The $1M Net Worth Formula (aka compound interest)
Feb 22, 2025Read time - 3 minutes / Disclaimer
Compound interest can:
- Grow your investments.
- Improve your net worth.
- Speed up your retirement.
Unfortunately, compound interest isn't common knowledge.
How Compound Interest Works
Schools teach:
- Calculus.
- Geometry.
- Trigonometry.
But there's little talk about using compound interest to build your net worth.
I watched bank clients benefit from compound interest the 10yrs I worked at JP Morgan Chase as a banker.
The problem is—
Most people weren't taught how it works.
How it can take you from $0 to $1M.
How it can transform your finances.
Here's how (in 5 simple steps):
Step 1: Compound Interest Calculator
Find an easy to use compound interest calculator.
My favorite is called "ez financial calculators".
It's free to download in the app store.
Running a few compound interest examples helps motivate you to invest.
Step 2: Monthly Deposit
Pick an amount to invest.
Using the ez financial calculators app.
Let's assume below:
- Principle Amount = $0 (no money saved)
- Monthly Deposit = $150 (saving $5 a day x 30 days)
You invest $150 per month.
Saving and investing small amounts is a great way to start your investing journey.
Step 3: Period Of Time
Pick how long you'll invest.
Let's assume:
- Period = 480 months
480 months = 40 years
You do it long term.
Investing over long periods gives your money time to grow larger and larger.
Step 4: Interest Rate
Pick your interest rate.
Let's assume:
- Annual Interest Rate = 11%
Why 11%?
Over the past 40 years.
The S&P 500 (stock market) went up 11% per year on average.
Below 11% you'll see $72,000.
That's how much money you saved.
Here's the math:
$150 per month x 12 months
= $1,800 per year
$1,800 per year x 40 years
= $72,000
Saving small amounts over long periods of time add up to large amounts.
Step 5: Calculate The Results
Here's the magic of compound interest.
Hit the "calculate" button and you'll see:
What this means:
Interest Amount = $1,036,693 (how much money you made in compound interest over 40 years)
Maturity Value = $1,108,693 (the $72,0000 you saved and invested + how much you made in compound interest)
If you want to see all the bloody details.
Scroll down and click "table".
You'll see...
- How saving $5 a day
- Investing $150 a month
- Averaging 11% interest
- For a full 40 year period
- Works out to $1,108,693
"Compound interest is the 8th wonder of the world, he who understands it, earns it." —Albert Einstein
Conclusion
When sharing this example.
People sometimes say:
"$1M in 40 years won't get you the same as $1M today."
And they're right...
The cost of food, cars, housing goes up each year.
So—
Instead of saving $5 bucks a day and investing $150 each month.
Start with $5 (if you're just getting going).
Then shoot for $10 or $15+ per day as you make more money.
To run your own compound interest estimates.
Download the free ez financial calculators app here:
After opening the app, click the "compound interest" option.
Run a few examples.
And start planning your early retirement ๐ฐ
See you next week.
