Why does the 1st million seem so difficult to make? It’s the principle of compound interest that makes the 1st million the hardest million that you will ever earn. Here’s are a few examples.
If you started with $100,000 and would like it to grow to $1,000,000 than you would need a 900% return on your money. ($100,000 + $900,00) = $1,000,000
If you started with $10,000 and would like it to grow to $1,000,000 than you would need a 9,900% return on your money. ($10,000 + $990,000) = $1,000,000
If you started with $1,000 and would like it to grow to $1,000,000 than you would need a 99,900% return on your money. ($1,000 + $999,000) = $1,000,000
If you started with $100 and would like it to grow to $1,000,000 than you would need a 999,900% return on your money. ($100 + $999,900) = $1,000,000
As you can see it takes astronomical returns on your money to make $100, $1,000, $10,000 and $100,000 grow to a million dollars. Suppose that you already had $1,000,000 dollars and would like to turn it into $2,000,000 dollars. What type of return would you need to achieve that?
($1,000,000 x 100% = $1,000,000) You would need a 100 percent return in order to turn $1,000,000 into $2,000,000 dollars. A 100% return seems paltry compared to the returns listed above. So, what does all of this illustrate? This explains why it is easier for a millionaire to become a multimillionaire than for an individual with a few thousand dollars to become a millionaire. Remember it’s not impossible to become a millionaire just remember 2 simple rules.
1. You need to continually increase the amount that you are investing. The greater the amount that you are willing to invest can help lower the return needed to achieve your goals. Saving more money today means that you don’t have to chase high returns tomorrow. It’s better to be in a position where you can accept a 10% return on your money rather than chasing a 1,000% return.
2. You need to give yourself ample time to reach your financial goal. The principle of compound interest works best for you over longer time periods. All things being equal an individual that invests for 20 years has the potential for a greater return than someone who invests for 5 years.
Photo by: Simon Davison