The Math Behind Making $100,000 a Year

Everyone wants to make $100,000+ a year, but most people never run the numbers of what it would take to get there.

We all know the most straightforward way to solve this problem: Just find a job that pays a salary of $100,000. A related strategy might be to find a high paying job and work your way up. These approaches work, but they’re obvious and its worth exploring some other options.

Here are three different approaches to building a $100,000 a year income:

Get “X” Number of People to Pay You “Y” Dollars

  • Get 1 person to pay you $100,000
  • Get 2 people to pay you $50,000
  • Get 10 people to pay you $10,000
  • Get 100 people to pay you $1,000
  • Get 1,000 people to pay you $100
  • Get 10,000 people to pay you $10
  • Get 100,000 people to pay you $1

Making money is ultimately about selling. It’s about doing something or creating something worth paying for.

It doesn’t matter if you’re offering a product or a service, you just need to provide enough value to get your customers to part with their money. The more value you can deliver, the more you can charge. The more you can charge, the fewer customers you need to hit your target income. This is the tradeoff between value and scale.

If you’re only offering one dollar worth of value, you need massive scale to hit your number. If you only have one customer, you better provide massive value.

You’ll start with no scale and limited ability to provide value. You’ll have to work on both acquiring scale and providing more value. Here’s how you might think about it:

Delivering Massive Value

When I say you can make $100,000 by getting two people to pay you $50,000, you might object that no one is willing pay you $50,000.

I’d like to challenge that assumption.

A more accurate statement would be that very few people are willing, but that’s more than enough.

First of all, the ideal customer needs to be able to afford it, Second, they need to think that what you offer is worth parting with $50,000 to get.

So let’s do a little thought experiment to see if we can imagine a situation where someone is willing to pay us $50,000. We’ll target rich, busy, high-powered individuals on the verge of burnout. People who are so busy making money that they don’t even have enough time to spend it all. This clearly isn’t everyone, but it’s clearly not no one.

What do they need? Maybe a break from their stressful corporate existence. So how about a retreat of some kind? What’s on offer could be bonding, solitude, or maybe an activity that is very different than their usual intellectual pursuits. I don’t know, maybe they build a treehouse or something. Be creative.

The goal would be to get five people to sign up. Why five? Because if you want to make $100,000 dollars and are charging $50,000, having five people sign up gives you a budget of $150,000. Remember, in this situation this project is all you are doing to earn money this year. With one year to plan and a $150,000 budget, could you create an experience that is worth $50,000 to someone who has that kind of money to spend?

I think you can.

Acquiring Scale

Time for some hard truth: There’s no shortcut to this one. The best way to acquire scale is to show up consistently over time. Even then, there will be some amount of randomness involved.

There’s a chance that something you do will “go viral” and it will attract hordes of eager customers, but I wouldn’t count on it. Even if that is your strategy, your best chance of going viral is to make lots of attempts.

More reliable than virality is old-fashioned word of mouth. If you are helpful and provide value, then slowly but surely, the word will spread. It might not be as fast as you would like and your growth might not be a straight line, but with enough perseverance things can start to accelerate.

The Hidden Insight

Let’s say you set out to get 1,000 people to pay you $100…but only end up with 500 customers. First of all, congratulations on making $50,000. But more importantly, think about this: Many of those 500 customers would have paid more than $100 if they had the option.

So now imagine that you have a both a regular $100 offering and a premium $1,000 offering. Suppose 10% of your customers (50 of the 500) go for the deluxe option. Here’s how the math works:

Total (500)$95,000
Same 500 customers, almost twice the total revenue

You only came up with 50% of the customers you were looking for, but you achieved 95% of your revenue target simply by offering two different levels of value at two different price points.

Build Income Streams That Average “X” Dollars Per “Y” Time Period

Here’s what $100,000 a year averages out to over various time periods:

  • $100,000 a year
  • $8,334 a month
  • $1,924 a week
  • $274 a day

These calculations don’t account for any time off. Don’t worry, I’m not suggesting you work 24/7, I’m expecting you to create income streams that don’t depend on continuously working.

The New Assets

I have bad news and good news.

The bad news is that you probably won’t become an overnight viral sensation kicking off a lucrative career as an influencer. The good news is that you can leverage the internet to create digital assets that work around the clock to bring you money.

As crazy as it sounds, I’m still being paid for videos that I put on YouTube in 2016. I have articles on Medium from 2018 and 2019 that still earn money. Every new piece of content that I create is a new opportunity to gain someone’s attention. This can lead to revenue from ads, affiliate sales, sales of my own products, or revenue sharing like they have on Medium and YouTube.

My experience has been that I don’t know ahead of time what will be successful. I’ve had a few pieces on content blow up and sometimes I’ll make more than $1,000 on a single YouTube video or Medium post. Sometimes I earn hardly anything. Either way, these digital assets are like workers that never get tired. They sit passively in the background extracting revenue from systems that run on autopilot.

Trading Time For Money

While you can trade time for money in your attempt to make $100,000, it’s important to remember that you only have so much time. This means that you need to put a premium on the rate that you charge in order to stay on pace. Remember the breakdown that we looked at earlier, $100,000 a year works out to:

  • $100,000 a year
  • $8,334 a month
  • $1,924 a week
  • $274 a day

These should be your baseline rates. If someone asks you to do a day’s work or to do a project you think will take a day, you should quote at least $274. If it’s going to be a two-day project you should quote at least $548. If the project will take a week, quote at least $1,924.

Related Post: Earning More the Simple Way

Build a $2.5 Million Nest Egg

If you want, you can call this strategy “retirement” or “financial independence.” I like the term “Financial Independence” (FI) which implies that you are free from the need to earn an income. The term “retirement” implies that you stop working altogether, which is probably not a good thing for humans to do. I’ll mostly use the term “retirement” in this section because that’s what most people are familiar with.

The 4% Rule

The 4% rule is a rule of thumb that comes from a study done in 1998 called The Trinity Study. When they analyzed how often a portfolio could be expected to survive a 30-year retirement, the researchers found that you could withdraw 4% of your initial portfolio and nearly always have money leftover. In fact, in many cases, you’d have more than when you started.

This study is far from the final word and you should take great care with your asset allocation to preserve your wealth during withdrawal, but it does give you a reasonable guess as to what you need to retire at a certain standard of income.

The study suggests that you can withdraw 4% of your nest egg and then adjust the total number up each year for inflation. So to withdraw $100,000 your first year of retirement, you’d need to have saved enough money that $100,000 is only 4% of it. In other words, you would need $100,000 x 25, which is $2.5 million.

Now, $2.5 million is definitely a lot of money, but if you get started early you’ll have the power of compound interest on your side. Assuming a 40 year career and a 7% rate of return, you’d need to invest about $11,750 a year to hit your goal. Because of the power of compound interest, you’ll have saved less than $500,000 and your investment returns will be more than $2 million.

Related Post: The 4% Rule: How Much Money Do You Need to Never Work Again?

Charting Your Own Course

Maybe you want to level up your business skills as you climb the corporate ladder. Maybe you want to explore entrepreneurship and try to provide value to customers more directly. Maybe you want to passively invest in the stock market and let America’s publicly traded companies work to make you rich.

Or maybe you want to do all three.

Whatever course you chart, you’re going to need to venture outside your comfort zone. Because if what you wanted could be found in your comfort zone, you’d already have it.

If you can get past the psychology holding you back, the math is pretty simple.

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