As I'm writing this blog post on Friday, the rain is finally tapering off here in Central Wisconsin. And the rest of the day is expected to be sunny with a high temperature of 77 degrees Fahrenheit. The next few days are going to be more of the same weather wise. Needless to say, I'm going to get outside as much as I can while the weather is ideal.
With that aside, my net worth passed the $100,000 milestone on July 28. Here is the biggest lesson that I have learned over the past five years that I have been striving toward this moment as an investor.
The Savings Rate Is Far More Important During The Accumulation Phase
Just as Warren Buffett's right-hand man at Berkshire Hathaway named Charlie Munger put it decades ago: "The first $100,000 is a bitch, but you gotta do it." No matter how frequently used this expression is, it is a universal truth in the personal finance arena.
Unsurprisingly, that's because essentially everybody has to start from next to nothing. Simple math also tells us that even the greatest investors can't turn a modest sum of money into a fortune overnight. After all, a 100% return on $100 is still just $200.
Through the first three years of working my first real job, my annual gross income each year was less than $30,000. But I was regularly saving more than 50% of my net income, excluding the $26,000 in tuition that I paid the first two years while finishing undergrad.
This explains why my net worth back in August 2019 was around $20,000. The most mind-boggling thing to me is that my net worth was about $60,000 when I quit my day job to write for The Motley Fool in July 2021.
Over the last 13 months alone, my net worth has surged approximately 75% higher. Some of that was due to appreciation in the equity markets. But the vast majority of that spike in net worth was the result of simply earning much more net income each month to invest, which pushed my savings rate up to the 70% range. This really drives home the point that the first few hundred thousand dollars is more about your savings rate than your investment returns. And it's why I suspect that I will likely achieve a $200,000 net worth by Fall 2024.
I'm grateful to be in a position to reach a net worth in excess of $100,000 at the age of 25. At this point, it will only take three doublings to bring my net worth to nearly $1 million. I look forward to actively contributing investment capital toward this end while my existing investments compound.
Has your net worth reached $100,000 yet?
If so, what lessons did you learn along the way?
As always, I appreciate your readership. Please feel free to leave a comment below!