← The Personal Finance Podcast
Loading summary
Transcript2 lines
- [00:00]
A
On this episode of the Personal Finance Podcast, the three Major Milestones that Matter More Than Anything. What's up everybody and welcome to the Personal Finance Podcast. I'm your host, Andrew, founder of MasterMoney Co, and today on the Personal Finance Podcast, we're going to be talking through the three financial milestones that matter more than anything. If you guys have any questions, make sure you join the Master Money newsletter by going to MasterMoney co/newsletter. And don't forget to follow us on Apple Podcasts, Spotify, YouTube or whatever podcast player you love listening to this podcast on. And if you want to help out the show, consider leaving a five star rating and review on Apple Podcasts, Spotify or your favorite podcast player. Now, there's a moment in every person's financial journey when everything changes. You're checking your investment account, you're grinding away at work, and you're wondering if any of this stuff is actually working well. Then one day you wake up and your portfolio is generating more money than some people earn at their day jobs. And some of you, this may have happened by hey, you randomly check your 401k one day and realize, oh my goodness, I have way more money than I ever thought I would inside of this account. It is not because you did something different and it's not because you got lucky, because the math finally cut up and you already put the work in. And for the most part, this is all just math. The moment does not happen randomly. It happens with three specific numbers. Three milestones that are going to act like tipping points in your financial life, where once you hit these milestones, the way that money works for you will completely change. And so today I'm going to show you exactly what those numbers are, why hitting each one accelerates everything that comes after it, and how to stay consistent during these stretches when it feels like nothing is happening. Because this is when most people quit. And as wealth builders, I want you to note that as we go step by step through these different milestones, you're going to see how they can absolutely change your life. Now, there are two things that we are going to talk about here. We are going to talk about the three major milestones that you are going to hit during your financial life. And as we go through those three major milestones, each one is going to fundamentally change how money works for you. They represent a shift in your finances and it's going to be a tipping point for each and every single one. Then we're also going to talk about markers. Now, markers are going to be the points in between these bigger financial milestones. And as you see, once you hit that first financial milestone, it may take a number of years before you can hit the second one. And so we want to have markers in between. We want to make sure that you stay motivated when you were trying to hit these goals. We want to make sure that you are progressing when you are trying to hit these goals. And so in order to do that, we put markers in between each of these milestones. This is going to help you when you are thinking through the process. Now, the simple way to think about this is that milestones are the areas where your finances are dramatically changing and markers are keeping you motivated as you power through along the way. Now, there are a couple different things that I want you to note, because early on in your financial journey, when you are trying to get to some of these early milestones, it is going to feel like you are in a slog. It is going to feel like you are in a grind, and it's going to seem like your money isn't doing anything for you. And that is a concept that I think a lot of us have felt in the past, where it feels as though you are doing so much, you're investing your dollars, and that money doesn't seem to be growing at all. Well, this is because in your early years, compound interest really isn't taking over. It is more about the amount of money that you are putting into these investments. In fact, a lot of times, compounding is something that you could think about this in a way where the compounding curve is actually backloaded. The more dollars you get invested and the sooner you get those dollars invested, that means that the money that your money is going to make will compound more and more and more over time. In the early years, almost all of your growth is going to come from your contributions. It's not going to come from your returns. For example, if you have $5,000 invested at a 10% rate of return, you're going to earn $500 that year. But think about the same exact thing. If you had $500,000 invested, what, $500,000. A 10% rate of return is $50,000 that you're going to make in that given year. That's more than some people in this country make in an entire year. And it's more than most people can ever save in an entire year. This is why, I mean that your money can work so much harder than you ever can. And once you realize that your dollars can work harder than you ever can, it's going to make you really want to get those dollars invested. Because the sooner you get those dollars invested, the sooner and closer you can get to financial freedom. You want to do this for your family. You want to do this so that you get your time back, your energy back, and all those different things. And this is why. The second thing I want you to understand is that your first hundred K is going to be the hardest. Why? Because. Because you, specifically, you, yes, you listening right now, are doing all of the work. You are essentially pushing a boulder uphill, and your goal is to get to the top of the hill so that boulder starts to roll downhill without any effort from you whatsoever. See, compounding is going to be helping you early, but it's only going to be helping you a little bit. It's not going to be taking over your entire situation. Also, the numbers at the beginning are going to feel small because they are small. And this is just part of the process. Embrace that as part of the process. But this is not going to be something that is relative to what comes later. So if you go from zero to $10,000, for example, this is going to feel like it takes forever, especially if you're not investing a lot of money. But 900,000 to 1 million is going to happen really, really quickly because of the power of compound interest. So these are completely different experiences in life. And you have to enjoy the process and understand this is how the process works. Now, the rule of 72 is brutal when it comes to looking at this in reverse. And the rule of 72 is this really cool rule that is going to tell you how long it's going to take before an investment will double. So let's say, for example, you got a 10% rate of return. It's going to take you 7.2 years before that investment is going to double. So once you realize this and understand how the rule of 72 works, then you're going to understand, man, the contributions that I make in these early years are going to be the real reason and the math behind why it takes a little longer to get started. But once you get started and once that snowball starts to grow, all of a sudden, it gets so much easier at times as time goes on. And so I just want you to note that up as we start to talk through this episode of why it is so difficult in the early years to build wealth because you are doing all the work. And we'll talk more about this as we go on, but I just want you to note that before we dive deeper so we're going to go through these three milestones. We're going to show you how powerful this can actually be. And I'm going to show you how to build wealth step by step so you can methodically get to the next goal. So if that's something you're into, let's get into it. Workplace chaos. You know the feeling. Deadlines are stacking up, emails are flying, and then someone on your team gives notice. That's when you think this is a job for Sponsored Jobs when you need the right hire fast. Indeed Sponsored Jobs helps your post stand out and reach quality candidates. Instead of hoping the right people see your listing. Sponsored Jobs boost it in search results so you can match with candidates who meet your specific criteria like skills, certifications or locations. And you only pay for results. And here's something wild in the minute I've been talking to you. Companies like yours made 27 hires on Indeed according to Indeed Data Worldwide. That is real momentum. Sponsored job posts directly on Indeed are 95% more likely to report a hire than non sponsored Jobs. So when the pressure's on and you need someone who can actually move the needle, this isn't your job. It's the job of Sponsored Jobs. So spend less time searching and more time interviewing candidates who can check all your boxes and listeners. This show will get a $75 sponsored job credit to help get your job the premium status it deserves@ Indeed.com podcast just go to Indeed.com podcast right now and support our show by saying you heard about Indeed on this podcast. Indeed.com podcast terms and conditions apply. Need to hire this is a job for Indeed Sponsored Jobs Way Day is coming up and if you've been thinking about upgrading anything around your house, this is the time to do it. From April 25 to April 27, Wayfair is running some of the best deals you'll see all year. We're talking up to 80% off with free shipping on everything. Now we've been slowly dialing in some of our spaces and for me it's more about that clean, modern look, simple furniture, functional pieces and stuff that actually gets used every day. Wayfair made it really easy to find exactly what fit that style without spending hours searching. You can filter by size, price, design and read thousands of reviews and actually feel confident in what you're buying. We picked up a couple of pieces recently, some updated furniture and a few accent items, and everything showed up fast, was easy to put together and just worked right away in our space. And what I like is that they Have Wayfair verified where their team actually vets products so you know you're getting something solid no matter your budget. Wayday is the sale to shop the best deals in home. We're talking up to 80% off with fast and free shipping on everything. Head to Wayfair.com April 25th through the 27th to shop Wayday. That's W-A-Y-F A I R.com Wayfair Every style, every home. All right, so before we start on these milestones, there is one thing I want you to note is these dollars that I'm talking about as we go through this are the dollars that you have invested. Because this is where you're going to reap the benefits of compound interest. This is not the dollars that you're putting towards your emergency fund. And so for those who are in the early stages of wealth building, you must prioritize your emergency fund first. We have a process called the 1, 3, 6 method where a, you're going to save one month of expenses, then you're going to pay off high interest debt. So any debt above a 6% interest to get rid of, then you're going to save up three months of expenses. And then once you're at three months of expenses, that's when we can start to branch off and begin investing our dollars. And so if you have not done that up front, I want you to make sure that you are getting there first because this is going to protect you so that you can reap the benefits of compound interest later and make sure that you're investing going forward. And so it's very important that you have these emergency funds set up and you have a system in place to build up that emergency fund. It is one of the most important things, especially in 2020, we are seeing job loss at an all time high. We want to make sure that we have our finances protected and our finances are going to be bulletproof so that we can grow our money as time goes on. And so that is the first caveat that I want you to understand is you need to have that emergency fund in place. And so let's jump into milestone one. So milestone one is to get your first $10,000 invested. Now for a lot of folks out there, if you are brand new to finance or you're brand new to investing, this is going to be a really important milestone for because a, you need to build the systems and put the systems into place that are going to help you do this. How do we put the systems into place? Well, number One, we need to automate our finances. And if you haven't gotten to your first $10,000 yet, that means you most likely don't have an automation system put into place. Number one, you need to automate your bills. Number two, you need to automate your savings into your emergency fund or any other savings goals that you have in place. And then number three is you need to make sure that you are automating your investments. So every single time you get paid, you need to take a portion of that payment and put it into your brokerage account, or put it into your retirement account, or put it into whatever investment vehicle you are utilizing to grow your wealth. This, my friends, means paying yourself first. This is the concept of paying yourself first. Money and investments should be treated like a bill. They should not be treated as something at the end. No, this is one of your most important bills. Your financial future and your freedom depends on this. You need to act as such. And so taking extra dollars and putting them towards your freedom will absolutely transform your life forever if you do this. So I highly, highly encourage you to learn how to automate your finances. Now, we have a free automation checklist. If you go to MasterMoney Co resources, we have an automation checklist that you can go and download. And with that checklist, this is gonna show you step by step how to automate your finances. So I highly encourage you to go to MasterMoney Co resources and get the automation checklist. Now, another thing you wanna automate is your budget. Now, I use a tool called Monarch Money to make sure I'm tracking my expenses, where my dollars are going. Now, a lot of people, when I say the word budget, they almost treat it as a cuss word. They don't want to hear it. That's a. Okay, for some of you, you can do something like the reverse budget, meaning saving off the top and then spending what is left over. But for most people out there who don't have their first $10,000 yet, I want you to budget every single month. Why? Because this is how you're going to get there. And especially if you're just getting started, you need to have awareness around your money. You need to have an understanding of where your dollars are going. How many of you have gotten to the end of the month and you say to yourself, I have no idea where I even spent my money. Well, the reason for that is because you have a lack of awareness. I want you to remember this line. What gets measured gets managed. And if you don't measure where your dollars are going, you're never going to manage or stay on top of your finances. Now, this may sound restrictive to you. It is not restrictive. In fact, it is one of the most freeing things ever. Why? Because you can allocate your dollars towards the things that you actually value instead of the things that you really don't care about. How many times do you walk into Target and you just spend way too much money or you just buy random things on Amazon and you get to the end of the month and you're like, overspent again. I cannot believe I did this. I got to stop doing this or we got to stop overspending. Do you say that a ton to your spouse or people in your family? Well, the reason why you're saying that is because you're not measuring your finances. And the way to measure it is to make sure you're tracking your money. Now, number three is if you don't have one open already, you need to make sure you have your investment accounts open. So the order of operations and the way that I like to think about this is to think through, okay, we need first to get our 401k match. Second, if you have a high deductible health plan, look into the HSA or the health savings account, where money is going to go in tax free, it'll grow tax free and you can pull the money out tax free as long as you have a qualified medical expense. Third is the Roth ira. The Roth IRA is my favorite account overall, especially if you're in the early years of wealth building, you really need to look at a Roth IRA. If you make too much money for a Roth IRA, you can do a backdoor Roth IRA. 4 is a brokerage account. This is just a regular old brokerage account that you can open at Vanguard Fidelity or Charles Schwab and you are able to invest your dollars and buy stocks, buy bonds, whatever else you are interested in buying. Then lastly is your 401k. That is the one that a lot of people talk about. Ramsey Solutions did a study and over 79 of millionaires became millionaires in their 401k. I want you to make sure that you are hitting that 401k match at a very minimum because it is a 100 rate of return. And this is going to give you an instant 50 to 100% return depending on how your 401k match is set up. Now, one of the things to do is if you don't have your first $10,000 yet, I want you to spend some time finding money. What Do I mean by finding money? First you can start in your house, start to look around your house and say, what are some of these things that I don't use anymore that I could go sell on Facebook Marketplace? Start to sell some of your stuff, start to get rid of some of the clutter in your house. Sell it on ebay if you have to. And honestly, you'd be surprised at how much money you can make on ebay by just selling your old stuff. From clothes to shoes to kids toys to all these different things. You can absolutely increase the amount of money that is coming into your household just by selling your old stuff. And once you do that, take those extra dollars and put them towards your investment account so that you can begin to grow your wealth. Also, you can find ways to cut back on some of your expenses as well. If you know you're overspending in some categories, pick one or two categories a month and focus on slowly reducing how much you're spending in those categories. Because this is going to help you then take the difference, the amount that you saved, and start to automate it into your brokerage account. The mistake that most people make is when they save money, then all of a sudden they don't actually tell those dollars where to go next. Instead they decide, I'm just going to put it back in my checking account and I'll figure it out later. No, you need to make sure you're telling those dollars where to go. Which is why automation is so important and why your behavior is going to be the framework on how you build wealth for the rest of your life. Your behavior during this time frame. And so your first $10,000 is going to be established almost entirely by your behavior, by your psychology and the way that you operate when it comes to Money. This is 100% all about your savings rate. And you need to increase that savings rate by one, increasing your income, two, finding ways to find more money so you can increase that savings rate, and three, cutting back on some of the expenses that are just excess or frivolous that you don't really need. And so this, your first $10,000, is an amazing milestone and an amazing achievement for the beginner wealth builder. Because once you get started, then you realize, oh, I can do this and I can do this over and over and over again. And so that's the first milestone. Now between the first $10,000 and the next milestone, we have our first marker. And so this marker is going to be the fifty thousand dollar level. So again, remember, this is to keep you motivated between some of these milestones so that you have something to strive for. And so the fifty thousand dollar marker is going to be the shift where once you're past that first milestone, the compounding engine still really isn't taking over yet. You're really still relying on your savings rate. And so getting to that first $50,000 is going to see a big difference. The cool thing about this portion is once you get past 10,000 and you're starting to save and invest more, you're starting to see that balance grow. And you're, your balance growing is going to feel really, really good. It's going to keep you motivated over that time frame. And especially those of you who had a 401k for a long time, for example, or maybe in Roth IRA for a long time, and you've just slowly been putting some dollars in there, you've maybe seen this happen to you where your balance has grown without you even thinking about it. Well, that's what we want to happen to you. And so at this $50,000 level, this is where we are going to see some really cool stuff. Now income growth, once you get to $50,000 is one of the areas that I want you to focus on because this is the most powerful thing that you can do to your finances is grow your income. Why? Because if you keep the amount of money that you're spending the same, but your income grows, well, all of a sudden you have all these extra dollars to put towards wealth building, to put towards your investments. And when you do that, especially when you're trying to get to your first $50,000, this is going to make the biggest impact overall because as you will see when your money begins to compound, the majority of it is going to be your savings rate. And so that's savings rate needs to get increased more and more and more if you want to achieve these goals faster. And so we are actually going to give you a free calculator that we put together. If you go to MasterMoney Co resources, we have something called the financial milestone track. And on this track it's going to show you exactly how long it's going to take for you to hit each of these milestones that we're going to be talking about today. And each of these markers today based on how much you're investing every single month and the rate of return. It's the coolest tool and we are really excited to introduce this to you guys. It's absolutely free, so make sure you check it out. By going to MasterMoney Co resources because let's say, for example, you're trying to get to your first $50,000. You can plug in the information into this tool and it'll show you exactly how long it's going to take you to get to that first $50,000. So again, go to mastermoney.co resources and it'll be there for you. Now, as we start to grow our income, I want you to take the difference of the increase of that income, especially if you're under milestone two still. And I want you to put as much as you possibly can towards your investments. Now we want to have a little bit of a balance as time goes on, but if you are under milestone two still, then I need you to put as much as you possibly can towards your investment goals. That is really, really important as we start to grow this. Now, the second thing you could do is I want you to keep lifestyle inflation in check. Lifestyle inflation is the one thing that could absolutely destroy your progress as you begin here. And if you're under milestone two, this is really going to hurt your progress. You want to make sure that you are keeping it in check. So what is lifestyle inflation? This is if you get a raise and all of a sudden your expenses raise to the same level as how much you have made. And so maybe for example, you take on a new car payment because you're making more money. You're like, we can afford it, I have the extra cash on hand. So instead of investing those dollars, you decide to take on a brand new car, even though the current car that you're driving is perfectly fine. Or maybe you decide to upgrade your house too early before you have enough money getting rolling and invested. And so you've decided, okay, instead of investing my dollars, I'm going to take the difference and put it towards my personal residence. Well, for the most part, a personal residence is not the best place for your money. And honestly it's not a very good investment whatsoever. You got to run the numbers on this kind of stuff to understand the trade offs of exactly what you're doing. So you want to keep lifestyle inflation in check. This is where most people are going to get hurt, is over inflating their lifestyle. And if you're in your 30s or you have a family now and you have kids in your life, lifestyle inflation comes at you like a thief in the night. And you need to be aware that it exists and you need to be aware of ways to combat against it so it does not take over your financial life. Things like daycare are going to take over things like increased expenses because you have kids or because you have a spouse. Things like spending more on food, spending more on dining out, spending more on kids activities, spending more on sports, spending more on the bigger house or the car payment. These are all going to kill you if you are not aware that this happens. Now the other thing I want you to note is at this $50,000 marker, you need to make sure that you stay invested through market volatility. The first real downturns are going to happen during this phase. You're going to feel some of these 20% pullbacks, 30% pullbacks, and they're going to make you panic. It's going to be the first time that you feel this. It's going to be the first time that you go through this in the market. Let me say this right now, now the market pulling back is one, healthy two, it is natural. Historically, this happens every couple of years that we have market pullbacks. And in fact, every 10 years or so we have a correction or a recession. And so because of this information, you need to know that this is very, very normal when the market pulls back. In fact, you hear people say this all the time, buy low and sell high until it's time to do some buy low, sell high stuff. Most people are going to repeat that over and over again. Then when it's actually time to buy low, most people get too scared or they freak out because they watch CNBC or they watch the news and the news told them everything is crashing, the sky is falling. The news is there to try to get clicks. The news is there to try to get you to watch. The news is there to scare you into making really the wrong decisions. In a lot of scenarios, do not listen to what the news is telling you. Instead you need to move forward and understand how the market moves. This is a very normal occurrence. And over the long run, you will win with money. If you're a long term investor. My favorite exercise to tell people is to take out a stock market app and go look at the longest time horizon of the S&P 500 and what direction does that market go? It only goes in one direction, which is up. Now, we've done this a number of times, talking through what is the risk of losing money in the market if you stay invested over the long term? And if historically, if you stay invested in something like The S&P 500 for 20 years or longer, people have lost money 0% of the time. And so if you don't want to lose money in the market stay invested longer. That is the overall key of what history has told us. So that is the marker in between milestone one and milestone two is $50,000. Now let's jump into milestone two. So lately I've been noticing how fast things are changing at home. The kids are growing like crazy, clothes don't fit anymore, and routines are changing. And it just hits you. Life is expanding. And when your life grows, your responsibility grows with it. That's something I've been thinking about more this spring, making sure the safety net we have in place actually matches the life that we're building. And that's where policygenius comes in. Policygenius isn't an insurance company. They're an online marketplace that helps you compare life insurance quotes from some of the top insurers in America all in one place for free. And their licensed team works for you, not the insurance companies. So they help you find the right coverage for your situation without all the guesswork. And they walk you through everything, answer your questions, handle the paperwork, and help you get the coverage that actually fits your life today and where it's going. So protect your family with a policy that grows with your life. With Policygenius you can see if you can find 20 year life insurance policies starting at just $276 a year for $1 million of coverage. Head to Policygenius.com to compare life insurance quotes from top companies and see how much you can save. That's policygenius.com for a long time I thought investing was something you did later. Like once you had everything figured out. More money, more knowledge, and more time. But the shift for me was realizing you don't need to have it all figured out. You just need to start. And that's why I like Acorns. Acorns is the financial wellness app that makes it simple to give your money a chance to grow. You can sign up in minutes and start automatically investing your spare money, even if all you've got is spare change. What really stands out to me is the potential screen. It shows you what your money could become over time. And that's powerful because it keeps you focused on the long term instead of getting caught up in the day to day. It's also all in one place. You can invest, save and stay on track with your goals without juggling a bunch of different apps. Sign up now and Acorns will boost your new account with a $5 bonus investment. Join the over 14 million all time customers that have already saved and invested over $27 billion with Acorns head to acorns.compfp or download the Acorns app to get started. Paid non client endorsement compensation provides incentive to positively promote Acorns tier 2 compensation provided potential subject to various factors such as customer accounts, age and investment settings does not include Acorns fees. Results do not predict or represent the performance of any ACORNS portfolio. Investment results will vary. Investing involves risk Acorns Advisors Advisors, LLC, an SEC registered investment advisor. View important disclosures@acorns.com PfP tax season is funny because for a lot of people it is the one time of the year where you actually sit down and look at your full financial picture. Your income, your spending, your savings, maybe even your investments. And when you see it all together, you start asking different questions. Am I actually making progress with my money? Simplify your finances with Monarch. Monarch is the all in one personal finance tool designed to make your life easier. It brings your entire financial life, budgeting, accounts and investments, net worth and financial planning together in one dashboard on your phone or laptop. Feel aware and in control with your finances this tax season and get 50% off your Monarch subscription with code PFP now. One thing I do every day is my five minute drill. Just a quick daily check in with my finances. Monarch makes that really easy because everything is all in one place. Achieve your financial goals for good with Monarch, the all in one tool that makes money management simple. Use code pfponarch.com for half off your first year. That's 50% off@monarch.com code pfp starting something new is uncomfortable. I remember when I first started building this podcast and business. There were so many what ifs, what if no one listens? What if this doesn't work? And what if I'm wasting my time? But pushing through was one of the best decisions I have ever made and having the right tools makes a huge difference. That's where Shopify comes in. Shopify is the commerce platform behind millions of businesses and handles 10% of all e commerce in the US. Whether you're just getting started or scaling something big, it gives you everything you need all in one place. You can build a clean professional store with ready to use templates, use AI tools to write product descriptions and improve your listings, and run email or social campaigns to actually get your product in front of people. And the part I love is it simplifies everything. Inventory, payments, analytics, marketing. It's all in one place so you're not trying to duct tape a bunch of tools altogether. Plus, if you ever get stuck, they've got 24. 7 support to help you through it. It's time to turn those what ifs into Ka Ching with Shopify today. Sign up for your $1 per month trial today at shopify.compfp go to shopify.compfp that's shopify.compfp so milestone two is going to be saving up your first hundred thousand dollars. Now, this is the hardest overall for most people because this is a slog and this is a grind. And it is very difficult to get to your first hundred thousand dollars because you are saving so much. All of it is your savings rate. All of it has to do with you. All of it has to do with the amount of money that you're earning. You're getting up every single day. You're driving through traffic to work, you're listening to your boss all day. You're driving home just to get enough money to save a few hundred or a few thousand dollars towards your investment account. And so this is why it's so hard. Because your first a hundred k has all to do with your savings. Charlie Munger, who was Warren Buffett's business partner, is very famous for saying, your first hundred k is a grind. And there is math that explains why. So let me say this, for example. So saving a $500 a month at 10% return takes roughly 10 to 11 years to hit your first 100k. Saving $1,000 a month at 10% returns takes roughly 6 to 7 years to hit your first 100K. And saving $2,000 a month at 10% rate of return takes roughly 4 to 5 years. Now use our tool. You can actually use our calculator that we just talked about. If you go to mastermoney.co resources, it'll show you exactly how long it'll take based on your situation and where you are starting. But your savings rate is the biggest variable here. A 10% return on $20,000 is only $2,000. And so you need to realize that you need to save your way to your first 100k. Let me say it louder for the people in the back. You need to save your way to your first hundred k. You cannot out invest a low savings rate. It's just going to take you way longer if you do have a low savings rate. And so we need to figure out, well, how do we increase our savings rate? It's again, income and cutting back, which is why we talked about the marker at $50,000. And you really need to focus on increasing your income, building those skills that are going to help you increase your income so that you can get to that point in time. Now, what do you need to focus on to get to your first 100k and at this milestone, once you cross this milestone? Well, first, now that you've crossed the milestone, we need to make sure that we are maximizing Tax advantage accounts. So the Roth IRA, the 401k, any of those are really, really important and especially the HSA if you're eligible. Also, we want to aggressively grow our income through skills. We want to do it through career moves, maybe some side businesses, but we want to focus on growing that income so that we can really get to the next milestone, which is going to be a big, big difference. You also want to protect this savings rate at all costs, which is why we build the emergency fund up front is so that if something happens in life, it doesn't derail your savings rate and throw you off track. No, instead you have the emergency fund in place to take care of anything that is going to happen in life. And then you just follow the 136 method. If you haven't heard that episode, we will link it up down below in the show notes. It is a core tenant to what we talk about here on this podcast is the 136 method. And so you just follow back into frame with the 136 method. And then you need to also understand what you're investing in. This is the point in time where now it is very important to understand asset allocation. Sure, it's important at the other milestones as well, but now you need to know why you're investing in what you're investing in. Having your investment plan in place is very important. And getting properly invested and making sure you're not sitting with any cash on hand that's supposed to be invested. So getting those dollars in these accounts and then making sure you're buying the index funds and ETFs, that make sense. That is exactly what you need to be doing or whatever else you're going to be investing in. Maybe you're a dividend stock investor, maybe you're an individual stock investor. It just depends on what floats your boat. I personally am an index fund and ETF investor. And so this is why this is going to change everything. Now once you cross a hundred thousand dollars, the math begins to flip. And at 10% rate of return, if you have a hundred thousand dollars invested, well that's fantastic because guess what, you're going to make $10,000 in that given year. If you got a 10% rate of return. And so that's without you doing anything, which is why the math begins to flip. And so in year two, all of a sudden you have $110,000 if you didn't add anything else. And this means that you're making that amount of money, but also the contributions that you're putting in is growing this account as well. And you can see how this is going to begin to compound over time where it could make a really big impact on your bottom line. So now that we've gotten through milestone two, now we're looking at our first marker. Because to get to our milestone two to milestone three, there are a few different markers that we want to hit. And this is where a lot of people become unmotivated. And I don't want this to happen to you. Okay? So after the first hundred thousand dollars, the first marker is $250,000 invested. Now, compounding becomes a genuine contributor here. When you hit $250,000 invested, it's just, it's not just a footnote or something that's happening in the background. Instead, a 10 return on $250,000 per year is going to end up being $25,000 per year. Now, some of you at this point in time may be saying, well, this guy keeps saying a 10 rate of return. Where is he getting that from? Well, what we're talking about here is the S P500, Google S P500 historic returns. And you will see that the S P500 has returned slightly above 10%. Now you can adjust down for inflation. That is completely fine. A lot of times what we teach people to do here is to increase your contributions by the rate of inflation of that given previous year so that you can still be investing the same exact buying power. And so let's Google right now as we're talking about this, I'm going to Google The S&P 500 historic returns at the time I'm recording this just so we can look at exactly what they've been. So this is from 1927 to 2026. Here's the returns of the S&P 500 as of the time recording this In 2026, the 100 year average is 10.42%. The 50 year average is 11.71%. The 30 year average is 10.12% and the 10 year average is 15.62%. That's since 2016. Absolutely crazy. After inflation, if you adjust that one down, it's 12.02%. And so if you're asking, well, where Is he getting that 10 rate of return from? That is where I'm getting it from. Now, if you're planning for your retirement or you're thinking through this, when it comes to your retirement, I actually like to even be more conservative than that. You can use an 8% rate of return, 7% rate of return. If you want to be really safe, you can use a 9% rate of return. But getting more conservative when it comes to retirement planning is very helpful for most people. So this marker at $250,000 means you're making $25,000 per year at a 10 rate of return, and you are now earning what many people earn from their job just from your investments, or at least a big chunk of what people earn from their job just from your investments at that 10% rate of return. And so you want to, during this time frame, continue growing your income, but do not ignore your investment strategy. It's very important to make sure you're continuing with your investment strategy. You want to continue to diversify across account types. So making sure you have pre tax, post tax and taxable in those different buckets you want to think through. Well, if I am increasing my income more and more over this time frame, maybe I want to think about adding some exposure to real estate, or maybe you want to add some exposure to some other areas. You can absolutely do that or just continue with your investing plan and you want to protect against it lifestyle creep even more at this higher income level, especially as it increases over time. Now, if you're hitting your retirement goals, some lifestyle creep is healthy. But if you're not, you want to make sure that you are focusing and growing your income during this time frame. Now, during this marker, this is also a great time to make sure that you're continuing your education. Your financial education is one of the most important things that you are going to be doing. And as you start to see this money compound, you're going to realize, I need more and more of a financial education as I get more advanced and down the line with my wealth. And so this is a good time to be thinking through that. So the next marker after 250,000 is probably, you guessed it, $500,000. Now, this is a real milestone. You have invested and saved half a million dollars. This is a big, big deal. And for some of you, if you bought a house during this time frame, you may be approaching $1 million net worth. But we are focusing on how much you have invested because those are the real dollars that you can use when it comes to Retirement and buying your financial freedom. And so the 500,000 marker is going to be a point in time where you're going to feel like, wow, I am halfway to a million dollar portfolio. This is absolutely amazing that I have come this far. And it may feel like you've grinded or it's been a slog during this time frame. Maybe it took you 20 years to get here, but that's okay because once you get to this point in time, you're going to see how everything is going to continue to accelerate again. $500,000 with a 10% rate of return means that your portfolio could be earning $50,000 every single year. That is a solid salary from portfolio growth alone for a lot of folks. And so when you think about the rule of 72 and how long it takes for this money to double if you got a 10% rate of return and this money doubles every 7.2 years, well, in 7.2 years you can anticipate that you will have a million dollar portfolio during this time frame. And so this is where you really want to think through, well, what do I want to do next and can I accelerate this path? Because that is before you even add your contributions. Once you add your contributions in, your job at this stage is to stay invested and to keep contributing. The more you can contribute during this time frame, the faster you can accelerate your path to getting to that next milestone. So do not sabotage compounding by pulling money out for lifestyle expenses. I see way too many people saying to me, hey, can I take a 401k loan out? Or a, should I start to take some of the money out of my Roth IRA that I contributed? Or maybe I should use my taxable brokerage account for something else. No, do not interrupt compound interest unnecessarily. You will make a mistake if you start to think this way. You need to make sure that this money that you have invested that is untouchable, in fact, it is 500 degrees and if you touch it, your hand's going to burn off. I don't want you to think about touching that money ever. Because once you start to interrupt compound interest unnecessarily, it becomes a habit and you feel like you can go back to the well and keep on dipping into that well. Never, ever, ever touch those dollars. Also, you really need to think about asset protection and start at least the estate planning basics. Having a will in place, power of attorney, those types of things are going to be very helpful as your wealth begins to grow. And also make sure you have all your beneficiary designations in place, going to the right people, a portfolio this size, and really any size portfolio, you want to make sure it's going to the right folks and the right people. And at this wealth level, tax strategy is going to become increasingly important, especially as your income begins to grow. If you are someone who could get this far, I assume from when you were at the 10,000 or milestone one, all the way up to this marker at 500,000, that you have most likely grown your income over that time frame. And so, because of this, and because you are someone who has focused your time and energy on growing your income, you want to make sure that tax strategy becomes a part of what you're thinking about. Now, if you're a W2 earner, you may not yet need someone who is a tax strategist. But if you're investing in businesses or real estate, or you have all these different things going on and you feel as though your tax situation is becoming complicated, this could be a time where you move on to the next step and find a CPA. All right, so that is the 500, 000 marker. We're going to jump into the next marker right after this break. So the third marker between these two milestones is going to be 750, 000. Now, at 750, 000, this is where you're making some true progress. And the cool thing about this is the time frame between when it takes to get from 500 to 750 is really going to be a lot faster than you think, especially if you are increasing your contributions over time, and all of a sudden you see that 750,000 is in reach. I really want you to focus on this. In fact, let's use our calculator to see how long it would take to go from 500,000 to $750,000. Because I think this is where a lot of people get surprised on how long it can actually take. So I'm going to pull this up and show you guys exactly how long this could take. Okay, so let's say, for example, you're contributing $1,000 every single month. Okay. And you're starting from zero, and you got a 10% annual rate of return. Well, to get to that first 500,000, it's going to take you 16 years and six months to get to that first 500,000. And as you can see, that's a marker here. But then once you get to the point in time where you're going to 750, it only is going to be 19 years and 11 months from zero to that 750. And so the cool part about this is to go from 500 to 750, it's going to take you three years and five months. At $1,000 monthly contributions with a 10% rate of return, all of a sudden your money begins to compound and it begins to accelerate. You're gonna make $250,000 in three years by literally not doing anything. And that is why we want to get our dollars invested as fast as we possibly can and why I love this tool so much. Because you can go and play with the numbers and adjust the amount that you're investing and see how quickly this is going to happen. So maybe you get to the 750,000 level and you're saying to yourself, well, I want to figure out, you know, how long it's going to take me to get to my first million. Let me use this calculator so I can tweak and see how long it's going to take me to get there. And maybe I want to contribute, you know, an extra thousand dollars a month over the course of the next 12 months so that I can get there even faster. Well, that's an amazing way to think about this, an amazing way to plan out your finances, which is why we want to give this to you so that you can utilize this going forward. Now, when you're at 750,000, this is going to feel like that home stretch. It's going to feel like you are so close to having a million dol dollar portfolio. And again, our goal on this podcast is to create a million millionaire. So I want every single one of you to get to this point. Every person that is listening, we want you to get to this point. The key though, is not taking your foot off the gas. You may feel as though, wow, I made it. I am here now. Really, really excited to be here. But instead, what I want you to do is focus your time and energy on accelerating getting to that first million. Why? Because at $750,000, at a 10% rate of return, your portfolio is going to generate $75,000 a year in returns, and that is more than median household income in the U.S. so once you get to this point in time, you have the ability for your portfolio to make more than the median household income in the U.S. so let's say you're married and you make some money, maybe your spouse is working as well, they make some money. Well, now all of a sudden, you went from two full time incomes to Three full time incomes because your portfolio also has a day job and it's working its butt off for you. This is the power of compound interest and why we want you to get here here. I don't want you to make any major lifestyle changes to increase your fixed expenses when you get to this point in time. If you can avoid it now, sure you can take your foot off the gas a little bit once we cross that million dollar mark. But I want you to focus on getting to that million dollar mark so that we can reap the benefits of some of the compound interest that we are trying to focus on here. So this is marker number three. Is that $750,000? We want to make sure that we keep going, we want to make sure that we keep pushing. Now we are getting to milestone three and milestone three is your first million dollars invested. This is not your million dollar net worth. This is the million dollars that you actually have in investments. And most of us out there, if you can get to this point in time, you can find other income sources to have the ability to know that you will be able to retire one day, you will be able to be financially free one day. Why we're going to talk about that here in a second. But let's talk about the math to get here from a hundred thousand dollars, if you had a hundred thousand dollars at a 10% rate of return with no contribution, it would take you approximately 24 years without contributing another dollar to get to your first million. A hundred thousand dollars at 10% with a thousand dollars a month reaches 1 million in approximately 15 years and a hundred thousand dollars at 10% with two thousand dollar a month contribution reaches 1 million in about 1212 years. This is why maximizing those contributions early and hitting your first 100k fast shortens the timeline on how long it's going to take you to get there. Which is why we want to focus on getting to our first hundred thousand as fast as we possibly can. But this milestone is a lot different than the others because once you cross that million dollar mark, your portfolio, if you got a 10 rate of return, is going to be making you six figures at that 10% rate of return. But imagine like some years, maybe you get a 15 rate of return, it can make you $150,000. At a 10% rate of return, it's going to make you a hundred thousand dollars. There's been some years recently that The S&P 500 had 25% rate of returns. And so you have a $250,000 year within your portfolio. Now, sure, the market goes down some years as well, so you're going to have to anticipate that and make sure you know that that's going to happen. But that's why the average rate of return comes right around 10%. When we think about this now, what does this milestone unlock? Well, number one, it unlocks the ability to think through. Okay, well at a 4% withdrawal rate, I can now withdraw $40,000 per year safely for the majority of my life and still have the ability to be able to preserve most of my wealth in this portfolio. Number two is this allows you to shift your decisions. Maybe you have a million dollar portfolio and you're working at a really toxic job. Well, you could take a little time off to go find the job that you want to go do by subsidizing some of your income with a percentage of this portfolio. And then maybe the rest of your money you can make somewhere else at a part time job until you figure out exactly what you want to do. You this gives you flexibility, this gives you options in life. And once you get here, your portfolio is going to compound without you even having to do anything. The compounding growth here is exponential. Getting from 1 million to $2 million means it's only going to take you 7.2 years. If you think about the Rule of 72, getting from 2 million to 4 million is going to take you 7.2 Years. So you can see how this money continues to compound every single year and why it is one of the those areas that is so incredibly powerful. So getting to your first million is the milestone, number three. And this is the final milestone that we're going to have for most people that are trying to achieve. Sure there's milestones after this that we could talk about getting to two and a half million. A lot of people, a lot of folks in Master Money Academy are trying to get there. A lot of folks are trying to get to 5, some folks are trying to get to 10 million. And those are different milestones that can be hit different ways. But for a lot of people out there, you want to get to your first million so that you can cross that threshold and get to the point in time where you absolutely are changing your life. And so again, there's three milestones here. 0 to 10k, your savings rate is going to be that whole thing. 0 to 100k, your savings rate again is going to be the majority of that. And then we have 100k to 1 million. 1 million is going to be mostly compound interest and it's going to change the way that you see your money. And from 100k to 500k. When we're thinking about some of those milestones in place, that's going to be your savings rate. Plus compounding those are what are going to propel you to get to some of those next levels. Let me give you a couple scenarios though because I want to dive into a few different scenarios and examples because I know you guys love examples on what this would look like. Okay, so we're going to shift our attention. I'm going to actually share my screen with you guys on here, on the financial milestone track here, where you guys can see exactly three different scenarios of what's going to happen here. So as you can see here, this is the financial milestone track and I want to show you guys exactly how this tool works so that you can use this. And I'm going to give you a couple of different examples. So let's use scenario A. I want you to think of scenario a as a 25 year old person starting from zero and they have a $0 starting balance. And we're going to use $500 per month and a 10% rate of return. And so as you come down here, you're going to see, here's the calculator here and we are going to go with $500 per month, they're starting from zero and a 10% rate of return. And let's go through this scenario and see exactly what happens. Well, to get to their first $10,000 at $500 per month, it's going to take you one year and seven months. And so that's the quick win we're trying to get to. And at that point in time, their portfolio at a 10% rate of return is making them about $1,000 per year to get to their first hundred thousand dollars. This is why it's such a slog. It takes them nine years and 11 months to get to their first $100,000. And their portfolio is going to be producing about $10,000 per year to get to their first 500,000, it's going to take them 22 years and six months. So starting from zero, they went from 100,000 to 500,000. And it took them about 13, just under 13 years to get to that. And then it takes them 28 years and 11 months to get to their first million. The key takeaway though is to start early with a modest contribution and it still gets to a million before a traditional retirement age. Because if they bumped this up, for example, and let's say that this same exact person had $1,000. You would see that this would shift to 22 years and 6 months is how long it would take them to get to their first million. And then beyond that it's going to compound even faster. Now let's do scenario B. Scenario B is a 35 year old playing catch up. They're trying to get to hitting these milestones as fast as they possibly can with a 10% rate of return. And we're going to have a starting balance of $10,000. We're going to look at $1,500 per month with that 10% rate of return. So let's have a starting balance at $10,000. Then what we're going to do is we are going to invest $1,500 per month. And when we look at this, if they start at $10,000 at $1500 per month, it's going to take them two years to get to $50,000. It's going to take them three years and 11 months to get to $100,000. And it's only going to take them 18 years and five months. That starting balance is very important for them to get to their first million. So if you feel as though you're 35 years old and you're starting too late, it's not too late. You can see how playing catch up can really get you to a point in time that changes your life. Life. Let's talk through the high earner. Maybe we have a high earner who starts too late and they want to make sure that they actually get on track to be able to do this. Well, this high earner who starts too late, let's say they start with a $25,000 starting balance and they are contributing $3,000 per month. Let's see exactly where they're going to land when we do this. Well, at $3,000 per month, they would obviously get to their first hundred thousand dollars in one year and ten months. And so that seems like, oh man, that's a slog, that's a grind. But they would get to their first million in 12 years and nine months. It would take them eight years and one month to get to their first 500,000 and only 10 years to get to their first 750. But because they're contributing so much, they can play catch up and increase the amount of money to get to this point in time. Contributions matter more than almost anything else early on. And because they have at least a little starting balance there it is never too late to get started. This is why I tell you guys, it is never ever too late to get started. If you just get the ball rolling, you can absolutely transform your life that quickly as long as you increase your income. If you got the income in place and you've got the delta in place, you can get to your first million in 12 years, in nine months with $3,000 per month. And so this is why this tool is so important. It helps you track through all this stuff so that you know exactly what is going on. All right, so before we wrap this episode up, I want to go through the biggest mistakes at each of these milestones that people make, just so you know some of the things to avoid. So number one, between 10,000 and 50,000, I want you to try to avoid lifestyle inflation as much as possible. Lifestyle inflation will derail your progress because your savings rate is so important during this time frame. That is the one thing that I think you really need to understand is that do not let your lifestyle inflate until you get to at least, at least some of these other milestones. At 50,000 to 100,000, sitting in cash is one of the, the most important things that you do not want to do. I see way too many people sit in cash because they think the market is scary. No, you need to get your dollars invested this entire exercise to show you that getting your dollars invested is going to help you more than anything else in this life. From a hundred thousand to 250,000 under investing because you finally feel comfortable. A lot of people will take their foot off the gas and they will stop contributing as much as they should. I want you to make sure you avoid that at all possible. I see this happen time and time again. And instead I don't want you to have this false sense of security. People slow down contributions because life starts to happen. Instead, I want you to put your foot on the gas at 250 to $500,000. A lot of people avoid thinking through tax strategy at this level. And so I want you to think through tax strategy how you can save more in taxes so that you can take those extra dollars and put them towards wealth building so you can buy your freedom back. And Then lastly, from 500 to 1 million, pulling money out for lifestyle purchases is the number one thing I see. People are like, man, I got this nest egg already in place. I can start to pull this out to buy a house, or I can start to pull this out to buy a car, or I could take a 401k loan to start this business. No, I don't want you interrupting compound interest unnecessarily. Instead, we need to make sure that we are focusing on the task at hand, which is building wealth. So really excited for each and every single one of you to get started focusing on these milestones. These are our milestones that we want you to focus on and then going beyond there to 5 million, to 10 million or whatever else your financial goals are. For some of you though, you just want to get to that first million and then decide where you need to be there from there. And I think that is a great goal to have in place. Listen, if you want direct help from me and you want to be a part of a community of people who are all working towards these milestones, I would love to invite you to join Master Money Academy. Master Money Academy is the place that will transform your financial life. Where you're going to go from someone who feels stressed out, anxious about money, you don't know where to put your next dollar, to the person who knows exactly where that next dollar needs to go. They have financial clarity and they know exactly how to hit these milestones. They have an investment plan in place, they're tracking their retirement number, and they know exactly what they need to do next. Master Money Academy is where we walk you through that and we help hundreds of people every single week inside Master Money Academy. And if you ever get stuck, we have a step by step framework that shows you exactly what to do with your next dollar. And when you get stuck, you can ask me on our weekly live coaching calls that we do every single week. I'm helping people every single week in Master Money Academy on those coaching calls. In fact, the Master Money Academy members got a copy of this calculator before any podcast listeners did. We test a lot of this stuff out with them and so you get access to all kinds of different perks that most people don't get who just listen to the show. So I would love to invite you to join Master Money Academy. And if you know, I don't want to invite you to join Master Money Academy without seeing what's behind the curtain. So I'm going to give podcast listeners a seven day free trial so you can test it out for seven days, see if it's right for you and behind the curtain. And that's the best way to see if Master Money Academy is going to work for you. So click the link down below in the show notes for that seven day free trial. Join Master Money Academy Join one of our weekly coaching calls. Have a conversation with me live on those calls so that you can see if Master Money Academy is for you. Can't wait to meet you inside and really appreciate each and every single one of you listening to this podcast. If you got value out of this episode, leave a five star rating review on Apple Podcasts or Spotify. It truly means the world to us. And if you're watching on YouTube, Spotify or Apple Podcasts make sure you're subscribed to get some of the future content that we have coming up. Thank you so much for being here. We will see you on the next episode.
- [54:10]
B
Ready to transform your career in real time from where you are? Brown University's flexible online Master's programs will help expand your business influence and your network in just 16 months. Choose from management, business, analytics or Organizational leadership programs that will prepare you for today's most pressing business challenges without putting your life on hold. Scholarships available Tap to learn more.