When I started working out of college, I had one stream of income. My job.

Now that I’m in my forties, with twenty-plus years of work behind me, I have several streams of income. Most of them are passive but none of them are special.

And on the internet, there are thousands of “charlatans “experts” who will want to “teach” you about passive income. There is no course on passive income, it’s these three steps:

1. The only way to get passive income is to invest in assets that produce cashflow.
2. The only way to get cash to invest is to save your money.
3. And the only way to save money is if you spend less than you earn.

And so if you work backwards, the goal is to save your first $1,000. Then $10,000. Then $100,000.

Check out this brilliant Charlie Munger quote:

The first $100,000 is a bitch, but you gotta do it. I don’t care what you have to do – if it means walking everywhere and not eating anything that wasn’t purchased with a coupon, find a way to get your hands on $100,000. After that, you can ease off the gas a little bit.

If you don’t have $100,000 sitting in a brokerage account, your entire goal (financially) is to get to $100,000.

If you have no savings, $100,000 can seem unattainable. It’s a HUGE number.

So let’s break it down.

Your first goal is to save up $1,000. Scratch and claw your way to $1,000.

Then, set your sights on $10,000. $10,000 is far but within reach. It’s also a sum that can be attained through the cutting of expenses and budgeting. You can save your way to $10,000.

Then, invest that $10,000.

If you get an 8% return each year, that first $10,000 will get you $800.

$800 sounds OK but not world changing, right?

But as you grow your assets more and more, compounding will be working on a larger number.

This is why it’s so important to save and invest. If you don’t, you will forever be trading your time for money.

At $50,000 and 8%, your money is earning $4,000 a year. $50,000 becomes $54,000, which now gets you $4,320 a year. The interest keeps going up each year because your balance goes up.

If you start with $10,000 earning 8% a year, it takes about 10 years to get over $20,000.

But then only another 5 years to get over $30,000.

Then only 4 to get over $40,000.

The time it takes to add $10,000 gets shorter and shorter.

That’s the power of compounding and eventually your money starts to earn more than you do. This can be both scary and exciting.

When it grows at 8%, over 30 years you’ll have 10x’d your money.

$10,000 becomes $100,000 – and that’s with no additional contributions and no extra work by you.

That’s why saving your first $10,000 is critical. You want to get that compounding clock started as soon as possible. The longer it works for you, the more your portfolio will grow.

How do you save $10,000?

One dollar at a time.

It’s not sexy. It’s not exciting.

But it’s necessary if you want to retire one day. Claw and fight your way to $10k.

Need some ideas of where to start? Check out this list of 105 easy ways to save money.

And if those are not big enough for you, consider switching banks to get a bank bonus and you could earn hundreds of dollars each time.

Where do you put it?

First, make sure it’s in a high yield savings account so you’re earning interest. It won’t be a ton but it’s better than 0.01%, which is garbage.

Then, you want to put it in a brokerage account and invest it in a three fund portfolio:

• Domestic stock “total market” index fund
• International stock “total market” index fund
• Bond “total market” index fund

These are Vanguard’s versions but you can use anything low cost (Fidelity, Charles Schwab, etc.):

• Vanguard Total Stock Market Index Fund (VTSAX)
• Vanguard Total International Stock Index Fund (VTIAX)
• Vanguard Total Bond Market Fund (VBTLX)

Then, get out of the way.