We’d all like to double our assets in a short period of time, but is it really possible and what does it entail?
It’s not easy to double your money in 5 years, but it’s certainly possible. An while the underlying principles in achieving this goal remain the same, the less money you have the easier it’ll be to achieve.
For example; it’s easier to turn $1 into $2 than it is to turn $10 into $20. Just like it’s easier to turn $1,000 into $2,000 than it is to turn $10,000 into $20,000.
In this post I’m going to look at the underlying principle which would allow you to double your money in 5 years and share thoughts behind different methods I think would help you achieve this.
The Rule of 72
Understanding whether or not you can double your money in 5 years requires you to utilise the rule of 72.
The rule of 72 is used to estimate investments doubling time. The equation requires you to divide 72 by the annual return percentage the result will be the number of years it will take to double your money.
If I decide to put my money in a savings account offering 2% annually then it will take me 36 years to double my money. I can calculate this by dividing 72 (the rule) by the interest percentage of 2% offered annually.
If I get a guaranteed annual interest rate for my money of 5.5% then it will take me a little over 13 years to double my money. I can calculate this by dividing 72 (the rule) by the interest percentage of 5.5% offered annually.
Finally, if I get a guaranteed annual interest rate for my money of 12% (wowza!) then it will take me 6 years to double my money. Again, I can calculate this by dividing 72 (the rule) by the interest percentage of 12%.
This means that in order to double my money in 5 years I’d need to achieve an annual interest of 14.4%
While this possibly could happen, it’s very unlikely.
Historically, investments in the stock market offer the highest long term return among major assets. It’s not uncommon for a stock to return 20% or more in a given year. However, consistent annual returns creating an average of 14.4% or more over 5 years is very uncommon.
Starting A Side Hustle
While a side hustle may not be as hassle-free as putting your money in a savings account and reaping the rewards it does put you in a better position to achieve your goal of doubling your money in five years.
Unlike a traditional business starting a side hustle is only likely to require a small investment. However, it is going to require around 10 – 20 hours of your time each week.
Based on personal experience, I believe this is the best way to double your money in 5 years. I’ve done it in multiple different niches (blogging, flipping, youtube etc.) and often in a much shorter time period than just 5 years.
Getting A Promotion
It’s not uncommon to get at least two promotions over a five year period if you’re on a good career path. The majority of promotions offer a pay raise of between 3% and 5%.
If you maintain your current expenses while achieving a pay raise then you could expect to achieve an additional $1,460.16 each year with a 3% pay raise on the US average salary of $48,672.
Sadly, even with a 3% pay raise in year one and an additional compounding 3% pay raise in year three, you’re not going to be able to achieve your goal.
Combining Multiple Methods
I don’t believe any of the single methods I’ve covered holds the key to success in doubling your money in five years. Instead, I believe the winning strategy would be to combine multiple methods.
Let’s assume you wanted to double $100,000 into $200,000 in 5 years.
You invested $95,000 in a long term savings account which is offering 3.75% and has no fees for withdrawal after five years.
With the interest and compounding that $95,000 would be worth $114,199.48
Then let’s assume you also get two pay raises/promotions over the five year period. The first increase comes two years into your five-year plan and is 3% and another a further two years later (four years into your five-year plan) for an additional 2%. All of which is well in line with the average promotional increases.
Your expenses don’t increase so you’re able to save that money in a savings account (for now we’ll assume that earns 0% interest)
Based on the average salary in 2020 of $48,672 the first promotion would give you an increase of $1,460.16 each year for 2 years and the second raise would give you an additional $2,462.80 for one year.
That’s a total of $3,922.96
Finally, let’s assume you plan to make up the difference remaining in order to double your money ($76,877.56) from a side hustle.
I’ve found the best side hustles include flipping second-hand products from garage sales etc. or blogging. You use the spare $5,000 from your $100,000 to set up.
With flipping you’re likely to see a quicker ROI however, it’s going to require consistent work for the five years. Very different from getting a raise or simply investing your money in stocks or bonds. However, the rewards for doing so are great!
Year 1 you turn the $5,000 into $10,000
Year 2 you turn the $10,000 into $20,000
Year 3 you turn the $20,000 into $35,000
Year 4 you turn the $45,000 into $60,000
Year 5 you turn the $60,000 into $76,877.56
At this point, you’ve not just doubled your money in 5 years. You’ve turned $5,000 into more than $75,000 in 5 years – and that’s a low estimate this woman made $133,000 in 1 year alone!
However, there are some limitations to this, not only on the time front (I’m basing this on doing a max of 20 hours a week) but also in the terms of how much you can invest and create a profit. For example, I’ve found it much easier to buy items for $1.00 to flip into $10.00 than I have items for $10.00 to flip into $100.00.
However, the $1.00 to $10.00 would require 10 single flips to make $100.00 meanwhile the $10.00 into $100.00 would only require one. Less work = more time.
If flipping seems like too much work you could go for the passive income route and opt for starting a Youtube channel or creating a blog for example.
These methods require a lot of upfront work and can be slow to take off, however, once they do they earn money irrelevant to the direct time you spend working on the project.
Based on my experience I’d expect;
Year 1 you turn the $5,000 into $3,500 (spending the money on education and any materials you need)
Year 2 you turn the $3,500 into $5,000
Year 3 you turn the $5,000 into $10,000
Year 4 you turn the $10,000 into $25,000
Year 5 you turn the $25,000 into $45,000
The great thing about blogging is you’re only going to need to reinvest a small portion of your income for upkeep such as the purchase of a domain and hosting.
Although, you could opt to spend more if you wanted to outsource some of the work, especially once you’ve got to grips with the process and are confident in what makes great content.
If you didn’t want to maintain the asset past year 5 (despite the fact it’s likely to continue to earn a significant amount of money with a small investment of time and money) you could sell it.
Online assets like this currently retail for around 24x of the monthly income. Based on the $20,000 the blog earned in year 5 you could expect to achieve somewhere in the $40,000 range.