The first $100K invested is a b*tch! Reaching $100K invested within three years requires a solid plan and consistent effort but I know you are willing to do it. Start by setting clear financial plan and assessing your current financial health to understand where you stand and what you need to adjust. It’s important to focus on investment strategies that align with your risk tolerance and long-term objectives.
Staying disciplined with your budget and maximizing contributions to retirement accounts will dramatically accelerate your progress. With the right approach, hitting your $100K investment target is more achievable than you might think.
To be extra clear, the goal of this post is not for you to achieve $100K invested and then spend it, it is for you to get $100K and accelerate your path to your first million dollars.
Key Takeaways
- Set clear financial plan and assess your current financial health.
- Prioritize diverse and strategic investments to start your portfolio.
- Efficiently use your income to maximize the return of each of dollar.
Setting a Financial Plan
To reach $100K invested in 3 years, it is crucial to set clear and actionable financial plan. This guide will cover understanding your time horizon and establishing clear objectives.
Establishing a Clear Strategy
Clear strategies help you focus your efforts, start by determining how much you need to save and invest each month. If you currently have some savings in excess of an emergency fund, consider how that can work towards your goal and invest the excess savings through an individual retirement account (IRA).
Next, consider what investment strategies align with your objectives. Do you want to invest in stocks, bonds, or a mix of both? Decide where you want to allocate your funds based on your risk tolerance and time horizons.
Before You Start Investing
Ensure your financial habits are aligned with investing as much as you can. Key areas to review include your income, expenses, debt, and savings.
Evaluating Income and Expenses
Begin by calculating your total monthly income from all sources. This includes your salary, bonuses, and any side gigs. Next, track your monthly expenses. Divide them into categories such as housing, utilities, groceries, transportation, and entertainment.
Example of Expense Categories:
- Housing: $1,500
- Utilities: $250
- Groceries: $300
- Transportation: $200
- Entertainment: $100
- Debt: $200
Knowing where your money goes can help identify areas to cut back. Tools like budgeting apps or spreadsheets can make this process easier. Aim to save and invest at least 20% of your paycheck, the more you can save the faster you can reach $100K invested. If you only have the ability to invest $100 at the end of each month, you need to cut unnecessary expenses out of your life and need to consider pursuing different ways to increase your income because you can only save as much as you make. This is why the first $100K is a b*tch, it takes a lot to get there but you will thank yourself once you get there.
Creating an Emergency Fund
An emergency fund acts as a financial safety net. It should cover three to six months of living expenses. This fund ensures that you won’t need to dip into your investments during unexpected emergencies. Once this fund is covered, you can add a little bit to it with every paycheck but ultimately should be contributing to your investments. Balancing your emergency fund with your investment goals will provide both security and growth for your overall financial security.
Addressing Debt
High-interest debt, such as credit card debt, can significantly hinder your ability to save and invest. I would prioritize paying off these debts first before going for $100K invested. The interest on high-interest debts can quickly accumulate, making it harder to achieve your goal, everyone has a different rule of thumb. Mine has been, that if your interest rate is 7% or higher, I would prioritize paying it off before investing. If your debt has an interest rate below 7%, I would pay the minimum balance and then continue to go full throttle on investing. Reducing and eliminating high-interest debt will free up more money for savings and investments.
Investment Strategies to get $100K Invested
Focus on strategies such as diversification and choosing the right investment decisions to maximize every dollar. These methods help manage various investment risks and optimize returns for your future.
Diversification and Asset Allocation
Diversification involves spreading your investments across different asset classes, such as stocks and bonds. This reduces risk because if one asset underperforms, others might do well. I recommend reviewing popular asset allocation models to determine the best mix for your portfolio, however, keep in mind that uninvested cash, is outside the parameters of “$100K invested”. With one caveat, I will let people ‘cheat’ and count cash that is earning interest greater than inflation as ‘invested’.
Balancing your investments by age and financial goals can also minimize risks. For instance, younger investors might allocate more to stocks, while those nearing retirement might lean more towards bonds. No matter the age of the investor, you should stay away from get rich quick stock picks and focus on investing in diversified investments.
Maximizing Your Every Dollar
Maximizing your 401k employer match is one of the best financial moves you can make, as it’s essentially a 100% return on investment. When your employer offers a 401k match, they contribute an additional amount to your retirement account based on a percentage of what you contribute. For example, if your employer matches 50% of your contributions up to 6% of your salary, that’s free money added to your retirement savings. By contributing enough to get the full match, you take full advantage of this benefit and significantly increase the amount of money you have invested over time. Failing to contribute enough to receive the full match is essentially leaving free money on the table.
In addition to getting your 401k match, funding an IRA (Individual Retirement Account) is another important step in securing your financial future. An IRA allows you to contribute pre-tax or post-tax income, depending on whether you choose a Traditional or Roth IRA, giving you more flexibility and potential tax advantages. By funding both your 401k and IRA, you can maximize tax benefits beyond this 3-year challenge and ensure you’re well-prepared for the future.
Lastly, another place where people leave money on the table is leaving their uninvested cash sitting and earning close to nothing. Leaving your cash in savings accounts that offer <1% interest is setting yourself up for failure. Earning just 4% on your cash in a savings account will give you extra money to keep on the sideline or even to invest. You may not understand how big of a difference 4% makes now but over time it adds up tremendously.
Conclusion
Reaching $100K invested within three years is an ambitious but achievable goal with the right strategies in place. By focusing on maximizing your income, controlling expenses, and consistently investing in diversified assets, you can accelerate your wealth-building journey. Taking advantage of tax-advantaged accounts like 401ks and IRAs and making smart financial choices will all compound over time, helping you hit that milestone faster than you may think. Remember, the journey requires discipline and persistence, but the payoff is well worth it. For insights on what to do after reaching $100K, check out our other post on strategies to build wealth beyond this first of many financial milestones.