How I Reached $100,000 (Savings + Investments) in 4 Years

I am a First-Generation Immigrant, who moved to Toronto on 7 September 2017. As I complete my 4th year in the ‘Great White North’, I also hit a new personal milestone: $100,000 in my Savings + Investments Accounts!

Now, saving $100,000 may seem like an impossible task, but it can be done as long as you put some effort into it. Make no mistake, there’s no easy way to save that much cash. But depending on how you save and invest your money, you can reach $100,000 sooner than you think.

Here’s an illustration that will help paint a more vivid picture for you to visualize it:

When my account balance crossed into six figures for the first time, it was a heady feeling. It also meant that I've gone onto amass a large enough nest egg that compound interest should start making a big difference in how quickly my money grows.

The first $100K is the hardest!

Charlie Munger - the multi-millionaire and business partner of Warren Buffet, one of the richest people in the world, has said that accumulating your first $100K from zero is the most difficult part of building wealth.

Building your first $100K is like rolling a snowball. It starts small but slowly and surely it begins to get bigger and bigger gathering momentum. All you have to do is keep rolling it. Or adding to your savings in this context.

This is the tricky bit and where many give up as they feel, see or think nothing is happening.

The trick here is to understand the process of compounding. Interest building on the interest, building on the interest. Regular additional deposits will slowly lead to your fund’s growth and progress towards your first $100K.

“Compound interest is the 8th wonder of the world. He who understands it earns it; he who doesn’t, pays it” 

Albert Einstein

How did I get here in 4 years?

Before I get to the three key secrets that led me to this milestone, I also wanted to set some context.

I would have easily got to the six figures in savings even in 3 years, but I chose to invest early in a condo (my primary residence) within 18 months of accumulating enough savings for the down-payment.

So, my net worth (Assets - Liabilities) is significantly higher than $100,000 at present, but that’s a discussion for another time. Let’s jump back into how we got to the $100K in savings + investments in 4 years!

Here are three high-impact decisions I made to reach the six-figure mark:

• Deduct savings + investments at source: This is my favorite hack for saving money. Instead of saving whatever is left over after bills and non-essential purchases, a portion of my paycheck is automatically deducted before I even see it. Part goes into cash savings and part goes into my retirement account. I learned to live on whatever amount ended up in my checking account, so I've never had to figure things at the end of every fortnight or monthly cycle. And I have successfully maxed out both my TFSA and RRSP contribution room for all 4 financial years. (No easy feat!)
• Followed the ‘30% rule’ for housing: From my first rental in Scarborough to my current One Bed Condo (owned) in North York, I’ve kept my monthly payment for rent/maintenance fees, property taxes and utilities to 30% of my take-home pay or less. This hasn’t been easy. By keeping my long-term housing costs fixed, I can be way more flexible with the rest of my budget. The caveat here is of course you need to scale up your take-home pay by leveling up in your career to ensure you aren’t eating out of your savings or investments budgets.
• Avoided unnecessary debt: Credit-card debt can be a real wealth killer if it gets out of hand. Interest charges can run twice as high as the average investment return and missing payments can crush your credit score. Another hack I have practiced is to always stay under 30% of my total credit limit each month, and always pay my bills in full - which has contributed towards having a current credit score of over 800 on both Equifax and TransUnion credit bureaus.

The first $100,000 is a difficult but important goal!

The sooner you hit this milestone, the sooner your $100,000 will start working for you.

If you had your $100,000 saved by age 30 and just left that $100,000 invested without adding to it, you'd end up with around $1.07 million by age 65, assuming a 7% rate of return. But, if you didn't hit the $100,000 milestone until you were 50, the money at the same interest rate would grow to about $275,928 by age 65.

The chart below shows just how much your $100,000 could become by 65, assuming a 7% annual rate of return, depending upon the age at which you hit this savings goal.

At 33 years old, and yet to hit my peak earning years ahead of me, I just hit the $100K mark in savings + investments. But I believe what makes it special is the fact that it has been built from zero in exactly 4 years with an average ROI just sitting between 18-20% YoY - which I am currently focused on improving to a minimum of 25% by end of 2022!

Keep watching this space for more on my personal financial journey as a first-generation Canadian Immigrant!

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