Welcome to reThinkable – my weekly newsletter where I share actionable insights to build a wealthy healthy life.
Here’s what we’re covering:
🏆 A Legend
💥 Why Your Net Worth Explodes After $100,000
📈 Getting To Your First $100,000
🏆 A Legend
5 months ago, the world lost a legend.
Charlie Munger, the vice chairman of Berkshire Hathaway and Warren Buffet’s partner, passed away in November 2023.
I wanted to share one of his quotes that had a lasting impact on me.
“The first $100,000 is a b*tch, but you gotta do it.”
In today’s newsletter, I want to talk about why your first $100,000 is so important and how your net worth explodes after reaching this milestone. I’ll also share 3 tips to accumulate $100,000 as quickly as possible.
💥 Why Your Net Worth Explodes After $100,000
Think of your money like a nuclear bomb.
When the bomb is triggered, it unleashes a continuous chain reaction — tiny explosions one after the other, leading to the big boom.
Investing works in a similar way—you earn returns every year, which compound and accumulate, leading to a significant payoff.
Which sounds great, but there’s a problem.
You need to reach critical mass first, which is the minimum amount of material needed to achieve a self-sustaining reaction that has enough impact.. Anything below this amount, and the chain reaction and the explosion will be subtle or, worse, fizzle out.
In finance, $100,000 is the critical mass — anything less than that, then the power of compound interest won’t be as impactful.
For instance, if you invest $15,000 a year in the S&P 500 with an average annual return of 7%, your net worth will reach $100,000 in 5.66 years.
However, 85% of that $100,000 total is your direct cash contributions — the $15,000 you contributed each year. The remaining 15% is from the stock market and its compounding returns.
But after the $100,000 critical mass threshold, things get a lot more interesting.
If you continue to invest $15,000 a year in the S&P 500 with the same average annual return of 7%, you’ll reach a net worth of:
$200,000 in 4.08 years
$300,000 in 3.20 years
$400,000 in 2.63 years
$500,000 in 2.3 years
Thanks to the critical mass threshold, you’ll reach each additional $100,000 milestone in shorter amounts of time.
Once you’re at a $900,000 net worth, it’ll take you only 1.27 years to reach $1,000,000.
If we break down the composition of the $1,000,000, 38% is from your direct cash contributions but nearly 62% of it is from the stock market.
That’s why you can accumulate an additional $100,000 4.45x faster when going from $900,000 to $1,000,000 than when going from $0 to $100,000.
📈 Getting To Your First $100,000
If you don’t have $100,000 yet, don’t worry. Here are 3 strategies to help you reach your first $100,000 as quickly as possible.
The Pareto Principle
First, follow the Pareto Principle, which states about 80% of your total expenses comes from around 20% of your expense categories.
For instance, if your total monthly expense is $6,000 then 80% or $4,800 of the expenses comes from 20% of your expense categories, like housing, transportation, and food. The remaining 20% or $1,200 of the expenses comes from 80% of your expense categories, like entertainment, gifts, and clothes.
So, if you want to cut your expenses by $600, it would be more effective to cut the $600 from the $4,800 expense than the $1,200 expenses, assuming it’s the same amount of effort.
Maximize Efficiency
Before you reach $100,000 in net worth, the value of each dollar is so much more important, which is why you need to maximize the efficiency of each dollar you have.
But many people don’t do that when they use big banks like Chase, Wells Fargo, or Bank of America.
If you didn’t know, money in your savings accounts can earn interest (i.e., banks pay you money to store your money with them). The problem with these big banks is they offer traditional savings accounts which literally pay you nothing.
For instance, Chase savings accounts offer a 0.01% interest rate. If you keep $10,000 in it, Chase will pay you $1 in interest by the end of the year.
On the other hand, there are saving accounts called High Yield Saving Accounts (HYSAs) that pay you significantly more money. High Yield Saving Accounts, like UFB Direct and Laurel Road, offer 5.25% and 5.15% interest rates, respectively.
If you keep $10,000 in Laurel Road’s HYSA, they will pay you $515 by the end of the year.
That extra $514 is the difference between successfully maximizing the efficiency of your money and not.
I’ve personally had a HYSA for years and it pays me hundreds of dollars in interest every month without having to do anything.
If you’re interested in opening a HYSA, here are my favorite FDIC-insured ones where you can earn up to 5.25% on your money.
P.S. If you need help setting up a HYSA, reply to this email with the word “SAVE” and I’ll film a quick guide for you.
Your Savings Threshold
You need to increase your savings threshold because you can only save as much as you earn. For instance, if you earn $4,000 a month and if you don’t spend a single penny, the max you could ever save is $4,000 a month, which is your savings threshold.
The only way to increase your saving threshold is to earn more money, and the fastest way to do this is by prioritizing your active income stream aka your job.
I’ve realized that the people who make the most money at work aren’t the hardest working—it’s the people who are not afraid to own their value and know how to sell that value to others.
Here’s what you need to do: start preparing for your performance review months in advance.
For example, when I worked in Corporate America, I kept an “Accomplishments” folder on my computer where I stored all the wins, praises, and accomplishments I had at the company.
Every time I achieved something I could quantify—like if I worked on a project that generated $1,000,000 and my work directly added $500,000 to that total, or if I designed a new process that helped everyone finish their task 30% faster—I would drop evidence of it in the folder.
The purpose of the “Accomplishments” folder is so you can bring it with you to your next performance review to prove you bring tangible and quantifiable value to the company. Coming prepared with hard facts and data increases your chances of getting a raise.
See you next Thursday,
Vincent 😃
🔎 reThink More
📈 Wait… who owns 80% of the stock market?
🎓 College graduates might be in big trouble
📽️ Watch it: My latest YouTube video, Luxury Brands Are For Broke People
❤️ Community Space
Last week, I wrote about I can’t believe I’m sharing this. 86.36% of you got the right answer to the question, “Why is being financially jealous harmful?”
The answer: It wastes your time and energy that could be used to improve your own finances.
Here are 3 of my favorite responses from y’all:
“It’s crazy how financial jealousy can really derail a person! I’m a uni student, and just like you said, there are richer and more well-off students than I could imagine. Whenever I got jealous, I’d spend above my budget… You know, champagne taste on an OJ budget😮💨🤧😮💨”
“I’m currently not financially where I want to be, but because I was so financially jealous of others that could take a vacation to a fun place whenever they wanted I made a poor decision. When two friends had planned a vacation to New York and insisted I needed to come I caved and went. Now that I’m back my car needs serious work, I’m now having to move in august, and just got my hours cut at work. If I hadn’t been jealous of their vacation and instead just stayed home I wouldn’t be having to scramble my finances around to try and come up with extra money. ”
“My best friends come from a wealthy family, generational wealth kind of wealthy, and I come from a family that is constantly struggling. I watch them get new cars (bought by parents), while I have to fix my 20 year old car every couple of months. I see them traveling and not caring how they spend and I sometimes have to cancel plans because I cant keep up, I live on a budget. ”
Answer the bonus question in the quiz below for a chance to be featured in our next newsletter 😀.
📝 reThinkable Quiz
PS: Here’s how time flies