The Math Behind Making $100,000 a Year

Most people never run the numbers…

The simplest way to make $100,000 a year is one that we all already know:

Find a job that pays $100,000 a year.

Of course within this one strategy, there are multiple sub-strategies including looking for jobs with a high starting pay and working your way up the ladder.

But there are other ways to go about it as well. Here are three different approaches to building a $100,000 income:

• 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

Fundamentally, making money is about selling. It’s about creating or doing something valuable enough that people pay you for it.

It doesn’t really matter if you are offering a product or a service, it just has to be something the customer wants enough to part with their money to get it.

How many people you need to pay you is a function of how much you are charging. There’s a 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 had better provide massive value.

Of course, value and scale are only in opposition if we are talking about hitting a certain amount of income. In reality, you can pursue both these goals at the same time.

Chances are, you will start with no scale, and little ability to provide value and will need to work on increasing both. Chances are you’ll arrive at $100,000 somewhere in the middle, moderate scale and moderate value. But it’s helpful to think about what it looks like to pursue massive scale and massive value:

Delivering Massive Value

One of the problems with suggesting that you get someone to pay you $50,000 dollars is your knee-jerk reaction that “no one would ever pay me $50,000.”

That’s simply not true.

Very few people would be willing to pay you that much, but very few is not the same as zero, and it turns out very few is exactly the range you’re looking for.

First of all, they would have to be able to afford it. Second of all, they would have to highly value it.

Let’s do a little thought experiment of how you might make $100,000 a year by getting two people to pay you $50,000.

To start, you’re looking at targeting wealthy people. Even better would be obnoxiously wealthy people, people who are so busy making money they don’t even have time to spend it all.

So maybe overworked but highly compensated CEO’s of tech companies? Sounds like a good start.

Next you have to figure out what they want, what would make their life better. Since they’re overworked, maybe they want a break, some rest and relaxation. Maybe a retreat of some kind? Great, lets go with that.

So here’s the plan: you design a retreat for five people that involves bonding, relaxation, solitude, learning new things, and potentially doing something very different from their normal intellectual labor. Maybe building a treehouse together, be creative.

How much is a unique experience designed for the specific needs of someone who has more money than they can spend worth? I don’t know. Can we find five people willing to pay $50k? It won’t be easy, but we probably can.

Why five people? Because we need some money to actually create the experience. 5 people times $50,000 is $250,000, which means if you want to make $100,000, you have a $150,000 budget to work with.

With one year and $150,000, could you create a unique experience that five people with too much money to spend would pay $50,000 for? I think you can.

Acquiring Scale

Unfortunately I don’t think there is much of a way around this one: the best way of acquiring scale is slowly, consistently showing up over time.

If you want, you can try to “go viral” and have scores of subscribers and customers flock your way, but there’s a significant amount of luck at play with that strategy.

The best way to grow is to provide value where you can, to be generous and help others selflessly, and to stick around long enough for the word of mouth to spread.

The Hidden Insight

Both value and scale are hard to build, but a key insight is that you maximize the combination of the two by offering multiple levels of value at multiple price points.

Let’s say you go the route of trying to get 1,000 people to pay you $100 — but only find 500 customers.

First of all, congrats on making $50k, but think about this: some of those people who paid $100 would have paid $1,000 if you had something for them worth more.

So here’s the math (assuming 10% would have paid for a premium option if it was available): 50 x $1,000 = $50,000, 450 x $100 = $45,000.

Look at that! You had the same 500 customers, but instead of only getting halfway to your goal, you came within five percent of it with $95,000.

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

Unlike the previous section, these are all just different ways of expressing the same thing.

These ways of dividing it up don’t account for any time off, but I’m not expecting you to work 24/7, I’m expecting you to create income streams that aren’t dependent on continuously working.

The New Assets

I have bad news and good news. The bad news is that you’re probably not going to become an overnight viral sensation kicking off a lucrative career as an influencer.

The good news is that if you’re smart about how you use the new media, you can create assets that are working around the clock to build you money.

There are videos that I put out on YouTube in 2016 that are still making me money every single day. I have Medium posts from last year that are still making me money every pay period.

What I’ve found to be the case is that I have no idea beforehand what is going to resonate. I publish lots of content on lots of platforms and most of them bomb majorly, but a few connect with people and do really, really well.

The nice thing is that even the content that bombs can still bring me value, because blog posts, podcasts, and videos never get tired and take a break. They are working around the clock to gain subscribers and earn money.

At a certain point, these income streams start clicking and making money on autopilot. Sometimes it’s not a lot, but any amount of income is a good starting point to build off of.

Trading Time For Money

You can absolutely trade time for money on your way to acquiring $100,000 in one year, but you have to realize that you only have so much time. With the customers vs price tradeoff that we looked at earlier, you could get more customers to offset a lower price. You can only work more hours up to a point.

This means that you need to know how much to charge for your time to make it worth it.

I suggest using the numbers from the bullet points above as your starting point. For instance, if someone wants you to do a job that you think will take a day, you should quote at least $274. If they want you to do a job that you think will take the whole week, you should quote at least $1,924.

You can also call this strategy “retirement” of “financial independence.”

Personally, I like the term “financial independence” (or FI). To me, FI means your money is taken care of, and whether or not you work and what you do for work are completely up to you. Retirement means that you stop working, which I think is a really bad idea.

The 4% Rule

The 4% rule is a rule of thumb derived from a 1998 study called The Trinity Study. In analyzing the rates at which a portfolio can survive a 30 year retirement, the researchers found that you could withdraw 4% in year one and increase your withdrawal to adjust for inflation every subsequent year and still have an enormous chance of your portfolio surviving — and in man cases, even growing! — during the 30 years.

Of course, it’s just a rule of thumb, but it gives you a good idea of what you need to retire comfortably.

$100,000 is 4% of $2.5 million, so if you want a portfolio that has a strong chance of surviving that can spit out $100,000 a year in passive income, $2.5 million is a good target.

You might be thinking that $2.5 million is an insane amount, and you’re right. But the good news is that if you get started early, you have the power of compound interest on your side.

Assuming a 40 year career and a 7% yearly return, it would take about $11,750 a year to reach $2.5 million. Of that final balance, less than $500,000 would be money that you put away, and over $2 million would be through investment returns (you can see the math on the Google sheet I created here).

Maybe you want to climb the corporate ladder and level up your skills in the business world. Maybe you want to explore your entrepreneurial side and provide value to customers directly. Maybe you want to invest in the stock market and have the publicly traded companies of America work hard on your behalf to make you rich.

Maybe you want to experiment with all the different strategies.

Whatever you do, it’s going to take a lot of hard work and stepping out of your comfort zone.

The brilliant Naval Ravikant has commented that money won’t solve all your problems, but it will solve your money problems.

Since money is such an important part of our civilization, solving your money problems is a big win.

To become an income generating machine, focus on saving, serving, and selling.

Getting your yearly income up over $100k isn’t necessarily easy, but everything is “figureoutable” if you’re willing to move forward in the face of uncertainty.