Over the last 100 years, the stock market returned about 10% annually. That means if you have $148,000 invested, you can expect to earn (on average) about 10% per year, or $14,800. That’s the same amount of money that a minimum wage worker makes working full-time without a vacation for an entire year.
How do you get there? Let’s say you make the US median household income of about $70,000. And let’s say you live like you make $50,000. That gives you $20K/year gap. If you invest that each year, it will take you less than six years to get to $148K. But then something cool happens. Now it’s not just you working anymore. It’s your $20K, PLUS your minimum wage worker! So even though it took you six years to get to your first $148K, the second one you get to by year 10, about four years later.
THEN, you have TWO minimum wage workers going full time for you! Your 3rd $148K you get to by year 13 (three years), and your 4th by year 15 (two more years, about $600K total). It goes faster and faster as your army of investment income grows. This is how rich people get rich. It feels slow at first, but as compound growth ramps up it goes faster and faster.
Once you have enough of those workers, you can stop putting in your $20K/year and they do all the work! I’m at a point in my life where my investments will produce enough growth and income so I never need to work anymore. That makes me financially independent. Which is a nice place to be so you can focus on spending your time doing the things you want, like posting little emoji infographics to instagram.
As always, reminding you to build wealth by following the two PFC rules: 1.) Live below your means and 2.) Invest early and often.
-Jeremy
