George Kamel - Why Your Net Worth Explodes At $100K

Episode Date: April 17, 2024

💵 Sign up for EveryDollar today. Create a free budget!  Did you know that if you’re putting your money in the right places, your net worth will explode (in a good way) once it reaches $100K? Find out the reason for the fireworks and what you can do to take advantage of it in today’s video.   Next Steps  📗 Order George Kamel’s new book, Breaking Free From Broke.  📺 Watch: What Your Net Worth Should Be by 30 Offers From Today's Sponsors  This episode is sponsored by Tello, a mobile service plan designed to save you money. Go to tello.com/George for $5 off your first month of Tello’s unlimited data plan.   🙌    🎙️ The Ramsey Show    🍸 Smart Money Happy Hour  💡 The Rachel Cruze Show  💸 The Ramsey Show Highlights  🧠 The Dr. John Delony Show  💼 The Ken Coleman Show  📈 The EntreLeadership Podcast     Ramsey Solutions Privacy Policy  Learn more about your ad choices. Visit megaphone.fm/adchoices

Are you tired of saving money in a piggy bank? Are you ready to add a little boom to your bank statements? Well, once you reach $100,000, get ready to explode your net worth like never before. It's easy. Just invest, wait patiently, and watch the magic happen. Boom! But wait, there's more! This is your ticket to financial freedom and the retirement of your dreams.

Say goodbye to boring old bank accounts and hello to your financial future. All right, it's time to blow your mind, kids. So get ready for the wealth secret that will explode your net worth in a good way. But before we light up the stick of TNT, light up those like like, subscribe and share buttons like Uncle Richie on July 4th. Obviously, before the Roman Candle incident, it's a lot easier to click buttons when you have all your digits. Oh, it's good a brand. Now, in order to understand why your net worth takes off once you reach six figures,

we gotta do a little crash course on the eighth wonder of the world. Nope, not your stepdad's extra big toe. That's weird. I'm talking about compound interest. To put it simply, compound interest is the interest you earn on your investments. So with compound interest, not only do you you earn on your investments. do you earn interest from your original amount of money or the principal balance,

but you also earn on top of the interest you've already made through that investment. And our boy, Benjamin Franklin, explained it best when he said, money makes money. And the money that money makes makes money. Nope, not a rap lyric, just Ben Franklin, spitting bars.

Oh, Benjamin Franklin and this shot be pretty. So basically, your earnings are continually reinvested, and this leads to crazy growth, helping your money grow faster and faster over time. Now, I know sometimes these concepts can be hard to wrap your head around, so here's an example. Let's say you get second place at an international hacky-sac competition and decide to invest your winnings of $10,000,

and you get a return of 10%. Well, after one year, you'd have $11,000, the original $10,000 plus the $1,000 in growth that you earned. In year two, you'd have slightly more. It would become $12,100, because you're now earning on top of the $11,000 from the year before. Now, that extra earnings doesn't seem like a big deal at first, but it becomes a hack of a deal later.

literally. Because if we leave that $10,000 alone for 40 years and it compounds annually at 10%, it will grow to over $452,000. And remember, all you put in was $10,000 of hacky-sac money. Now keep in mind, the number of compounding periods determines how quickly your investment grows, meaning that your interest can be compounded daily, weekly, or yearly. So there's some variables to consider here. And side note, not a big fan of the phrase compounding periods. Very sterile phrase for such a magical event. Okay, so now you might be thinking, this is great in all, But what if I wasn't blessed with hacky sack skills and don't have an extra 10K to play with? How does all of this blast my net worth into celestial orbit?

Well, I'll show you in just a minute. But first, I want to tell you about Tello, a mobile service designed to save you money and a sponsor for today's episode. Tello is redefining the industry with affordable phone plans that get you the same reliable coverage and features as the big guys. And right now is the time to switch, because they're offering more data and lower prices on every single plan for new and existing customers, permanently for good. And here's some more good news. You get to keep your same phone and the same phone number. You can just port it over.

So everyone's still rocking that 2006 LG can keep rocking on. And here's the best part when it comes to your wallet. Telo pricing starts as low as $5 and goes up to $25 a month for the unlimited everything plan, which includes 35 gigs of 4G LTE, 5G high speed data on T-Mobile's towers. If you know, you know. And here's another cool part. You get to be in control of your phone plan. There's no contract, no fine print, no blood oath, nothing.

You're free to upgrade or downgrade whenever you please. So go to tello.com slash George or click the link in the description to get $5 off their unlimited data plan for your first month of service. That's tello.com slash George. All right, back to building wealth with compound interest. Let's use my handy-dandy compound interest calculator to see how this can work for you when you're consistently investing smaller amounts of money. For this example, let's say I make the national average income at $59,384. Well, if you invest 15% of that, that's $8,09. $107 per year or $742 per month.

And let's say I've got $0 in our investments and I'm 27 years old. And let's also say I'm a lazy worker and I never get a raise and I have no employer match. What would that look like with our compound interest calculator? All right. So let's give this eight years of consistent investing. I have $0 saved to start. I'm going to contribute $742 a month. And I'm going to use the average return of the S&P 500.

10 to 12 percent. We'll go on the lower side, 10%. Calculating. Wow, look at that. $101,000 and it took eight years to get there. So it took eight years of consistent investing to get to the first $100,000. But guess how long it takes to get to the next $100,000? Well, check this out. From $8 to $12,000.

Now we're at $190,000, almost at $200,000 just four years later. So, pause here. Why did it take only half as long to reach the second $100,000? Well, remember our friend, compound interest? This is compound interest working its magic. Think of it like a big, beautiful snowball, rolling downhill, gaining snow and growing even bigger and more beautiful the further it goes. Once you have a big chunk of change like $100,000,

your earnings start to generate their own returns. So a 10% return on $100,000 is $10,000. But that new $10,000 is now making its own returns. Aren't you proud of it? Look at it go. I'm so proud of you. So this is the fun part where your money makes money and that money makes money. And you get the point. So let's keep going.

Let's see where this goes. We're going to get back to the calculator here and see how long it takes for the next $100,000 to show up. Let's go 15 years. Boom, we're almost at 300,000, three years later. So it took eight years for the first batch, took four years for the next batch, took three years to the next batch, now just two years later, 17 years, we're now at 361, 20 years in, we're now at over $500,000.

Pretty wild. So you can see how this speeds up over time. It's easier to get to the next 100K as time marches on. So 20 years in, you went from $0 to over half a million dollars. And here's the craziest part. Go with me. The contributions were only $178,000. That's the money that you put in from your income. But the other $331,000 was all compound growth working for you. You did nothing to earn that except keep it invested over a long period of time. Now get this. It took 20 years to get half a million, but only takes seven more to make another half million to get to that million dollar milestone. So you doubled your money in just seven years, and I will prove it. 27 years invested. Mind blown. You blow my mind. Now, by the time you have a million dollars, if you're still making 10% on average,

you're making $100,000 a year on average. And in seven more years, you add another million dollars. Check this out. Let's go to 34, and we should be over 2 million. Look at that, almost $2.2 million. So let's zoom out. I'm 27 years old. I got zero in investments.

I invest that 742 every single month. Over a long period of time, I have an average return of 10%. After 35 years, I'm 62 years old, and guess what? I am a multimillionaire with $2.4 million in that one account. And remember, that was with no raise and no employer match. So the secret sauce to making the most of compound interest is regular contributions plus time. Maybe a splash of Worcestershire, if you want to get fancy. We got to use this one trap or one's their shoe shop.

No. If you do those two things alone, your networks will explode, especially once you reach 100,000 in investments. And if you look at these numbers one more time, here's what's really cool. Out of that 2.4 million, 2.1 was just growth. invested 311,000 of my own money. And what's really cool is that most millionaires look up and find over time 80 to 90% of their account balance was pure growth. They only invested 10 to 20% of that. And did you notice there was very little effort or fancy finagling on your end? The tough part is just having discipline and patience because this won't make you rich overnight. You got to find

someone else's course for that. Now I will say, investing won't get you very far if you don't make the most of it. There are some things you must do to get your money working for you. For starters, get out of debt. And before you roll your eyes at me, Vivica, listen up. If you're in debt, interest is working against you. That 22% APR on your credit card, the 6% interest on your student loan, 7% on your car loan, it's moving you in the opposite direction financially. So remember this. Broke people pay interest, wealthy people earn it. So before you invest anything, be sure to get out of debt like your life depends on it, because 900 bucks in monthly debt payments could turn into $900 a month invested for your future if you get out of debt. Then once you're completely

debt-free with a healthy emergency fund of three to six months of expenses, begin investing 15% of your income into retirement and in good growth stock mutual funds. Now notice I didn't mention cryptocurrency or real estate or pre-modern impressionistic art. You got to keep it simple here. And keep in mind, mutual funds don't earn a fixed interest rate, which means they don't earn compound interest technically, but they do experience compound growth, which works pretty much the same way mathematically. And that's because the value of a mutual fund can rise and fall, because it's a basket of stocks. Now, some years you're going to see a lot of growth. Some years you might see a little bit of growth.

In some years, you might even see negative returns. But remember, you've got to think long-term. And if you look at the long-term growth rate of the S&P 500, which is a common measuring stick for how the stock market is doing, historically averages an annual rate of return between 10 and 12%. You're not going to get those kind of averages with doge coin or whatever looks exciting in the moment. Now, this next point's important, so put down the jelly donut and focus here.

You need to get started investing as soon as possible, because like we saw today, gasoline to the fire here is our trusty friend time. You want your money to experience as many, compounding periods as possible. And if you're later in life and you're thinking, well, sounds great for a ruggedly handsome, intelligent, nice young man like George, but I don't have that kind of time. Don't get discouraged. For one, you're probably at a point in your career where you're making more money than you ever have, and you hopefully have lower expenses, and you can make extra catch-up contributions with your retirement accounts. And don't knock what diligent investing

can do for five or ten years. I mean, if you started from zero and invested $1,500 a month, in 10 years, that's almost $300K, which, if my calculations are correct, is a heck of a lot more than zero. And last thing, make sure to increase your contributions whenever you can. If you get a raise, earn cast through a side hustle, inherit money, or win another regional hacky-sac competition, promise me that you'll increase your investing instead of increasing your standard of living. And if you want help with this, talk with an investing professional about how to invest more as your earnings increase.

Trust me, that's when the fireworks show will really start. Now remember, using the power of compound interest to make your net worth go boom-boom, only works if you trust the process and leave your money the heck alone. For the first few years, it might feel like nothing's happening. but eventually the sparks will fly. Now, if you want a good idea if you're on track, building a solid nest egg for yourself, check out this video on what your net worth should be by age 30

to see how you're keeping up. I will link it in the description as well. As always, thanks for watching. We'll see you next time.