While looking at Moolanomy’s blog the other day, I stumbled on an intriguing post that illustrates why it’s hard to break that P1-million net worth mark.
It’s not just the persistence and focus needed to make your first million. Moolanomy correctly points out that it’s also mathematically challenging.
“If a person invests $15,000 per year starting at age 25 and the investment gains on average 10% a year, he can get to $1 million mark by 45. The first million took 20 years! But if you keep going down the table, it only takes…
6 more years to get to $2 million at 51
4 more years to get to $3 million at 55
3 more years to get to $4 million at 58
2 more years to get to $5 million at 60
2 more years to get to $6 million at 62
2 more years to get to $7 million at 64
1 more years to get to $8 million at 65
This confirms what one of the readers of this blog said in a comment on my post on The Science and Art of Making Your First Million. He said:
“Making your first million is the hardest because you’re starting from scratch. The next million is less hard. The succeeding millions are easier because you have a bigger base. Money begets money.
I made my first million at 25 in real estate during the real estate boom in early ’90s. I had to bet all my savings and borrow money to do that. Now I earn the same amount in interest alone.
Business is the fastest way to make money. It is also the fastest way to lose money if you fail. Don’t worry it’s okay to fail but don’t lose it all.”
Inspiring, right? As I was looking through MoneySmarts’ archives, I realize Pinoy Investor is only in his thirties. Unfortunately, he doesn’t want to be interviewed 
For average Filipinos, making the first million by 25 may not be as easy though. But what if we make some simple assumptions. Say, regular savings of P2,000 a month starting at age 20 when most of us start working? The table looks like this:
It will take 16 years to make your first million!
But it gets easier after that…
6 more years to make the second million
4 more years to make the third million
3 more years to make the fourth
2 more years to make the fifth
2 more years to make the sixth
1 more year to make the seventh
…then you’ll be making one million a year after the eighth.
Consider that this illustration is only for a P2,000 savings per month on a 10% return per annum. Come on guys, we all can do better than that!
48 Responses to “The first million is the hardest”
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Pages: « 10 9 8 7 6 5 4 [3] 2 1 » Show All
November 14th, 2007 at 5:29 pm
Very instructive! RE: Inflation, simply shave off inflation from yield and do your projections. Assume 2% real growth for bonds and 12% for equities.
It’s also instructive how consistent, compounded economic growth changes the fortune of entire nations. Japan grew 10% in real terms 1950-1970 - 6.3x growth made them 2nd wealthiest nation on earth. China is now steaming ahead with 10% a year since 1995, imagine their size ten years from now!
November 14th, 2007 at 4:25 pm
hi salve,
i’ve read that another way to reach that million mark faster is to reduce taxable income, legally of course. it’s one of the ways the rich keep getting richer. only a small portion of their net worth is taxable. i wonder how could it be made applicable in philippine setting? is it just limited to those having a business?
November 14th, 2007 at 10:25 am
One Million Pesos sounds good but these days this money could hardly buy you anything, unfortunately. Maybe we should gun for P5-10 million.
November 13th, 2007 at 10:39 pm
Investing in equity mutual funds could easily give you 10% annual return right? Last year Philequity YTD was around 42% but have lower return this year at 19% due to subprime mess.
November 13th, 2007 at 10:22 pm
@anna - You are right about the fluctuation, but it’s possible to get on average 10% annually if you invest long-term using a globally diversified portfolio and asset allocation strategy.
@Jim - Kiyosaki’s book is good for snap inspiration, but he’s lacking in term of practicality and information accuracy.
@Rene - Here’s a post called introduction to CAGR, which show performance of the S&P500 over 30 years averaging above 12%. It hasn’t done as well recently, but I believe it can be done with globally diversified portfolio.
@Pinoy - Yes, inflation is not included to simplify the illustration. Capital gains tax, inflation, and expenses can all eat into this number.
@Bruin8Clap - I have another illustration that shows the impact of inflation, capital gains tax, and currency on my blog.