They say it takes money to make money, a truism many believe is hardly worth mentioning. Unfortunately, it is a Catch-22 that discourages many of us from trying to accumulate wealth, but if start off with saving a modest amount, are disciplined, patient and methodical in our approach, most people should be able to obtain a level of financial independence they never thought possible. When you begin to see you modest sum of savings increase through reasonable investments and the power of compounding begins to add to your nest egg, motivation begins to kick in where you want to save and invest more.
When people begin running, starting is the most difficult and many have difficulty of ever imagining they could run a marathon, much less a 5K. But as they keep at it, over the ensuing weeks, running becomes easier, and the pace and distance increases. When the improvements are apparent, the motivation really kicks in, they become addicted, and before you know it, they have completed a marathon, surprising not only themselves, but everyone around them. As a runner, I’ve seen this time and time again, and the biggest hurdle was the initial start-up and sticking to it the ensuing early weeks when the noticeable improvements begin to become unstoppable motivators.
So just as in running, accumulating wealth begins with the painful startup of creating the habit of setting money aside and sticking to it until you begin to see your net worth begin to grow. It may take 15 to 30 years to reach a milestone such as having $1 million, but then you are in the enviable position to make money because you have money. There is this great Motley Fool article that really illustrates this concept. Although it may have taken you 25 years to obtain $1 million by investing $1,000 a month at an 8% annual return, it will only take you 7.8 years to obtain your second million, and 4.8 years to obtain your third million assuming you invest the same amount monthly and obtain the same rate of return. That is the power of compounding and why they say the first million is the hardest. This is also why the rich become richer.