivation.

Suddenly, the idea of reaching $200,000, $500,000, or even $1 million doesn’t seem quite as daunting.

Tips

So, what can you do to make that initial $100,000 hurdle a little easier to clear? Here are a few tips:

1. Maximize your savings rate. The more you can put away each month, the faster your balance will grow. Look for ways to cut expenses and redirect that money into investments.
   
   
2. Prioritize high-return investments. Focus on asset classes and investment strategies that have the potential for outsized returns, such as diversified index funds and real estate.
   
   
3. Start using tax-advantaged accounts. Contributions to 401(k)s, IRAs, and other tax-deferred vehicles can give your savings a significant boost.
   
   
4. Automate your investing. Set up automatic transfers from your checking account to investment accounts so the money is invested before you have a chance to spend it.
   
   
5. Increase your income. Look for ways to boost your earning power, whether through job promotions, side hustles, or starting a business.
   
   
6. Stay disciplined and patient. Wealth-building takes time, but if you remain consistent and persistent, you’ll eventually reach your goals..
   
   

FAQ

Why are the first $100,000 so hard to save?

There are a few key reasons why the first $100,000 are so difficult to save:

• You have less capital to work with in the early stages, so the compounding effect is muted.
  
  
• The psychological barriers can be significant, as it’s easy to get discouraged seeing your net worth stuck at low four or five figures.
  
  
• Your income is typically lower when you’re just starting out, making it harder to save aggressively.
  
  

How does it get easier after the first $100,000?

Once you reach the $100,000 milestone, a few things happen that make it easier to continue growing your wealth:

• The power of compounding really starts to kick in, and your investment returns generate larger dollar amounts.
  
  
• You may gain access to better investment opportunities and more favorable terms (lower fees etc.) as your net worth grows.
  
  
• The psychological barriers start to melt away, and you feel more motivated and confident in your ability to reach higher wealth levels.
  
  

I hope you were able to take something with you from this blog Post.

As always, Make your life a Priority.

Yours,
Stephan (About Me)

Sources

• Building strong networks is essential for accessing financial resources and increasing business survival and growth prospects (Brüderl & Preisendörfer, 1998).
• Trust within networks is crucial for accessing different types of business finance (Sengupta, 2011).
• Pushing beyond comfort zones enhances productivity, creativity, and confidence (Kiknadze & Leary, 2021).
• Engaging in new experiences and learning opportunities prepares individuals to handle unexpected situations effectively (Cobb, 2010).
• Focusing on personal financial goals and resisting impulse purchases leads to better financial outcomes (Cummins, Jenkins, & Haskell, 2009).
• Building a strong financial foundation and using advanced strategies enhances financial stability and growth (Walker & Brown, 2004).