Why Net Worth Skyrockets After $100k (and How to Get There)

What the hell is wrong with you? Why do so many people believe that the way to get wealthy is by winning the lottery or by inheriting money? Do you understand that this is extremely rare? The actual way to build true wealth is slow and gradually. And when you do this, suddenly your wealth explodes. I'm going to show you how, including real numbers in this video. So let's get right into it with the power of compound interest. Now, investing is the number one way to build true wealth. It's why I've been personally investing in the stock market for 25 years. Yes, since I was 14 years old. Now, over the last century, the stock market has returned on average around 10 to 11% per year. But to account for inflation, which has historically been around 3% per year, I use 7% to calculate my returns. That is a very conservative number. That's 7% per year compounding, which means your money starts to grow upon itself. And you know what started it all? When I was 14, my dad helped me open up a custodial IRA. Now, I put a few thousand bucks in there from working various jobs like being a pizza maker and a soccer referee and working in sales. That money has turned into lots more money. And I'm just in my 40s. That showed me the power of compound interest, which turns small, consistent investing into something huge. For example, if you invest $10,000 a year, let's just make the math easy, that's about $833 a month. Assuming 7% returns, it'll take you about seven and a half years to reach $100,000. Now, why? We need to understand this so that you understand the power of compound interest. Each year you earn interest on what you contributed, but also on your previous contributions and on the interest you previously earned. Even though we assume 7%, I want you to know, some years it might be 10%, some years it might be negative 2%. But past roughly hundred years, through world wars, recessions, gas crisis, all kinds of stuff, we can assume 7% per year. That means the dollar amount you earn gets bigger and bigger, growing faster and faster, like a snowball rolling down a hill. And once that growth really explodes, you can't stop it. It's almost impossible to. It starts to feed upon itself like an insatiable parasite that keeps giving you more and more money. Let me show you what I mean. When you make your first a hundred thousand dollars, here's the breakdown. You contribute 76,000, $203. That means you are investing that money every single month automatically. And you will earn about $24,000 in interest. 76k comes out of your pocket. 24k in interest, that's already cool. But 24%, what's the big deal? Let's keep going. To reach $300,000, it would take you about 16 years. You would contribute and you would earn $136,000 in interest. Now what do you notice? Notice that the interest makes up about 45% of the total amount. That interest percentage is going up. But wait, let's keep going. If you keep investing for just another two years, the scales tip and you start making more in interest than you actually contributed yourself. At this point, you'd have $370,000, you would have contributed $184,000, but you would have earned $185,000 in interest. Do you see how awesome this is? This is where interest starts to explode. You're actually making more from your existing money than from the money you personally put into it. As the interest gets to this tipping point, it begins to feed more and more upon itself. So your growth outpaces your contributions. And every year that difference, or delta, grows larger. See, when you reach a million dollars, about 70% of your wealth will come from interest alone. That means that almost 3/4 of your net worth, or $697,000 will come from money you never earned at your job. This is incredible. And that's what getting your money to work for you means. You invest the same amount year after year and you don't touch it. And at a certain point, your investments will actually make more than your paycheck does. Remember when I told you it will take about 8 years of saving to get to 100k? With compound interest, getting to a million dollars or 10 times 100k will only take you about 22 years more. Just 3 times as long. Think about that. Only 3 times as long for 10 times the money. That is the power of compounding. If you can get to that first 100k, I promise the rest becomes much, much easier. So now that you understand the math, let me show you how to get there. But first, I recently spoke to a couple, Alexis and Olivia on my podcast. They're in their mid-50s and they have a 10 year old son. When I asked them what their top money dial was or area they love spending money on, they both told me our son. For them, that means sending him to an expensive private school camp and sending him to a top tier college without him incurring any debt. The only issue is Alexis and Olivia are already spending 30 to 40k more per year than what they make and they want to retire. So can they do it? Many of us ask ourselves these questions and we try to answer them with a rough back of the napkin calculation. But for more complex questions like can we retire? When can we retire? What if I want to leave my job and start a new career? How much can we afford to support our kids education? For those questions it can be really helpful to run specific scenarios to understand exactly how much you're going to have and what trade offs you need to make. You can do that with financial planning teams like the ones at our partner Facet. We actually asked Fassit to run this scenario for Alexis and Olivia and we showed them if you want to keep spending this way you'll have to work until you're 70. No or if you want to send your son to a really great school. This is how much you'll have to cut back or what it could look like if one of them semi retired so they could spend more time at home with their son, which is one of their biggest values. On the same page with Fassit you get flexible access to a team of financial planners, CFP professionals and and a team of professionals providing guidance across retirement planning, tax strategy, estate planning, and more. Instead of taking a percentage of your portfolio, they charge an affordable flat membership fee. Check out their membership options@facet.com ramit or click the link in the description below. Now let's get to the second part of this video. How to make your first hundred k start now the first thing that matters when it comes to building your wealth is time. If you're watching this and you didn't have the luck and privilege to start Investing at age 14, let me show you what happens if you start right now. Let's say you're 30 years old, you start today, you start investing $584 a month. We're always going to assume a 7% return, which is very conservative. It would take you a little over 10 years to get your first 100k and by the age of 65 you would have a million dollars. Please note, I am not increasing that number at all, which truthfully, almost everyone will increase. You'll get raises, maybe you'll get married and have dual incomes. There's so many different ways that you will increase the amount you invest, but I'm being super conservative here. If you start, however, investing at age 40 or 50, it becomes harder and by 60 it is really hard. Let's say you're age 60 and you want to make a million dollars by the age of 65, you have five years. Do you know how much you would need to invest per month? The answer is over $14,000 per month. That's simply unrealistic. What this shows you is the extreme power of time. So you have two choices. One, you can be depressed. Oh, I wish I started investing at age 17. Okay, sure. I wish I started deadlifting at 17. I did it. Or you can say, damn, I don't want to be 55 and worrying about money. Let me start today. Now, let me show you another thing most people don't think about, which can have a huge effect on your investments. Costs. The second way to supercharge your way to exploding your wealth is to minimize costs. Now, people don't really think about this. It's funny. They will obsess over the price of blueberries. They will spend three, four, five hours trying to optimize their airline so that they can have three different legs and not two, because they save $150. But they just totally disregard costs when it comes to the place that it actually matters, which is your investments. Where you invest and who you invest with matters a lot. And costs matter more than you can possibly imagine. I'm going to show you the math. A lot of people think, oh, I'll just pay a financial advisor. Some guy's out there looking at over my money. He's keeping an eye cmc. You know how they pay this advisor? They usually pay around 1%. 1% doesn't sound like much, but the effect of a 1% fee is tremendous. Over the course of your life, 1% fee to a financial advisor will cost you hundreds of thousands of dollars. And the worst part is, you probably won't even know it. You want me to tell you another shocking stat? A 1% fee can add up to 28% of your lifetime investment returns paid out to your financial advisor. Let me show you the math. Let's say you currently have $25,000 invested. You're earning 7% per year, and your funds have a very low management fee of 0.1%. In 40 years, even without contributing a single dollar more to your portfolio, you would have $360,000. Not bad. But if instead you're paying a 1% fee to a financial advisor, can you guess how much you would have in 40 years? Instead of 360,000, you would have only $257,000. That 1% fee would have cost you $103,475 or 28% of your lifetime returns, all going into your financial advisor's pocket to pay for their BMW. Now, this is a modest amount. This is a very simple example, but let me show you what happens if you're actually investing more. A lot more. Like $5,000 a month. Do you see that you are paying $2.5 million in fees? This is a big deal when it comes to your investment, costs matter. Minimize them and keep your money for yourself. Track percentages, not numbers. The third way to explode your wealth is to stop thinking about investing $200 a month or $500 a month. Instead, I want you to start thinking in terms of percentages. For example, let's say Your salary is $70,000 and you take home $4,500 a month after taxes. If I were to tell you you should invest $500 a month, your natural reaction would be $500 a month. Where am I supposed to find that? Instead, think in terms of percentages. If you're investing 10% of your take home pay, that means you're investing $450 a month. We can rationalize percentages. Dollar amounts become hard for us. So why do we think in terms of percentages instead of that fixed dollar amount? There's one big reason. Because when your income increases to $100,000, if you keep investing 10% of your take home pay, you're now investing over $600 a month. Do you see how your investments naturally go up? And the best part is you don't have to worry about increasing your investments as you make more. This happens automatically by shifting your focus from a fixed amount to a percentage. But if you want to make money even faster, I have a little trick for you. Every year in December, set up a calendar reminder and increase your contributions by 1%. So instead of 10%, you go to 11%. The year after, you go to 12%. Doing that one trick, one day per year takes you 10 minutes will be worth hundreds of thousands of dollars to you over the course of your lifetime. Now, I just covered the basics of building true wealth in this video. But if you want to know how to retire richer than you ever could have imagined, check out my complete playbook here.