The Hardest Net Worth Number For Most People To Reach

Net worth is a financial calculation you should be making on an annual basis, if not even more often. Calculating your net worth isn't a particularly difficult exercise, and reevaluating where you stand on a routine basis can help you identify weaknesses that may be present in your financial planning approach. Generally speaking, you'll hope to see your net worth increase over time while limiting any decreases that may occur through temporary blips or unique circumstances like taking out a new student loan in an effort to pursue a career change that will increase your salary or make you happier.

Experts note that hitting your first $100,000 in net worth is a particularly tough mountain to climb. This is because the early stages of wealth accumulation are the hardest. Both the fundamental reality that the friction of getting yourself going can be difficult to overcome and the limits to your investment opportunities in this early phase combine and limit what you can achieve, at least for a time. However, this figure isn't the most difficult net worth hurdle to navigate. That honor goes to your first $1 million. Almost 9% of Americans can call themselves millionaires, making this a fairly exclusive club, even if there are over 20 million members in the U.S. Getting to this vaunted status takes a seriously long-term plan and plenty of patience. However, diligent savers can surpass this figure with enough time and a solid approach. Here's why it's so difficult to become a millionaire and what you can do to turn the odds in your favor.

The first thing to note about your net worth is that it grows faster as you add to it. Simply put, your net worth is a basic calculation of all the liabilities you owe added up, and then subtracted from the assets you own. So, if your home is worth roughly $400,000 (just under the U.S. average), you owe $40,000 in student loans (also right around the U.S. average), and you owe both the average $6,000 in credit card balances and $263,000 on your mortgage, you'd be left with a net worth of about $91,000, assuming you have no investments.

But there's a catch here. Adding just $9,000 in savings to this mix will lift your net worth to $100,000. But the vast majority of this wealth isn't actively working for you in an effort to increase itself. In order to tap into your home's equity, you'll either have to take out a new loan which will negatively influence your net worth, or sell it. Focusing on the hypothetical $9,000 in investment capital, this is where your growth really takes place. Invested in simple index funds focused on growth, you're likely to see that capital double roughly every seven years as a result of compounding interest. Therefore, without touching your principle, you can expect to see it grow into $18,000 after this time. Then, over the exact same timeline, you'll expect to see that double again, this time growing to $36,000. Put another way, investors looking to grow their portfolio generally need eight years to hit $100,000 with a diligent contribution strategy, but hitting $200,000 only requires five. From there the effect of compound interest snowballs and your accumulation rate explodes.

Beyond the astronomical value compound interest brings to the table, there's another important change that happens over time. Once your investment portfolio starts to gain if you extra zeros, you'll also gain another advantage that less wealthy people don't have access to. With increased investment funding at your fingertips, you have an expanded horizon of possibilities. A person with $9,000 in their portfolio might consider investing in stocks, bonds, or perhaps even a limited quantity of gold bullion. Add another zero, and $90,000 allows you to invest in real estate, business opportunities, or even speculative commodities like fine art.

Particularly valuable avenue to explore for those seeking a rapid increase in wealth. Real estate has consistently been identified as one of the fastest solutions to developing long-term wealth that investors have available to them. The sheer volume of options you gain when investing in property is reason enough alone to consider this approach. Investment properties frequently allow buyers to cover much if not all of their ongoing cost of ownership through the collection of monthly rent payments. If you can swing this balance with your investment, you'll be building equity in a commodity that averages 5.4% value increase annually without any additional expense beyond your down payment. But, in order to access this mode of wealth building, you'll need to already have developed a sizeable war chest. There's a truth behind the saying "it takes money to make money."

None of this means there's no hope for the lowly wage earner looking up at the millionaire class in aspirational awe. In fact, there's plenty of reason to be hopeful that you can one day join them. So long as you start early and develop a comprehensive plan to continue saving throughout your working life, leaving the workforce as a millionaire is entirely possible for plenty. It's worth noting that everyone's circumstances and financial commitments will be their own. Therefore, some people will find that they have plenty of leeway to save, and others won't. Also, circumstances can change on a dime: You might suddenly have a new child to consider, for instance.

Experts agree that everyone should start saving for retirement by the time they turn 25. The earlier the better, but this is a great signpost on the way to long-term wealth accumulation. Starting at 25 and investing just $300 per month for the 42 years that separate this start from full retirement age will give you a balance of over $1 million (assuming a 7% rate of return). It's really that simple. In contrast, starting at 35 will require a monthly contribution of $670.

The most important part of this equation, however, is defending that principle in retirement. A conservative drawdown strategy that allows your money to continue growing can easily fund both the lifestyle you hope to lead in your golden years and a growth factor that potentially sees you leave $2 or even $3 million to your loved ones when the time comes.