There's a moment in every person's financial journey when everything changes.
One day you're checking your investment account and feeling like you're not really getting anywhere.
And then suddenly you wake up and your money is making more money than some people earn at their actual jobs.
It's not magic, it's maths.
And there are three specific milestones that act like tipping points where this transformation happens so dramatically.
If you're new here, hi, I'm Nisha, a former investment banker turned financial educator.
And what I'm about to show you completely changed the way I think about building wealth.
So in this video, I wanted to pull back the curtains on the three specific numbers, why hitting these numbers makes everything accelerate and how to stay motivated when everyone else around you would quit.
Let's get into it.
Before we get into the all important milestones, we need to first talk about why building wealth feels like such a slow, painful process in the beginning, even when you're doing everything right.
When you first start saving and investing, there's this uncomfortable truth that nobody warns you about.
And that is that most of your progress comes from your contributions, not your returns.
Let me show you what I mean.
Let's say you invest 50 a month in a tax advantage account and you get an 8% annual return.
Do that for three years and you'll invest 1,800 of your own money represented here in blue.
Now, this alone is super impressive because it shows that you're determined.
It shows that you're committed.
It shows that you've managed to turn investing into a habit, something that many people just aren't able to do.
So if you manage to save and invest, you're already doing better than most people.
But here's a problem.
Let's look at the chart again.
While your contributions are going strong, your investment growth is much, much smaller.
That's the bit shown in green.
If you get to this stage and it feels like you're doing all the work, that's because you are.
You might even be tempted to give up, especially if you're making sacrifices to your lifestyle to fund your investment.
But the truth is, quitting at this point is the worst thing you could do, because you're right before the curve that starts bending.
And this is where it's helpful to understand how compounding works and what it's actually doing behind the scenes, when you feel like you're just putting in hard work.
So put simply, compounding is when your investment returns generate more returns.
So let me use some numbers to illustrate this.
If you invest 100 and it grows by 10% in the first year, you'll end the year with 110.
That $10 or equivalent gain is your growth.
In the second year, your investment doesn't grow based on your original $100.
It grows based on the $110 that you now have.
So another 10% growth gives you $121.
You didn't add anything extra.
You earned $10 the first year, then $11 the second year.
That extra $1 is the beginning of compounding.
Your growth is now growing.
And I know when I'm using those numbers.
It might not sound that impressive, but look at what happens if you keep contributing.
Say you invest 50 a month for 30 years, the results look very, very different, with the green part of the chart massively now overshadowing the blue.
So if you're still thinking of giving up or you're at a place where you're putting off getting started, let's now look at the three milestones that change everything from how confident you feel about your financial future right through to the amount of freedom and control you actually have over your life.
Let's start with the first milestone.
Let's imagine you persevere and you keep investing 50 a month and getting an 8 average annual return.
You'll reach 10,000 within 11 years.
But, as you can see, although your gains increase each year, your contributions still make up the bulk of your growth, even after all this time.
So at this point you might be tempted to give up, maybe to sell your shares, just to keep your money in a savings account instead.
But let me show you why selling your investments is the worst thing you can do.
Let's say you stop investing and you don't sell your investments.
You just don't contribute another penny from there on out.
Well then you're 10414.
Assuming it continued to grow at 8 per year, you'll have 48539 after 20 years.
That's more than $38,000 in investment gains alone.
Sure, that isn't enough for a house deposit, definitely not enough for retirement, but it is money that you didn't have to do anything for.
And that's if you stopped investing at that first milestone.
If you continued investing, I'll show you how much better off you'll be in just a moment.
But first.
In many parts of the world you can actually reach this 10000 milestone much faster without earning more or saving harder, simply by paying into a pension.
In the UK for example basic rate taxpayers receive 20% tax relief on pension contributions.
So this means, for every 80 you personally pay into your pension, the government adds 20 automatically.
So your 80 becomes 100 before it's even invested.
Now, imagine you contribute $200 a month into your workplace pension.
With tax relief now, that contribution becomes $250.
And with that, you'll hit $10,000 within three years, assuming the same average rate of return.
Over 30 years.
You and the government will contribute 90000 in total and you'll earn over 264000 in gains.
Your end balance will be over $354,000 and this is what your chart looks like.
And even better than that, no matter which tax bracket you're in, if you're employed, your employer will contribute too.
So many employers will even match your contributions to a certain point.
So if you add $200 a month, they will add that and they will match that too.
And many employers in many countries offer this.
If you're unsure of whether it applies to you, speak to your employer or HR department and find out what your options are.
Because by not investing in a pension, you're essentially turning down free money every month that could be going straight towards your financial future.
It's one of the easiest and one of the fastest ways to build momentum and reach this first investment milestone of 10000.
So when you hit that 10000, not only do you make it a bit easier to build wealth through compounding in the future, you'll also benefit from the psychological benefits too.
Because simply seeing these numbers on your account balance can feel very motivating and pretty amazing.
Because by getting to the stage, you've proven that you can stick to a plan.
You've proven that you could build capital.
You've proven that you could avoid temptation at every turn and that you can make investing a habit.
So if 10000 is a milestone that proves you can build wealth, the next milestone is the one that proves your money can build wealth for you.
And that is the 100,000 milestone.
We briefly spoke about how your money compounds with that 10000 mark, but at the 100000 mark it's a completely different ballgame.
In fact, if you were to invest 100000 by age 35 and never invest another dollar, That money would grow to just over 1 million by the age of 65, assuming the same 8 average annual return.
Give it another 10 years, you'll have more than $2 million at 75.
This tactic is known as Coast Fire, which is a financial independence strategy where you front load your investments early in life so that time can do all the hard work for you, even if you stop contributing long before retirement.
Now, obviously, this is a lot easier said than done.
Most people won't just be able to hit 100K by 35 and then just chill for 30 years.
And the point isn't that everyone should or could do Coast Fire perfectly.
Instead, the point is how much of an impact hitting that 100,000 milestone can actually make.
Because at the 10000 mark, even at the 50000 mark, most of your progress, especially in the early stages, comes from your effort, from your deposits, from your discipline, from your consistency.
But when you hit the 100,000 milestone, that's when compounding really accelerates.
And you'll visibly, very quickly see the growth that you didn't actually have to work for.
I explain how this works further in this video, but essentially, each 100000 after you hit your first 100K will take less time than it did before.
So, although that 100000 isn't enough to retire on, it is enough to take your foot off the gas a little bit if you wanted to.
If you want to pause your contributions for a few months to focus on other goals, like buying a home or going traveling, you can, because you've already built such a strong momentum.
And if you're watching this thinking, oh, this is too late.
I can't coast my way to the 1 million retirement.
And that means financial freedom is out of reach.
That's not true.
It just means that, rather than stopping your contributions 30 years before retirement, you'll just need to keep investing along the way.
But before even focusing on that 1 million, how can you get to that first 100k?
If you invest 500 a month, you can do it in 11 years.
And I know 500 a month isn't a small amount of money.
Remember that it's easier to do with your pension that we spoke about.
If your employer matches your contribution, you could potentially invest 250 a month of your own money to reach that 500 per month target even potentially less.
If you can't contribute that much, Start with less.
Start with what you have.
It might take you a little bit longer, but if you stick with it, you will get there.
The time will pass anyway, so you may as well let it pass with your money invested.
Once you've overcome the psychological barriers of getting to that 10000 and you've persevered to getting to that 100000, it's time for the next investment milestone on your journey to financial independence.
And this is the one that changes everything.
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Forward slash Nisha.
And that is the 1 million milestone.
Once you've got a million invested, your portfolio should be able to sustain itself and keep growing, whether you continue contributing or not.
Look at how a million grows as each year passes by, assuming the same return.
In year one, you'll earn 80,000 on your investments.
In year two, you'll earn another 86,400.
In year 10, you'll earn nearly 160,000.
Work quickly becomes optional, as the amount you earn from your investments far outweigh the amount that you'll make at work unless, of course, you're a very high earner.
The goal is to have your money from your investments overtake the amount that you earn at work.
One thing to remember though is the 4% rule.
The 4 rule is a guideline used in retirement planning to work out how much you can withdraw from your investments each year without running out of money.
The theory is that if you withdraw 4 of your initial pension pot balance at retirement and adjust this amount for inflation each year, your money should typically last 30 years.
So with 1 million invested, take 4 a year.
Inflation adjusts that going forward and the remaining stays invested continuing to grow in the background to last you 30 years.
So if you're watching all this wondering where to get started, the main thing to take away is just start.
Time is one of the biggest factors in investing success.
So the sooner you get started, the more time your money has to grow.
If you have access to a workplace pension, this can be a great way to boost your contributions and increase your net worth faster.
If you don't have a workplace pension, a private one may be a good alternative, but the exact rules can vary depending on your country.
And finally, don't give up, even when it gets difficult.
The beginning is always going to be hard, but once you get to that first milestone, everything falls into place and you're reminded of why you got started.
And before you go, I want to leave you with one reminder.
Yes, saving and investing are important.
Yes, hitting these investment milestones will change your life, but you're also allowed to live your life a little bit along the way.
There's no point building wealth for decades if you never give yourself permission to enjoy the present, whether that means taking a break, traveling or just spending more time with the people you love.
Money is a tool and it's meant to support your life, not to replace it.
So if you want to know how to make the most of your days and avoid living with regret, watch this video here, where I talk about how I finally managed to strike the right balance.
See you there.
