# How to save Your First $100k and Why It's so Hard

Updated: Sep 17

One of the most difficult tasks you’ll ever accomplish is saving your first $100,000. It also happens to be one of the most important financial milestones in your life.

There are four necessary steps you’ll need to take to save your first $100,000

**Calculate your current net worth****Choose a savings & investing strategy****Calculate how much you need to save each month****Put your savings on automatic**

In this article, I will review each of the necessary steps to saving your first $100,000. I will also go into detail on why it is simultaneously so difficult and so important to save your first $100,000.

### Why saving your first $100,000 is an important milestone

Saving your first $100,000 is so important because it is the point where compound returns become significant enough to begin building a wealth snowball.

To understand what I mean, let's consider how your wealth will compound under two different scenarios.

Scenario 1: you start with $10,000 invested.

Scenario 2: you start with $100,000 invested.

In both scenario's we will assume you are saving $500 per month and earn an average of 6% annual return on your investments. Let's take a look at your final balances saving the same amount of money after 10 years.

** Scenario 1 **

Your expected balance would be $100,543.

10% ($10,000) came from your initial principal.

60% ($60,000) came from your additional savings.

30% ($30,543) Came from compound returns.

** Scenario 2 **

Your expected balance would be $264,289.

37% ($100,000) came from your initial principal

23% ($60,000) came from your additional savings.

40% ($104,289) Came from compound returns.

Here is an easier way to visualise those numbers.

An even easier way to understand the snowballing effect of investment returns once you cross the $100,000 threshold mark consider how your annual savings would compare to your annual investment returns under scenarios 1 and 2.

**Here is scenario 1: Starting with $10,000.**

In year one your annual savings would be $6,000 and the investment return on your existing principal would be $600.

In year 10, your annual savings would still be $6,000 while your return on existing principal would be $5,3331. A significant improvement but your savings are still doing the heavy lifting.

**Here is scenario 2: Starting with $100,000.**

In year one your annual savings would be $6,000 and the investment return on your existing principal would also be $6,000. Right off the bat, your investment returns are working as hard as you are.

In year 10, your annual savings would still be $6,000 while your return on existing principal would be $14,585. You now would have reached a point where your money is working more than twice as hard as you you are.

### Why saving $100,000 is so difficult

**Reaching the $100,000 milestone is so difficult for the same reason that it is so important; Since you don't have enough saved to generate significant investment returns you have to save nearly every penny to cross the $100,000 threshold.**

In fact, you probably have to save more than $100,000 if you are starting from a point where you are carrying a lot of debt.

Here is a summary of why saving my first $100,000 was such a difficult

When I finished grad school, I had $50,000 in debt.

To save $100,000 and pay off my debt, required me to save $150,000.

This was largely accomplished early in my working career where my income was significantly lower than it is now.

Here is why it was so easy to go from $100,000 to $200,000.

I am starting during a point in my career where I have no debt and a higher income which means I can more easily afford to save.

On my journey from $100,000 to $200,000 my investments increased by roughly 30% or $30,000.

That means to save my second $100,000, required me to save only $70,000.

That is why I refer to the $100,000 threshold as the point where wealth begins to snowball.

When you start from scratch the snowball is tiny.

As you do the hard work of building your savings, the snowball begins to gain traction.

Once you pass the $100,000 mark your money is working hard for you and the snowball begins to turn into an avalanche.

### How to save your first $100,000

Like most things in personal finance, saving your first $100,000 is both difficult and simple. It's difficult because, as we discussed, you need to do all the heavy lifting.

It's simple because you simply need to follow a four-step process.

Calculate your current net worth.

Choose a savings & investing strategy.

Calculate how much you need to save each month.

Put your savings on automatic.

Let's dive into each step

### 1. Calculate your current net worth

To build a plan to save $100,000 you need to know exactly where your starting point is.

Someone with $50,000 already saved will have a much different savings plan than someone who is $50,000 in debt.

__Your net worth__ is simply equal to all of your assets minus all of your liabilities.

For the sake of simple math, let's assume you are starting from a net worth of $0.

### 2. Choose a savings and investing strategy

To grow your net worth beyond where it is today you are going to rely on two factors

How much you save and invest.

The return on your savings and investments

When it comes to making assumptions about your return on investment I hope for the best but plan for the worst. Meaning I like to be conservative with my investment assumptions. I see so many personal finance “gurus” saying you should expect a 10%-12% annual return on your investments. That is simply not realistic.

To make realistic investment assumptions, I rely on a source I can trust. __PWL Capital__ is a Canadian wealth management firm that produces top-notch research. They have provided the expected future returns of different asset classes in __this paper__.

Stocks: 6.5%

Bonds: 3.7%

Real estate: 3%

Some people might think those returns are too low, but it’s better to be under-promise and over-deliver, rather than giving people false hope of 10% or more annual returns every single year.

To keep the math consistent, I will assume an average return on investment will be 6%.

### 3. Calculate how much you need to save each month

Once you know how much money you currently have saved and what your assumed return on investment will be the final thing you need to do is pick a goal for when you would like to have $100,000 saved.

**Let's say you want to have $100,000 saved in six years.**

From here it's a simple math problem to figure out how much you need to save each month to have $100,000 in six years.

Here is how to calculate how much you need to save each month to have $100,000 in six years using Microsoft Excel.

Open up Excel, scroll over to "Functions" and under "Financial", select "PMT".

Click on "PMT" and Excel will open up a panel that looks like this.

Here is how to fill out the field to use the PMT formula in order to calculate monthly retirement savings.

**Rate**: Enter the assumed return on retirement investments and divide by 12. In our example, we assumed a 6% rate of return so under Rate enter "6%/12"**Nper**: Enter the number of months until you want $100,000 saved. In our example, we wanted to have $100,000 saved in six years which is equal to 72 months; so under Nper enter "72".**PV:**Enter the total amount you have saved for right now. In our example, we assumed we had nothing saved so under PV I would enter "0". Obviously, you would enter the amount you have saved here. Do not enter a comma or use a dollar sign here.**FV**: This is the amount of the lump sum we need to save in six years. Since we want to save $100,000, we will go with that and enter "-100000". Again enter this number without a comma or dollar sign.**Also, make sure you put a "negative" before the number or you'll get the wrong result**. I know it seems odd, but we are modifying another formula to fit out purposes so just make sure you input everything exactly right.**Type**: leave this blank.

**Hit enter and poof, Excel tells us we need to save $1,157 each month to accumulate a lump sum of $1,000,000 in the next six years. **

**4. Automate your savings **

Finally, once you figure out how much you need to save each month the last thing you need to do to guarantee you reach your goal is automate your savings.

Once you have created a budget that includes a certain amount towards investing, **there is only one thing that can stop you from following through on your investment plan; you**.

Most banks allow you to easily set up an automated withdrawal from your checking account on every pay-day and have that money placed into a savings or investment account. By doing this you are taking the concept of paying yourself first and automating the process.

This has two major benefits.

It takes the decision out of your hands.

You don’t even miss the money.

The money is never in your checking account long enough for you to spend. After a while, you adjust your spending as if that money was never there. Think about the taxes that come off your paycheck every two weeks, most people don’t even notice because the process is automated.

It should go without saying, but never automate your savings if you are not sure you will have enough money to in your account to cover the automatic withdrawal. The last thing you want is t get hit with non-sufficient funds fees.

### Saving $100,000 is a difficult but important goal

Saving $100,000 is one of the most important financial milestones for the same reason that it is one of the most difficult milestones to reach; it is the point where investment returns are likely to match or surpass your annual savings.

That is why going from $100,000 to $200,000 is so much easier and why each $100,000 increment is easier than the last.

The road to $1 million is measured in $100,000 increments.

To achieve this goal of saving $100,000 remember the four steps.

Calculate your current net worth.

Choose a savings & investing strategy.

Calculate how much you need to save each month.

Put your savings on automatic.

I know you can do this. If you have any questions, I am happy to discuss them in the comments.

*This article is for informational purposes only, it should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.*