“The first million is the hardest.” The first time I heard that phrase was back in 1999 during business school. A friend of mine had mentioned it casually in response to something we were discussing.
I was flabbergasted. At 29 years old, and with a net worth of basically zero, the thought of accumulating a million dollars was unimaginable. Let alone the thought of that being my first million. The phrase strongly suggested that there would be a second and maybe a third million to follow.
Fast forward two decades and, in fact, my net worth is well into seven figures. Where did the time go? The good news is that I spent it wisely and now have the net worth to prove it.
Reflecting back on that day, I can attest to the fact that yes, indeed, the first million really was the toughest. Why might that be? I’ll explain so that you can overcome the struggle and get to your first million as well.
But first, I’m going to caveat the rest of this piece by stating a few assumptions. I’m going to assume that you weren’t born into family money. I wasn’t. I’m going to assume that you haven’t received a huge inheritance. I haven’t. And, I’m going to assume that you didn’t win the lottery. I didn’t.
Now that the disclaimers are out of the way, let’s explore why the first million is the hardest.
You Have to Get Started
The first reason why the first million is the hardest is that people have a hard time getting started. Once you get out of school and start working, it often takes a few years before people really “get” the idea of building their net worth and saving for retirement.
They are too busy socializing and enjoying their newfound paychecks. They may even find themselves a serious boy/girlfriend and later end up married. What comes after marriage? Maybe kids and a house?
There’s a lot that could be going on during those first 10-15 years out of college. Lots of people will delay getting started on the path toward serious long-term wealth accumulation for many years.
As loyal readers know, one of the key determinants in building wealth is “time in the market” and the sooner you get started the better. My daughter, a freshman in college, just opened up her first Roth IRA this year at the age of 18. She’s off to a good start.
Your first million is the hardest because you may have gotten a late start or maybe have not even started saving yet.
You Have to Develop the Earning Power to Get There
The second reason that your first million is the hardest is that you may not make enough money to really get there. That’s just the honest truth.
There are many paths that people can take in life. There are also many misfortunes that could befall them. It’s helpful if you start off down the road of a well-paying career path.
It also helps to be lucky. Lots of bad things can happen to people and there’s not much you can do about that. You might get sick, get laid off in your prime, or get into a nasty car accident. None of those things would be your fault, so it helps to be lucky.
Either way, if you don’t get your income up to a healthy level one way or another, it’s going to be tough to save up a million bucks. Now, there are many noble professions that are worth pursuing and that don’t pay well, e.g. teaching, etc… I have nothing against those paths.
I’m simply stating the fact that if you want to get to a million bucks, you’re going to need some healthy cash flow to plow into savings.
If you’ve already got your first million in the bank, then you’ve likely mastered the earning power part of the equation.
You Have to Control Your Spending
There is a surprisingly large amount of high-earning people that basically live paycheck to paycheck. You might not know it from the car they drive or the house they live in, but if you look under the proverbial hood, you’ll see a financial mess.
This may very well be the most difficult part of having a higher income, and that is controlling your spending. If you are in a high-profile profession, like being a doctor, lawyer, or corporate executive, those jobs come with expectations.
You’ll need to resist the temptation to buy an oversized house, drive a luxury car, and take over-the-top vacations. It’s likely that all of your colleagues will not be so restrained.
You’ll have to develop the self-discipline to invest at least 20% of your money (and probably more) each year to reach the million-dollar milestone in a reasonable timeframe.
If you’re on the path to a million or if it’s already in the rearview mirror, then you probably have a firm handle on your spending.
You Have to Know How to Invest
You won’t get to your first million by stuffing money in your mattress. And, it’s unlikely you’ll get your first million by pursuing high-risk investment strategies like trading currency futures on leverage…possible, but unlikely. In fact, you’re significantly more likely to end up flat-broke.
No, in order to get your first million, you’ll have to learn the basics of sound investing principles. You’ll have to be noteworthy in your approach and stick to it year in and year out.
You’ll need to educate yourself on stocks and bonds and portfolio theory. It’s really much easier than it sounds. If this is not your thing, you’ll have to find a trusted fee-only advisor that can help you fill in the gaps you may have.
Getting to your first million demonstrates that you’ve mastered investing fundamentals.
You Need the Confidence to Know You Will Succeed
Finally, in order to get your first million, you will need the confidence to know that if you are diligent in your efforts, you will eventually succeed.
It’s one thing to have figured it out on paper, or an app, or a spreadsheet as the case may be. But, it’s another matter to see a seven-digit balance in your brokerage account.
It’s likely that you won’t have that level of confidence when you get started. But, after you’ve socked away seven figures, you’ll know that your approach is working.
That confidence will make the second million much easier psychologically than the first.
Why is the First Million the Hardest?
So, why is the first million the hardest? It’s for all of these reasons. You need to get started, you need to earn a healthy income, you need to keep your spending under control, you need to know how to invest, and you need confidence. That’s a lot.
If one of those pieces is missing, it’s unlikely that you will make it. Getting there proves that you’ve got those pieces under control.
Once those elements are under control, then the second million is just a matter of rinse and repeat. Just keep doing what you’ve already been doing. Keep the same habits. Keep working hard. Keep your eye on the prize. And after the first million, you’ll have the confidence that you didn’t have when you started.
If you already have these elements under control yourself, then congratulations! You’re well on your way. If not, then dig in, set some ambitious goals for yourself, and get busy. Once you reach your first million, the hardest part will be behind you.
Have you gotten your first million yet? Do agree that the first million is the hardest? What else makes it difficult?
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