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Welcome, Future Early Retirees.

If you want to reach financial freedom, you need a significant amount of money and it is easy to think there is no way you are going to get to that number. I’m here to tell you that it is a lot more attainable than you realize. It takes you almost as the same amount time to get from $0 to $100,000 as it takes to get from $500,000 to $1,000,000. Allow me to explain.

In today’s newsletter:

• How is this possible?

• Compound interest

• Getting there

• Things I found interesting

• Views of Financial Freedom

• Financial Tools

How is this possible?

Overview: Take a look at the table above. What do you notice? For each $100,000 it takes you less time than it did reach the previous $100,000. Do whatever you can to reach the $100,000 invested and you will find achieving your financial freedom number will be a lot closer than you think.

The details: The table above assumes you are contributing $10,000 each year ($833 a month) and average annual rate of return of 7%. If you just invest in an S&P 500 index fund, you will likely have a average annual return closer to 10% so I would consider the 7% conservative.

What you will notice is the amount of time it takes to get from $0 to $100,000 is a fraction of the amount of time it takes to get from $900,000 to $1,000,000. So while It may seen like you have a long way to go, you’re actually a lot closer than you think. The same logic will apply from $0 to $25,000 vs $25,000 to $50,000. This is the result of compound interest which I will explain more in depth in the next section. When you initially start investing, the majority of you portfolio will be made up of money you contributed but as you give the money time to grow, most of your portfolio will be made up of money you made from your investments.

To use the example in the table above, to get to $1,000,000 you will only have had to contributed a total of $300,000 over the course of 30 years. The rest of the portfolio is money you made without having to lift a finger. All you had to is put your money in the right place.

If you want illustrate this for your scenario, I recommend using my portfolio contribution schedule below. You can plug in how much you want to contribute per month and see how much your portfolio will be worth in the future! Play around with different scenarios like what it looks like when you have a higher rate of return like 10-12% vs a lower one like 7-8%.

Compounding interest

Overview: Compound interest refers to when interest you have made starts to earn interest itself, allowing your portfolio to grow faster over time. It's like a snowball effect, where the interest earned gets bigger and bigger to the point where your contribution is small in comparison to the portfolio. The key is to start saving early and consistently to maximize the power of compounding.

The details: Compound interest refers to when interest/return grows as your portfolio. This process repeats, allowing your money to grow faster and faster over time. It's like a snowball effect, where the interest you earn starts earning interest of its own.

To give a quick example, if you had a portfolio of $10,000 with a 10% annual return rate, you would earn $1,000 in the first year. Assuming you reinvest that $1,000, you would earn interest on $11,000 in the second year, resulting in $1,100 earned in interest the second year. If you continue this process, the compounding effect will continue to increase your returns over time even without you contributing.

It is best to start saving early to maximize the power of compounding. The longer you are able to keep your money invested, the less amount you have to contribute to reach your financial freedom number.

Getting there

Overview: Getting to your first $100,000 is the most challenging part of building wealth. You have to look develop a habit of contributing consistently and find ways to either increase your income or lower your expenses. As you pursue this goal, don’t let money itself be the motivator. Something that is relationship based typically provides you with a deeper motivation needed to keep you going as financial prosperity is a long-term process.

The details: In order to get to that first $100,000 invested you first have to start. even if you can only contribute a small amount. If you want to get to the milestone faster, take a look at your budget and ask yourself two questions:

1. How can I increase my income?

2. How can I decrease my expenses?

Answering these two questions really is the key to accelerating your path to the $100,000. The tough part is there are endless possible answers. Overall, I would say you have to be willing to take action in areas others will not. For example, I was at a wedding this weekend and was talking to one of my wife’s friend. Currently her husband and her are living in a small rural town in Ada, OH in order to save money while the husband finishes his degree. The wife works in the administrative office so the husband gets free tuition. This is a great example of doing something no a lot of people would.

To be clear, I’m not saying you have to move to the middle of nowhere to build wealth (I don’t even do this), but you have to make a choice to set yourself up to live below your means. This means having controlled spending and having an income that can support that.

As you are pursuing this goal, you should not let money itself be the motivator as this puts you in a short-term thought process. Think about why you want to build wealth. Everyone is a little different but something that is relationship based typically provides you with a deeper motivation that keep you going as financial prosperity is a long-term process.

Things I Found Interesting

• Federal Student Loan Interest Rates Will Hit Some Record Highs Soon

• Costco CEO says this is the most important item the store sells and it’s not the $1.50 hot dog

• Consumer Sentiment Dips in June: What Is It and Why Does It Matter?

• 36 year old on track to retire by 45 thanks to 4 small wealth-building habits

• Is bitcoin the future of higher education funding? How this university is testing idea.

Views of Financial Freedom

At the end of the day, this what it is all about. Not having to worry about money so you can spend time with the people who matter most to you.

Reply with your own AI generated image of financial freedom and I’ll feature it in an upcoming issue.

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Free Personal Finance Tools

For those of you who prefer to hand write your budgets, I’m working a version where you can print it out and do just that!

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