Author Topic: $300k is halfway to $1m  (Read 23106 times)

roomtempmayo

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$300k is halfway to $1m
« on: November 03, 2023, 08:47:33 AM »
The other day I heard the phrase "$300k is halfway to $1m," and it quickly made sense.  Within the normal rates of equity returns, at a constant saving rate it takes about the same amount of time to go from $0 to $300k as it does to go from $300k to $1m.  Compound interest does a lot of work in the second half.

There's an explanation with several graphs here: https://fourpillarfreedom.com/the-math-behind-why-net-worth-goes-crazy-after-the-first-100k/

At 7%, $475k is about halfway to $2m.

I'm sure this isn't really a shock to people here, but hopefully it's encouraging to people just getting started saving.  It gets a lot easier as you get momentum.

Dicey

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Re: $300k is halfway to $1m
« Reply #1 on: November 03, 2023, 10:31:51 AM »
People just cannot imagine how well compound interest works! It's why I'm a DPOYM fan while you're in your early accumulation years. Get those soldiers working for you, then pay off the mortgage with devalued dollars. It can shave years off your obligation to work for a paycheck, but it's really hard to visualize.
The expression "Pay yourself first" includes the mortgage, but it's really hard to wrap your head around when your mortgage payment is your largest monthly bill.

Kudos to you for realizing the absolute might of compound interest early. It will absolutely make a difference.

Related: Keep your investment fees low, your assets diversified, and learn to embrace market lows as buying opportunities, not reason for panic. Advanced - consider your mortgage as part of your bond allocation.

Baguettestache

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Re: $300k is halfway to $1m
« Reply #2 on: February 19, 2024, 07:15:53 AM »
@Dicey what does DPOYM mean?

joe189man

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Re: $300k is halfway to $1m
« Reply #3 on: February 19, 2024, 08:39:40 AM »
Don't pay off your Mortgage

Dicey

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Re: $300k is halfway to $1m
« Reply #4 on: February 19, 2024, 07:06:44 PM »
@Dicey what does DPOYM mean?
Thanks, Joe.

Here's a link. I can't remember how to do it the cool way.

https://forum.mrmoneymustache.com/throw-down-the-gauntlet/dont-payoff-your-mortgage-club/

All are welcome!

halfling

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Re: $300k is halfway to $1m
« Reply #5 on: February 27, 2024, 09:38:42 PM »
People just cannot imagine how well compound interest works! It's why I'm a DPOYM fan while you're in your early accumulation years. Get those soldiers working for you, then pay off the mortgage with devalued dollars. It can shave years off your obligation to work for a paycheck, but it's really hard to visualize.
The expression "Pay yourself first" includes the mortgage, but it's really hard to wrap your head around when your mortgage payment is your largest monthly bill.

Kudos to you for realizing the absolute might of compound interest early. It will absolutely make a difference.

Related: Keep your investment fees low, your assets diversified, and learn to embrace market lows as buying opportunities, not reason for panic. Advanced - consider your mortgage as part of your bond allocation.

For the new crop of early accumulators the 7% mortgage rates sort of make the point moot. The math in favor versus against is a little… dicey

Dicey

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Re: $300k is halfway to $1m
« Reply #6 on: February 28, 2024, 12:38:51 AM »
People just cannot imagine how well compound interest works! It's why I'm a DPOYM fan while you're in your early accumulation years. Get those soldiers working for you, then pay off the mortgage with devalued dollars. It can shave years off your obligation to work for a paycheck, but it's really hard to visualize.
The expression "Pay yourself first" includes the mortgage, but it's really hard to wrap your head around when your mortgage payment is your largest monthly bill.

Kudos to you for realizing the absolute might of compound interest early. It will absolutely make a difference.

Related: Keep your investment fees low, your assets diversified, and learn to embrace market lows as buying opportunities, not reason for panic. Advanced - consider your mortgage as part of your bond allocation.

For the new crop of early accumulators the 7% mortgage rates sort of make the point moot. The math in favor versus against is a little… dicey
Hahaha, I remember being thrilled to get a 7% mortgage in 1996. The math still works. My comments are mainly directed to the Americans with cheap-ass fixed mortgages who are hell-bent on killing them at the expense of other savings. Since rates only jumped in the last two years, most people here are paying much less than that.

joe189man

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Re: $300k is halfway to $1m
« Reply #7 on: February 28, 2024, 01:40:23 PM »
i was playing around with this concept today just for fun, i like to prove things true just for my brain to internalize the idea.

Things obviously move even faster if you increase your savings

One interesting thing i found, for our case, is that the difference in saving an extra $12k a year roughly equates to shaving off a year of work, say increasing your annual savings from $65k to $77k. However as the annual savings amounts keep growing, like in the $100k range, saving that extra $12k has less and less impact

Dicey

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Re: $300k is halfway to $1m
« Reply #8 on: February 28, 2024, 04:36:03 PM »
i was playing around with this concept today just for fun, i like to prove things true just for my brain to internalize the idea.

Things obviously move even faster if you increase your savings

One interesting thing i found, for our case, is that the difference in saving an extra $12k a year roughly equates to shaving off a year of work, say increasing your annual savings from $65k to $77k. However as the annual savings amounts keep growing, like in the $100k range, saving that extra $12k has less and less impact
Okay, but as your army of green soldiers grows, they do more and more of the lifting. Pretty soon, al you have to do is watch them while you do whatever your heart desires.

ChpBstrd

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Re: $300k is halfway to $1m
« Reply #9 on: February 28, 2024, 05:58:44 PM »
The flipside of this math is my dilemma:

Just over $1M invested in 93% stocks.
$60k spend rate.
Spouse had to leave their job 4 years ago, and has only been able to work little gigs occasionally since then causing our savings rate to fall to zero (or below).

Option A:
Become a careerist and chase the possibility of earning another $30k per year by working 20 more hours per week getting certifications, job hopping, and aggressive ladder climbing. Miss out on kid's childhood, reading books, doing things with friends, spontaneous weekends, hobbies, etc.

Option B: Just coast in my cushy, recession-proof job for 4-5 years and let compounding take care of getting me to my $1.5M FIRE number.

By my math, 4 years of workaholism and stress might make a year of difference to my FIRE date. What would you choose? So far I'm choosing option B and holding out hope the spouse may someday be able to earn more or stocks experience a great sequence of returns.

Telecaster

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Re: $300k is halfway to $1m
« Reply #10 on: February 28, 2024, 06:04:58 PM »
Hahaha, I remember being thrilled to get a 7% mortgage in 1996. The math still works. My comments are mainly directed to the Americans with cheap-ass fixed mortgages who are hell-bent on killing them at the expense of other savings. Since rates only jumped in the last two years, most people here are paying much less than that.

I got my first mortgage around that time for 7¼%   Because decimals had not yet been invented, apparently.   Thrilled that a mortgage could be so unbelievably cheap.   If someone has a 4% mortgage, the bank is paying you to borrow money.   

joe189man

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Re: $300k is halfway to $1m
« Reply #11 on: February 29, 2024, 03:46:57 PM »
i was playing around with this concept today just for fun, i like to prove things true just for my brain to internalize the idea.

Things obviously move even faster if you increase your savings

One interesting thing i found, for our case, is that the difference in saving an extra $12k a year roughly equates to shaving off a year of work, say increasing your annual savings from $65k to $77k. However as the annual savings amounts keep growing, like in the $100k range, saving that extra $12k has less and less impact
Okay, but as your army of green soldiers grows, they do more and more of the lifting. Pretty soon, al you have to do is watch them while you do whatever your heart desires.

This is kinda where we are at - we can 401k and Chill (i am going to trademark that phrase) or push and retire 1-3 years earlier - maybe i will do a case study

joe189man

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Re: $300k is halfway to $1m
« Reply #12 on: February 29, 2024, 03:48:26 PM »
The flipside of this math is my dilemma:

Just over $1M invested in 93% stocks.
$60k spend rate.
Spouse had to leave their job 4 years ago, and has only been able to work little gigs occasionally since then causing our savings rate to fall to zero (or below).

Option A:
Become a careerist and chase the possibility of earning another $30k per year by working 20 more hours per week getting certifications, job hopping, and aggressive ladder climbing. Miss out on kid's childhood, reading books, doing things with friends, spontaneous weekends, hobbies, etc.

Option B: Just coast in my cushy, recession-proof job for 4-5 years and let compounding take care of getting me to my $1.5M FIRE number.

By my math, 4 years of workaholism and stress might make a year of difference to my FIRE date. What would you choose? So far I'm choosing option B and holding out hope the spouse may someday be able to earn more or stocks experience a great sequence of returns.

Option B - especially if you have kids

Dicey

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Re: $300k is halfway to $1m
« Reply #13 on: February 29, 2024, 08:02:47 PM »
i was playing around with this concept today just for fun, i like to prove things true just for my brain to internalize the idea.

Things obviously move even faster if you increase your savings

One interesting thing i found, for our case, is that the difference in saving an extra $12k a year roughly equates to shaving off a year of work, say increasing your annual savings from $65k to $77k. However as the annual savings amounts keep growing, like in the $100k range, saving that extra $12k has less and less impact

Do both.
Okay, but as your army of green soldiers grows, they do more and more of the lifting. Pretty soon, al you have to do is watch them while you do whatever your heart desires.

This is kinda where we are at - we can 401k and Chill (i am going to trademark that phrase) or push and retire 1-3 years earlier - maybe i will do a case study

StarBright

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Re: $300k is halfway to $1m
« Reply #14 on: March 01, 2024, 07:56:49 AM »
This tracks in a very general way! I would say our household is closer to to the average American family than many folks on this board, so this is kind of neat to see.

Took me a decade of full time work to hit 300k for the household (but some years had zero or negative savings due to low pay, medical emergencies, etc). Took us 8 years to go from 300k to 1mil.




nereo

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Re: $300k is halfway to $1m
« Reply #15 on: March 01, 2024, 10:51:41 AM »
Hahaha, I remember being thrilled to get a 7% mortgage in 1996. The math still works. My comments are mainly directed to the Americans with cheap-ass fixed mortgages who are hell-bent on killing them at the expense of other savings. Since rates only jumped in the last two years, most people here are paying much less than that.

I got my first mortgage around that time for 7¼%   Because decimals had not yet been invented, apparently.   Thrilled that a mortgage could be so unbelievably cheap.   If someone has a 4% mortgage, the bank is paying you to borrow money.

First thing I thought when I read your post was: "holy crap, I've never seen anyone on this forum use subscript fractions in a post ("7¼%")

Second thought was: "holy crap, we are only paying 2.7% for our mortgage.... which means the bank's been paying us a few thousand $ each year for the 'honor' of loaning us money"

roomtempmayo

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Re: $300k is halfway to $1m
« Reply #16 on: March 20, 2024, 12:41:15 PM »

Option A:[/u] Become a careerist and chase the possibility of earning another $30k per year by working 20 more hours per week getting certifications, job hopping, and aggressive ladder climbing. Miss out on kid's childhood, reading books, doing things with friends, spontaneous weekends, hobbies, etc.

Option B: Just coast in my cushy, recession-proof job for 4-5 years and let compounding take care of getting me to my $1.5M FIRE number.

By my math, 4 years of workaholism and stress might make a year of difference to my FIRE date. What would you choose? So far I'm choosing option B and holding out hope the spouse may someday be able to earn more or stocks experience a great sequence of returns.

Option B - especially if you have kids

Option B, no question at all.

getsorted

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Re: $300k is halfway to $1m
« Reply #17 on: March 20, 2024, 03:20:44 PM »
Very encouraging thought for those of us who have hit midlife with significantly less than $300k!

Em-Dog

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Re: $300k is halfway to $1m
« Reply #18 on: March 20, 2024, 03:44:17 PM »
This made me happy, thank you for sharing!

glacio09

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Re: $300k is halfway to $1m
« Reply #19 on: March 21, 2024, 08:19:16 AM »
This is very reassuring to hear. Right now I have about 800k and my husband and I like our jobs well enough but are longingly looking to the light at the end of the tunnel. Our potential exit plans are at 1mil we can make some big work choices (full salaries but more expensive location or one of us can take a lower income position). At 1.5mil we can cut back to working to cover our expenses, either one income or two part time incomes. At 2mil we can stop working for an income altogether.

All of this is based on the idea that the firehose of money won't be as beneficial as the market increases.

theninthwall

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Re: $300k is halfway to $1m
« Reply #20 on: March 21, 2024, 01:35:43 PM »
Momentum certainly helps make up for the 'boring middle'. It's nice to actually see things powering ahead (although the markets have been very kind these past six months).

Dave1442397

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Re: $300k is halfway to $1m
« Reply #21 on: March 23, 2024, 06:33:30 PM »
Now that I read this again, I remember seeing this chart years ago, but we didn't have much saved at the time.

Based on the numbers below, we should hit $2MM in six years.

2sk22

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Re: $300k is halfway to $1m
« Reply #22 on: March 31, 2024, 03:52:18 AM »
By my math, 4 years of workaholism and stress might make a year of difference to my FIRE date. What would you choose? So far I'm choosing option B and holding out hope the spouse may someday be able to earn more or stocks experience a great sequence of returns.

As long as your current job is stable (which is no small matter) your approach is probably what I would take as well. There is a Charlie Munger quote:

Quote
The first rule of compounding: never interrupt it unnecessarily

TyGuy

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Re: $300k is halfway to $1m
« Reply #23 on: April 01, 2024, 07:15:56 PM »
I may be reaching the 300k mark within the next year so this is very refreshing to see!

cincystache

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Re: $300k is halfway to $1m
« Reply #24 on: April 01, 2024, 07:36:44 PM »
Took us over 10 years to hit 300k. Just hit 600k less than four years after that. Never made over 100k gross household until last year. Compounding is awesome. Bring on the the double comma!

J.P. MoreGains

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Re: $300k is halfway to $1m
« Reply #25 on: July 09, 2024, 01:37:56 PM »
I'm sure this isn't really a shock to people here, but hopefully it's encouraging to people just getting started saving.  It gets a lot easier as you get momentum.

This is news to me but makes sense now. This makes me feel good about things.