Note: This post was originally published in January 2020 and updated in July 2022
When it comes to building wealth, the first 100k is a critical stepping stone.
But it is crossing the one million mark that makes you realize you are well on your way – at least in financial terms.
In today’s post, I will share eight lessons I’ve learned on my journey to a seven-digit net worth. But first, a little background.
Back when I started my first job, I’d often open up a spreadsheet and play around with the numbers.
Punch in the annual savings. Add in the interest rate (remember the days when banks used to pay interest?)
Extend it out for a couple of years to see what happens.
The results were depressing. You simply don’t get very far on an entry-level salary in a big, expensive city.
No matter how much I tried, I simply couldn’t see my way to six figures, let alone one million. It seemed as if I was destined to be on a hamster wheel forever.
So I gave up trying. Or rather, I gave up on the frustrating exercise of trying to predict my net worth.
Instead, I focused on being good at my job, finding side hustles and even starting a business.
Eventually, I resigned from the company I worked for and moved across the continent to pursue an MBA degree.
Shortly after graduation, I landed in London. I was saddled with a six-figure student loan, which put my net worth firmly in negative territory.
I also had the kind of job that left just enough free time to eat, sleep, and occasionally see my wife.
I did, however, keep tracking my net worth whenever I had the time.
And one day, about six years after moving to London, I finished punching in the numbers to see my net worth finally cross the one million mark.
Get rich or die tracking
Here are the lessons I’ve learned along the way.
#1. Yes, Getting To One Million Is Possible
I will start with this because it’s the most important lesson of all. Yes, you can go from zero to one million – and beyond.
Unlike many other things in life, building wealth is actually quite simple. It may not be easy or fast, but it’s simple:
Spend less than you make. Invest the difference. Watch your wealth grow.
Think about it this way: if you are trying to write a book, you can spend years in front of your laptop and still come up with a bunch of dross.
If you are an athlete, you can train for your entire life and still be outmatched on competition day.
Or you could dedicate your entire life to climbing the career ladder and never go beyond middle management.
Frustrating, isn’t it?
Building wealth, however, just isn’t like that. In other words, it’s not binary.
As long as you set a goal and do the right things, you are guaranteed to get there with time.
Now, it doesn’t have to be one million, though as I’ve written before, becoming a millionaire is easier than people think.
Whatever the goal you set for yourself, whether it’s $1k, $100k, $10m or simply getting out of debt, remember this:
You Can Make It Happen
It will take a long time.
It will get frustrating, especially in bear markets like the one today.
Yes, you will go backwards at times.
But it’s possible.
2. It’s Unpredictable
As my experience has shown, the path to your first million will be anything but predictable.
The technicalities are simple enough.
Create a spreadsheet that lists your assets and liabilities. Model the anticipated increase in assets (savings + investment growth) and a reduction in liabilities.
Based on that, you can try to figure out when you will hit your “number”.
Forecasting your savings is the easy bit. As long as you have a decent grasp on your budget, you can figure out how much you’ll have left over every year.
Predicting investment returns – not so much. There’s simply too much variability.
The most you will get from this exercise is direction of travel, which is helpful in itself.
Assuming you sock away $10k a year and an 8% return on your investments, you’ll get to $1m in 28 years.
Increase your savings to $20k a year and you’ll swing it in 21 years.
And if you manage to increase your investment return to 10% (for example, by actively investing in real estate), you’ll get there in 18 years.
These kinds of ballpark estimates are nice to have. However, they are overly simplistic.
Your earning power will likely increase over time. You may get married and have children. There may be a period of unemployment – or a series of promotions.
Inflation can and will play a trick on you – because a million dollars will be worth far less in the future than it is today.
No matter how hard you try, you can’t fit life into an excel spreadsheet.
So play around with the numbers all you want, just don’t expect a precise answer.
3. Numbers Never Tell The Whole Story
I remember mentioning to a close friend that it took me six years to go from zero to $1m. He responded: “Wow, you really knocked it out of the park!”
But did I?
By the time I started keeping track again, my wife and I had already owned our first rental unit for a few years.
More importantly, I had a great MBA degree which I was about to start monetizing in earnest.
My wife, an accomplished professional of her own, had also been doing well at work – with pay increases to match.
On the road to financial independence, it’s easy to get fixated on the numbers – but it’s the trajectory that matters.
Often, your success will depend on the decisions you’ve made when you were deeply in negative net worth territory.
In other words, you are much better off being at zero with tons of momentum than being stuck in neutral at $100k.
4. Debt Is… Good?
There is a ton of debate on this topic in the FI community, so let me just say this: using debt wisely is like pouring gasoline on your FIRE (journey).
Taking on a mortgage helped us generate infinite returns on our first property. Taking out a big student loan to finance an MBA degree helped me move into investment banking and supercharge my earnings.
Don’t fall into the trap of oversimplifying things by putting debt in the “Bad” category.
Understand it, use it wisely and you will reach financial independence years, if not decades early.
5. Tax Efficiency Matters
As I’ve said above, building wealth may be simple, but it sure isn’t easy. Don’t make it even harder by paying more tax than you are obliged to.
There are many great ways to legally minimize the tax burden on your savings and investments.
In the US, it’s maxing out your 401(k), HSA, and IRA plans.
In the unusually generous UK, it’s taking advantage of workplace pensions, tax-efficient wrappers like the Lifetime ISA or company savings plans like the SAYE and the SIP.
Tax-efficient investing can make all the difference in the world. If you are serious about building wealth, you need to understand it – and use it to your advantage.
6. Kids Don’t Have To Stop You
This is yet another hot topic in the financial independence community. Somehow, having children is perceived as being mutually exclusive with building wealth or reaching FI.
As a father of two children, I beg to differ. Yes, children can be expensive.
But approaching one of the most rewarding parts of life from a purely mathematical perspective just isn’t right.
Instead, you’d be well served to view it through the prism of time and leverage.
Because my wife and I had enough leverage in the system (in the form of savings, investments, reputation, and career momentum), our net worth growth has actually accelerated after we had our first child (it happened towards the end of year 4 on the chart above).
This is despite a long unpaid maternity leave, a bunch of private healthcare costs and having to move to a bigger place.
Could we have gotten there faster if we didn’t have children? Sure.
Would I have it any other way? Definitely not.
7. Getting to One Million Won’t Make You Happy
And neither will your second, or third, or the ones that come after.
If you think becoming a millionaire will make you happier, think again.
An increase in income does make you happy – right until about the $75k/year mark. After that, it drops off quickly.
Sorry to break it to you…
As we all know, it takes more than a few years on a $75k income to clear your first million in net worth.
My experience has been entirely consistent with the graph above. For the first couple of years, watching our net worth tick up was very satisfying.
Since then, my happiness levels haven’t changed a bit, regardless of what has happened in the spreadsheet.
But then again, I was always a pretty content person, irrespective of the size of our portfolio.
The bottom line is this: if you are waiting to be rich in order to be happy, you are doing it wrong.
8. But You Will Sure Be Grateful
Increase in happiness? No. Feeling beyond grateful? Absolutely.
Not a day goes by when I’m not thankful for all the things our family has in life. The ability to live a peaceful life in a democratic, safe country with tons of opportunity.
Access to world-class education and a healthcare system that can stand up to the nastiest pandemic in a century.
Never having to experience war or famine. Having access to the kind of technology we could only dream of twenty years ago.
And then there’s the gratitude to my younger self for making the tough decisions that helped create the kind of life we live today. The hard work, the forgone consumption, the risks taken and the investments made.
Because the only thing that’s certain in this life is that time will pass no matter what.
What you do in that time is up to you.
Thank you for reading – and good luck on your journey!
About Banker On Fire
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Banker On FIRE is an M&A (mergers and acquisitions) investment banker. I am passionate about capital markets, behavioural economics, financial independence, and living the best life possible.
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Nicely written post. Thanks for sharing your learnings along the way to your first million. I couldn’t agree more with everything you are saying. I would just add that although it may be unpredictable, it is still useful to write down a plan statement and try to accomplish certain marks. At least it’s helping me to become more focused.
Thanks Tony. Funny you should say that – because I just wrote a post over the weekend with a framework people can use to get to their first £1m.
Will publish next week – watch this space!
Hi Banker on Fire,
Thanks for your view of life after the million dollars. It really helps those of us who haven’t reached that goal yet.
I can really relate to your comments about sitting around plugging numbers into spreadsheets expecting them to one day say “you’re rich”. The same goes for blogging, I could easily spend a week playing around with trivial features (fixing something on the back-end, playing with themes, etc), compared to writing quality articles (which bring in the views).
Great to bring everything back into perspective.
Matt / thewahman
Cheers. It’s been an evolution for me, whereby with time I’ve realised what matters is production, not perfection. In my career, in my financial matters and even when it comes to this blog.
Your pace will accelerate with time and I’d love hear how you get on. Please keep me posted.
Nice article banker. I’m just over halfway to that number so hoping I start to see the trajectory increase. The weirdest thing for me I’ve found that with a net worth if 600k I don’t feel wealthy at all. I thought that was because it was all in my house and pension until recently but having realised liquidity is also useful I’ve built up 100k in isas too. I guess it’s because I keep very little cash (3 months bills or so) and I don’t really see any of this money as accessible
You will see the acceleration for sure, especially if we don’t have any near-term market wobbles (in which case you’ll invest on the cheap and see even more upside later). Every situation is different but it took me as long to go from zero to 200k as it took me to go from 200k to 1m (3 years).
And like you, I also don’t feel any wealthier! I think it’s natural – after all, we already have all the components of a truly wealthy life: safety, family, health and time. After a certain point, more money doesn’t really change things.
Great Post! Many young millionaires face problems of keeping up with the tempo and speed, but it seems to me that you have laid a very strong foundation, so wishing you good luck building on it!
Thanks Johnny. Wouldn’t consider myself young but then again, age is just a number! It’s all about the context.
High quality article! I love your mindset, Banker
Thanks for the kind words – and best of luck on your journey!
Really enjoyed this one. I remember my obsession in the beginning with the charts and projections. Literally every night haha.
Everything went so different than my modeling that’s it’s funny. Earning power increased, returns were different than projected, etc.
Now waiting for children to arrive and completely change everything.
Yeah, nothing like running those long-term forecasts – and then realising that life simply doesn’t work that way!
Are you guys expecting? Congrats if so! It’s an exhausting experience for the first year or so but one I wouldn’t trade for anything in the world.
Another great article.
The bit that resonated with me was the tax efficiency bit. For me this is the crucial unwavering key to it all.
The hardest part is earning the money in the first place.
Never EVER EVER EVER give up more of it than you have to the muppets in governments, what ever flavour they may be. Their only goal in life is their own gravy train – not yours.
Most accountants are box tickers, they get you to give them your incoming and out going and give very little advice. It’s up to you to read and learn what is available – and find a good accountant.
I have a friend, similar age to me. He is sitting on a couple rental properties he has had since university. Based on the current value of them his rental return is about 2.5% – before repairs!
He left a job in Feb, was a higher rate tax payer. Minimal pension contributions. He could sell the properties and use his carry forward allowance on his pension to dump almost 140k into his pension. He could pay minimal CGT ( using lettings/residence relief while it still exists) and get higher rate tax relief from his previous years income on his pension saving him a huge percentage.
https://www.pensionsadvisoryservice.org.uk/about-pensions/saving-into-a-pension/pensions-and-tax/carry-forward
He also has a Ltd company – which can again make contributions in their own right into your pension, up to your annual allowance. These contributions are deductible from their P&L of the company. Free money, no Corp Tax (18%), no NI ( employee or employer +/-20%), no Income tax.
If your wife works for the company – the same deal.
He is 53. 2 years he can take out 25% tax free lump sum.
Not in a million years will he get those returns from the 2.5% rental income.
Ive been on at him unsuccessfully for 2 years to start offloading the properties.
Apologies for the long post 🙂
I think your comment is a great encapsulation of how much room there is to generate wealth through strategic tax planning.
And yet, mention taxes to 99% of the folks out there and their eyes start to glaze over.
By the way, assuming your friend’s properties are now fully paid off, I suppose another option he has is to re-mortgage them, pay himself a tax free dividend, use the money as you suggest, all while juicing his cash on cash returns (as equity tied up in the properties will be much lower).
That being said, most people are inert and it’s really tough to get them moving…
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Hey BoF! Slightly off topic but as an article suggestion it would be great if you would do an MBA cost-reward analysis, say, spanning a decade? You seem to be very pro-MBA, despite huge costs (even in European business schools) and the huge opportunity cost. Are they really worth it? Would be great to get your insight.
I wouldn’t say I’m pro-MBA but it’s true that for a variety of reasons, getting an MBA was one of the best money (and life) moves I’ve made.
That being said, you’ve got to weigh the pros and cons very carefully. I wrote a detailed post on it back in November:
https://bankeronfire.com/back-to-school
Have a look – hopefully a helpful steer!
As always, an interesting read – I discovered this blog a few weeks ago, so glad to see some reposted articles.
Hope you are having an enjoyable time with your family and looking forward to continue treading your posts in 2021
Thank you. This blog has gained quite a bit of steam over the past year and so I’ve decided to start updating and reposting articles which 95%+ of the readers would not have seen yet.
Happy holidays and a great start to 2021!
Very interesting to see your personal net worth evolution rather than just a theoretical compounding, thanks for posting. Next year I should bust through £100k net worth, which is a very healthy place to be given my age. Since I do not yet own property, one dilemma I constantly have is how invested to be & how much risk to take. I have lost out on some of this year’s market performance due to holding capital-preservation funds (e.g. Capital Gearing Trust, a fund typically held by retirees…). The need for a house deposit is making my risk appetite more conservative. That said, I won’t be buying for 5+ years… maybe I should just dump everything in FTSE Global All Cap tracker.
I was wondering if you invested in stocks to fund the deposit on your first home?
I’ve always kept the two pots (stock market and house deposit) separate.
That being said, our first property wasn’t in London, where you need to slave away for 10 years AND give up your firstborn in order to get on the housing ladder.
In theory, you could put all of your “deposit” savings in the stock market. If the market does well, cash it out and use the money to buy a property (but be wary of taxes).
The risk is that the market might tank – in which case you shouldn’t cash out, but rather continue saving up for a deposit, pushing your property purchase further away.
In other words, head in with your eyes open.
Thats another issue…. he told me they have a mortgage on their own house but mainly paid off the rentals!
Houses are not in a Ltd company.
Trying to remortgage properties in the UK as buy to let is not easy, rates are quite high with high up front fees.
They essentially removed the ability to offset mortgage payments from the costs (!!!) when you own privately but put it in a company and the rates for mortgages in a Ltds company are very poor.
Bummer. Shows you how much wealth one can preserve / create with just a little bit of upfront strategic planning
Man, it is uncanny how similar we are. I got to my first million at age 28, but didn’t realize it until about 30.
Remind us how old you are today?
I enjoy reading more about your journey since I got off the banking train after 13 years right before my 35th birthday. So I hope you work well past that as it’ll be fun to see how my life may have been if I had stayed.
Thanks,
Sam
I’ll be turning 40 next year, and will have spent a decade in banking by that point in time.
So I’ve still got a few years to hit 13 in IB, but then I’ve had two careers (large corporate + a short-lived entrepreneurship stint) back in my 20s.
Let’s see what the future holds but I don’t see myself in IB for more than a few more years. I enjoy it but life is short – and the list of things to explore is long.
By the way, yours was one of the first PF blogs I’ve come about and always enjoyed reading the perspective of another banker (albeit one sitting on the other side of the Chinese wall!)
Happy New Year!
Beautiful post. I came across your blog via the weekly FIREUK blog posts on Reddit [1]. Man, if I’m hoovering up your blog posts since last Saturday!
Thank you for the write up. Very inspiring.
Keep it up!
[1] https://www.reddit.com/r/FIREUK/comments/nctnvg/weekly_fireuk_blog_posts/
Thanks for the kind words, glad you’re enjoying the blog!