A journey of 1000 miles, begins with one step. I will share below how my wife and I reached our first $100,000 in the stock market. This took us about 4-5 years. The most interesting thing is that the next $100,000 came quicker than the first.
We were on the same page: Now don't get me wrong, this took some time but with a lot of trial and error plus some grace, we eventually got on the same page about our finances. We initially started with the Dave Ramsey baby steps. We saved $2000 as an emergency fund and paid off over $120,000 in consumer debt over an 18-month period. I drove for Lyft and Uber to increase our cash flow. We budgeted every month to know where every dollar was going. However, what we did not do, was "eat rice and beans". We still enjoyed eating out and taking small trips. We thought Dave's style was too aggressive and quite unreasonable and thank God we had a sizeable shovel ($100 to $150K/year).
We prioritized investing in our 401ks, Roth IRAs, and taxable brokerage accounts: Once the consumer debt was gone, it really felt like we had received a raise. While paying off debt, we invested up to the match in our 401ks/403b. Once the debt was gone, we focused on maxing out our Roth IRAs each year. Next, we doubled our contributions to our 401ks and then focused on investing in a taxable brokerage account up to 20-25% of our total income.
We were very aggressive with all our investments: All our investments were in stocks besides a handful of bond funds in an old 401K. There was a point where we literally lived on one income and invested the other. I became fascinated with investing and decided to complete my MBA and even teach others about investing.
We stayed away from whole life insurance or IUL: We bought two cheap term life insurance policies as well as job-specific disability insurance and invested what we would have spent on an expensive whole life insurance policy.
We took matters into our own hands: We knew no one was coming to save us financially. We read books on personal finance. I know I binged several personal finance podcasts daily. This served as motivation to stay disciplined and consistent with our goals.
The journey to $100,000 is a hard feat. It comes with hard work and consistency, but you can do it. I always tell my clients, If my wife and I can do it, so can you.
Charlie Munger is a world-renowned businessman and long-time partner of Warren Buffet. Mr. Munger preaches that every investor should do everything they can to get to $100,000 in stocks. This is because the stock market grows by something known as compound interest. According to the rule of 72, your portfolio will grow at a rate of 72 divided by your rate of return. For instance, the S&P 500 grows at a rate of 10% annually before inflation. So if I invest in the S&P 500, my portfolio will double every 7.2 years [72/10]. This means, if my rate of return increases, I will double my money sooner. If my return is 25%, I will double my money every 2.8 years [72/25].
The goal of every investor should be to increase one's rate of return. This can be achieved by investing in a low-cost index fund, sector ETFs, and quality stocks that you believe will change the world. After reaching your first $100,000 in stocks, you can take your foot off the pedal a bit and enjoy more of your money if that is part of your financial goals.
My name is Dr. Charles Boadu and I teach folks how to build wealth by investing in the stock market. Reach out if you need help.