Why $100,000 is the tipping point
For some finance experts, $100,000 is considered a tipping point for wealth-building because it’s a sizable amount of capital. To further illustrate this, Sethi used the example of a saver who started with $0 and invested $833 a month for 40 years at a 7% rate of return.
It would take this hypothetical person roughly eight years to get to their first $100,000. From there, it would take just 32 years to hit $1 million. In other words, 20% of this person’s total investment timeline is dedicated just to accumulating that first $100,000.
Sethi explained that compound interest works not just on current contributions but also on previous contributions and interest earned over time.
Eventually, your journey will hit a tipping point where you earn more on previous contributions and accumulated capital than on new contributions. This is why that milestone is so important.
“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,” he said. “It's almost impossible to. It starts to feed upon itself like an insatiable parasite that keeps giving you more and more money.”
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Learn MoreHow to reach your first $100,000
Since 1957, the S&P 500 has delivered a 10.26% compounded annual return, according to data from Investopedia.
Assuming you invest $833 every month, it would take you just slightly more than seven years to reach the $100,000 milestone.
However, since this milestone is so important, there are several ways you can reach it faster. You could, for instance, target high-growth stocks that have the ability to outperform the index.
A faster growth rate than the S&P 500, although difficult, could get you to the six-figure club sooner than within seven years.
Alternatively, you could target higher contributions. A side hustle, freelance work, or extra hours at your current job could help you contribute perhaps $900, or even $1,000, every month instead of $833.
Another strategy for fast-tracking your entry into the six-figure club is utilizing your employer’s 401(k) match program.
According to research from the Plan Sponsor of America (PSCA), 98% of companies that offered a 401(k) in 2023 matched their employees’ contributions to varying degrees.
There’s usually a cap on the amount an employer will match your contributions to your retirement account, but every little helps and this could get you to $100,000 faster.
However, the most traditional way to get to $100,000 quickly is to live frugally. Just like investing legends Warren Buffett and Charlie Munger, if you strive to live below your means you could contribute much more than $833 every month.
Regardless of your strategy, reaching this financial milestone rapidly could tip the odds in your favor and make wealth-building significantly easier.
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