Hahaha. I couldn’t resist on the title for this one.
But once again, compounding has shown us its massive power and I simply needed a way to emphasize that.
Let me explain…
The First Million is the Hardest
Several years ago I wrote a post titled The First Million is the Hardest.
The introduction to that post started with this:
Some say that hitting your first million in net worth is harder than hitting subsequent million-dollar milestones. This post examines whether or not this is true.
Short story: it is true.
That’s because in getting to the first million you are doing all the heavy lifting yourself. You are having to save a ton of money. And that money has relatively little time to help you grow it into more.
But once you get the first million, you keep on saving PLUS that first million starts working hard for you over time.
Next thing you know you have $2 million!
Now you’re still saving but you have $2 million helping you out!!!! It’s a wealth snowball!!!!!
Looking at Subsequent Millions
When I wrote that post (which was near the time I retired), I had reached $3 million in net worth.
My milestones were as follows:
- $1 million net worth — 19 years, 3 months
- $2 million net worth — 4 years, 9 months
- $3 million net worth — 2 years, 8 months
As you can see, things got much easier over time.
As I write this, my net worth is now over $6 million, so I’ll add the following to what I have above:
- $4 million net worth — 3 years, 6 months
- $5 million net worth — 2 years, 4 months
- $6 million net worth — 5 months
Ok, there are a few things screwy in these numbers (which are my “official” end-of-month numbers from Quicken) that don’t make every million easier than the rest.
Here’s what’s going on in my case:
- Between $3 million and $4 million we had higher spending and lower income. We spent a lot on travel. And income was “lower” than it is now — it wasn’t low in absolute terms FYI.
- We also had a stock market that wasn’t as cooperative as it’s been more recently. And since a big part of our wealth is in index funds, our net worth rides along with what happens in the market.
- And finally, between $3 million and $4 million I kept the value of my rental properties in my net worth at cost. I knew they were worth more but there wasn’t any real way to get a solid number on them. Plus there were variables (like taxes, selling costs, etc.) that would play a part in their final value. So I kept them in my numbers at cost as another margin of safety.
- Once I got to $4 million, I started making more money (really by accident, but it happened), the market was on fire (except for March 2020), I bought more index funds and dividend stocks on the dip, and I upped the estimated value of my rental properties based on advice from the Millionaire Money Mentors. And what do you know — $5 million happened fairly quickly!
- Then I sold my rental properties and realized their true value (which was higher than I had estimated). And the market kept growing on an amazing pace. Plus I earned even more. And Covid put a kibosh on one of our top spending categories (travel), so spending was way down. Before I knew it, we were at $6 million in less than half a year.
- If I had valued the rental properties correctly each year my net worth would probably have been more linear with each subsequent million taking less time (maybe not exactly, but much closer than what is shown above). Of course the market is a big factor in this as well and sometimes it’s up 20% and sometimes it’s up 3% (or even down). So that impacts the numbers too and no amount of investment level is immune from those fluctuations and growth rates.
But the general principle is correct: each subsequent million is easier to achieve than the last one.
If I had updated estimated the real estate values each year, my net worth growth would probably look something like this:
- $4 million net worth — 2 years, 6 months
- $5 million net worth — 2 years, 1 month
- $6 million net worth — 1 year, 8 months
Millionaires Have the Same Experience
In the Millionaire Money Mentors forums we had a discussion about this principle and the general consensus was that it’s true.
Some shared their net worth progressions to illustrate the fact and I want to highlight a few for you.
Let’s begin with this one:
- 1M at 37
- 2M at 42
- Now 50K away from 3M at 45
So many in the forums are doing better than I did at an earlier age. Bravo for them!
And another:
- 1M was ~16 years
- 31 more months to hit 2M
- 25 more months to hit 3M
- 20 more months to hit 4M
- 7 more months to hit 5M
- 13 more months to hit 6M
- 8 more months to hit 7M
- 15 months to hit 8M
- 16 months to hit 9M
- 11 months to hit 10M
- 12 months to hit 11M
That’s a very nice ramp up!!!
This mentor actually listed how he made each jump as well — what percentage was attributed to savings and what percent was from investing.
The specifics:
- 1M to 2M – 105% Savings as actually lost 5% in Investing
- 2M to 3M – 85% Savings/ 15% Investing
- 3M to 4M – 65% Savings/ 35% Investing
- 4M to 5M – 15% Savings/ 85% Investing
- 5M to 6M – 10% Savings/ 90% Investing
- 6M to 7M – 30% Savings/ 70% Investing
- 7M to 8M – 55% Savings/ 45% Investing
- 8M to 9M – 30% Savings/ 70% Investing
- 9M to 10M – 40% Savings/ 60% Investing
- 10M to 11M – 55% Savings/ 45% Investing
You can see how investing becomes more important as the numbers get larger. Compounding does its thing!
I do think that investing is even more important than what’s shown here and I made this comment in the forums:
I think these numbers are more indicative of a VERY high income. Most millionaires make in the $250k range (median). You are at least 3x of that, thus income is a bigger portion of your gains.
For someone who made “only” $250k per year, I would expect investing to be a larger share of the gains earlier in the journey.
Here’s another:
- First million at 31
- Second million at 33
- Third million at 34
Three million at 34!!!!!!! Amazing!
As I said, there are some really smart cookies in the forums. Hahaha.
Another example:
- Hit $1 million at 41
- $2 million at 45
- Probably will hit $3 million by 48
And another:
- $1M at 31
- $2M at 34
- $3M at 36
- $4M at 37
- $5M at 38
Wow. Just wow.
Another:
- $1MM – Age 42 (took 20 years)
- $2MM – Age 45 (took 2 years, 9 months)
- $3MM – Age 46 (took 1 year, 4 months)
- $4MM – Age 47 (took 10 months)
Yet one more strong performer.
And one last one for today:
- $1M – Age 34 (been working in a career job for 11 years)
- $2M – Age 37 – 38
- $3M – Age 40 – 41
- $4M – Age 44
- $5M – Age 46
Time to retire early!!!!!!!
So What?
You may be reading this and thinking, “Ok, so what’s the big point here?”
The point is an encouragement for you.
You might have less than $1 million right now, think you need $3 million or so to retire, and might be getting frustrated.
Perhaps you’re thinking, “It’s taking me so long to get to $1 million! I’ll NEVER get to $3 million!”
The point here is: Don’t give up! It gets MUCH EASIER!
Work to get to that first million by earning, saving and investing. Then you’ll have a buddy (your $1 million buddy) to help you get to the second and third million much easier and faster than it took to get to the millionaire level.
So keep at it! Go get ’em! You got this!!!!
Great article and so agree! As you move past the $1.5m NW mark it’s way more about investing. You still need income and be cash flow positive annually. It’s all about being slow, steady, and disciplined. You can invest aggressively, but don’t follow hunches, fads, or salesman. I am largely in tech stocks; nothing fancy just standard household names.
Here’s my mark, I posted under an alias name in case a friend reads this as my real name is uncommon.
All values approximate.
Age / NW (net of debt which is < 10% of NW)
30 / $1m
35 / $2m
38 / $3m
40 / $4m
43 (est) / $5m
Agree with pretty much everything in your post. I’m not in your mentor forums. But I hit $1M (household net worth) around age 43. Expect to hit $2M this year at age 48. But the point is, I managed to get here as a single income family supporting a family of 5….and no inheritances. E-S-I, indeed. And this was in a “middle management” job. So my salary was always decent but was never an executive level. In just the last year, my salary jumped up with a promotion so now I’m perhaps at a low level exec pay range. And the net worth increases are accelerating. A lot of that come from investing. My point is I’m agreeing with you, your readers need to stick with it. That first $1M felt like a grind. And it’s only in my late 40’s that things feel like they are accelerating for me and my family.
Thanks for the post and the encouragement!! As I am just at the beginning of my journey, <$1M at age 30, it brings me great excitement to see how quickly things build on themselves and snowball into bigger amounts more quickly.
It looks like things also accelerated for folks during their prime earning years too. While that is probably less of a factor than the compunding investments, increased earning probably helped in the $1M-$2M range don't you think?
Increased earning (along with controlled spending) certainly helps!!!!!
Thank you for this post – very timely for me and needed. I check net worth quarterly and most recent update had us at $950k. So close!
Next check not due until Oct 1 but I couldn’t help myself and last week I peeked early. $994k. Argh!
Intuitively, I know it will happen and then hopefully pick up steam as you’ve described here. But still easy to get frustrated and wonder if we will ever have enough to actually retire (target date in 8 yrs).
This post helped tremendously with that mental grappling. Thanks!
This didn’t really sink into my financial psyche until recently but it really gets as simple as percentages and the base number.
Ignoring any additional savings, If you make 10% in the market on $1 million, you get $100k added but if you make 10% on $5 million, you get $500k added. Stating it in that fashion really hit home for me in terms of the power of compounding and the time taken to add another million.
I kind of think that based on this example alone, $3 million is where you really start to see this in a normal market where a 10% return gets you 1/3 of the way to your next million all else ignored : )
The snowball effect is real – so many examples of that. I think the increased earnings has a huge impact on it as well. In many fields, your max earnings comes when you’re 40+.
My story is like most in here – the first $1m took a long time, but it’s gotten progressively shorter, thanks in part to investment/savings, but in larger part due to the earnings taking off in my 40s
$1m – age 39
$2m – age 42
$3m – age 47 (divorce caused the $2m to $3m delay – ugh…)
$4m – age 48
I’ll jump from $4.7m today to $6m with vested equity by age 49 in 4 months, and $7m at age 50.
We also have to remember that as the numbers get bigger the losses in real dollars can be disconcerting when the market goes the other way. I had no trouble stomaching the corrections and just ignoring my statements during those times in my younger days when the market had sustained drops but I will admit that as our portfolio has grown those corrections can be scary when you look at the paper losses.
It is tempting to shift money in pre-tax accounts when the market is looking weak but I have learned through the years that market timing rarely pays off. It isn’t that hard to take money out of the market but it is more difficult when it comes to figuring out when to put it back in and you usually miss the big jump from the low before you have enough confidence to re-invest it.
Great point and I have to remind myself of this. I have been “lucky” with market timing in the past but do not do so any more.
My reaction is the same. A 20% increase gets you from $5M to $6M. With such a wonderful bull run continuing from last year, this is par for the course assuming an aggressive portfolio. But what goes up also goes down. So IMO, if you want to continue to ride this wave, be prepared to lose half “on paper” in the short term and have a plan on how you’re not going to sell during the downturn while the market works itself out.
Like most people who have been investing for a while, our 2 biggest drops were in 2008 and the end of 2018. Our portfolio in 2008 was down 1.1M or -29% for the year. It took 19 months to recover those paper losses. In 2018 we were down almost 900K, but that only represented a 12% loss for the year and it only took 6 months to recover that paper loss.
In both cases, I think I actually stopped looking at our portfolio for several months when things were at their worst which seemed to have kept me from making any hasty decisions and just staying put and waiting it out.
Hopefully, I can muscle up the courage yet again when we face those circumstances. I think the key is to just make sure you have enough money parked on the sidelines to see you through a sustained catchup period without having to sell at the bottom.
Tiger,
We all probably have the natural inclination to avoid evaluating our portfolio during downturns to wait them out, and I too have been guilty of that. That’s fine over the long term and it’s certainly better than anxiously selling at the bottom.
However, for the future, I will make efforts NOT to do that again. Positioning yourself with lump sums into the markets near the bottoms can be extremely valuable in compounding net worth. Doing so at the contracted PE’s is the best time to invest. We all too often unknowingly make our decisions based on our fears rather than putting emotion to the side and using brain, and enhancing our financial literacy can bridge that divide.
Always have some money on the side to sustain you over a prolonged downturn, that can be in the form of cash in the bank, cash flow from work/business/asset profit/dividend income (the whole point of diversified investments outside of the stock market during a downturn), a low interest rate HELOC, cashing out some asset equity, etc. certainly to avoid forced sale at the bottom, so long as you are cash flowing well. Once your investments/NW hits a certain threshold the amount you need in a sustained downturn can be miniscule relative to what you can afford to contribute at market bottoms.
That’s the beauty of dry powder which I prefer to always keep some, it can sustain you and whatever is extra can be used to bottom fish into the markets. The appreciation of the new contributions will shorten the time to recover of paper losses as well.
Look at those market correction “circumstances” aa an opportunity rather than as a threat. Objectively, it’s a rare Black Friday sale so it’s a time to buy, not ignore or sell.
Hoping to have the courage and skills to execute this better during future market earthquakes, so that each $M is easier/faster than the last!
Hi 119, I think what you offer is reasonable advice. When the downturn hit in Q1 2000, it did spur me on to set up a HELOC. I was able to get a $400K LOC at Prime with no adder which is currently at 3.25%. This does give me more comfort to address any future short-term cash flow needs.
I also agree that putting some money in play after significant corrections is a winning strategy. The key is pulling the trigger and doing it when the sky seems like it is falling around you.
I meant the downturn of early 2020, not 2000.
It does seem like it will be difficult to expect similar increases moving forward. If we move to a world of interest rates slowly creeping up the picture could look different (however it’s not impossible we’ll stay in this low rate environment for a lot longer). At this point in the market I am concerned with just keeping up with inflation. But be warned I’m a pessimist that has been waiting for a crash for the last 6 years. During the covid crash I was waiting for the market to be down 50%.
Yep, $5M to $6M seems to be going much faster, than past milestones. Summary of my path below. Fingers crossed the trend continues, however I am prepared for a 20% to 30% drop at anytime. Feels way too good to be true.
Age 34: $1M
Age 41: $2M +7.3 yrs
Age 45: $3M +4.0 yrs
Age 48: $4M +2.3 yrs
Age 49: $5M +1.3 yrs
Age 50.1: $5.7M +0.6 yrs
And yes MMM is good – I like it, a nice community of folks
Growing a large percentage of your net worth via income (vs. asset appreciation) is a slower process since you are paying taxes on your gains every year which significantly detracts from the NW compounding process over time.
Growing a large percentage of your net worth via tax free/deferred asset appreciation (IRA/401k/HSA, real estate appreciation/1031, business appreciation) grows 100% tax free, and therefore compounds much better.
Early in our careers, of course we need to work for income as it is the capital/down payment required to accumulate assets. That asset accumulation can be augmented by low interest leverage as long as they are cash flowing assets to cover the attached debt. But those who continue to work for income their entire lives and fearful of accumulating assets wind up far behind due to the negative compounding effects of taxes. One has to get over their fears, I have to spend nearly $2M/year to accomplish what I do, mainly to maintain/protect/grow our income producing assets. However, those who spend a large portion of their income on income draining liabilities (home, furniture cars, credit card interest, regularly dining out, first class tickets, etc.) significantly hurt their career NW compounding, tax deferred or not due to the lost time value of money. Those are the mistakes many of us, myself included, make in our younger years. The question is do we wise up and ignore societal pressures to spend frivolously in our 30’s, 40’s, 50’s or never?
My own life is an example of the above statements. Based on recent income, I now manage to contribute about $700k/year to my net worth from income (after taxes and expenses). Over the past few years passive tax-deferred annual asset appreciation have included 1-tax advantaged accounts approx. $1M/year growth, 2- business valuation growth $600K/year based on appraisal, 3- RE appreciation (whatever the return is on about $6M in RE, owned outright). That adds up to about $2M/year in tax free/deferred contribution to NW annually vs. $700k/year in after-tax personal income contribution to NW. I’m mid-career and expect that discrepancy in contribution to NW to grow further, mainly due to the tax implications of earned income.
You may have heard the saying “work for assets not income”. Those assets will also spit out more passive dividends (RE rental income, stock dividends, business profits, etc.) as they accumulate/appreciate, automatically growing your income anyway.
Congratulations on the $6M, as well as to the other successes posted here. Excited to see everyone’s journey toward decamillionaire and beyond!
My wife and I hit our first $1M this past year at 37 (took 15-16 years). I give a range because I’m not sure the exact NW calculation, include home value or not.
She’s a teacher and I’m in manufacturing.
Incomes started at $55K+30K
Now at $160K+$50K
(side note: teacher salaries are a travesty)
Looking forward to hitting more milestones going forward.
Great job! Keep up the great work. Each subsequent million gets easier and comes quicker in calendar time, however be mentally prepared and ready as the pile gets bigger smaller market drops can create alarming drops in absolute dollars in your pile. Imagine a 10% drop today, $100k loss on paper for you (it will happen again, it is a certainty). FFWD to when you have $5M, a 10% drop is $500k. Likewise swings upward are equally impressive.
Echoing the journey that’s presented in the article and many of the comments –
Took us around 21 years to get to our first million of investable assets
5 more to get to $2M
4 more to get to $3M
1 more to get to $4M
and then less than a year to get to $5M.
Currently hovering around $5.4M.