The 10 Step Framework to Saving Your First $100K

Transcript:

On this episode of the Personal Finance Podcast, 10 Things to Do to get Your First a hundred K.

What's up everybody, and welcome to the Personal Finance Podcast. I'm your host Andrew, founder of Master money.co. And today on the Personal Finance Podcast, we're gonna be talking about 10 things to do to get your first a hundred k. If you guys have any questions, make sure you join the Master Money Newsletter by going to master money.co/.

Newsletter. And don't forget to follow us on Spotify, apple Podcast, YouTube, or whatever podcast player you love listening to this podcast on. And if you're getting value outta this show, consider leaving a five star rating and review on Apple Podcast, Spotify or your favorite podcast player cannot. Thank you guys enough for following the show and leaving those five star ratings and reviews now today.

We're gonna talk about one of my favorite subjects, and I love this subject so much that the very first episode of the Personal Finance podcast was actually on this topic, and I really love talking through and helping folks get to their first a hundred K. Why? Because when you start to go and try to get towards your first a hundred K, that means you are building out your financial foundation.

And this is a very important time on your financial journey as a wealth builder because as you start to build out that financial foundation, you're gonna be able to set yourself up for life. Now, your first a hundred K is the hardest by far. And we've done a couple of episodes on why that is. But the real reason is because you have to do all the work with your first hundred K.

Your contributions, meaning the amount of money that you put into your investments are going to be the majority as you get to your first hundred K. As time goes on, you get to a hundred K, then 200 K, then 500 k. All of a sudden your money is gonna start to be working for you, but at the beginning, you're gonna have to save your way to your first a hundred K because you're fighting a number one these returns.

So say for example, if you have $8,000 invested and you, you know, invest that money, that won't move the needle much because. A 10% rate of return is gonna be a hundred bucks. But if you have $10,000 invested, then a 10% rate of return is only gonna be a thousand dollars per year. So as you can see, you gotta invest more dollars so that you can start to see compounding working in your favor.

Secondly is a lot of people who are on their journey to their first a hundred K, their income might be lower, and so because your income is lower, you are going to have to work a little bit harder and you can't get there as fast as someone who may have a higher income. We're gonna talk more about that though here in a second.

Third is. Life's pretty expensive. Newsflash, if you haven't seen it thus far. There is a high rate of inflation. Food costs are at all time highs. Egg prices are absolutely outta control, um, and pretty much housing, transportation, everything else is at an all time high. And so we wanna make sure that since life is expensive, we need to still figure out a way to find that gap, which we'll talk about more.

And then you have to build the habit. So building the habit. A lot of this is automation. A lot of this is having the discipline to save consistently and making sure this is. Automatic. Now because of this, I think about this in three phases. Phase one is what I call the grind, and the grind is zero to 50 K and zero to 50 K.

Your savings is about 95 to 90% of what you are getting out of this, and about five to 10% is gonna be compounding. So at this stage, you are putting in the majority of the work, you're investing $500 per month at a 7% rate of return. Then your portfolio may gain a few hundred dollars per year. And so you wanna make sure.

You are really trying to save your way to wealth. That's what has to happen in phase one during the grind, which is zero to 50 K. Now momentum is going to start to build in phase two, and this is the momentum building point in time where between 50,000 and a hundred thousand. This is where your savings rate is gonna be right around like 85% of what the growth of your portfolio is going to be.

It's gonna be in that 75 to 85% range as you start to build up wealth and compounding is gonna be closer to that 15% range, uh, as you start to do this. So on a 10% return of 50,000, that means you're adding $5,000 every single year equivalent to an extra $400 every single month, which can be a major asset for you and help you save.

More because that means you are making these contributions and you are actually moving the needle a little bit more. So that's where it could be a big phase for you. Now, the turning point is above a hundred thousand because that is where you're gonna start to see some of these returns helping you out and grow your wealth, and seeing those returns help you out and grow your wealth after a hundred thousand is amazing.

Now the real big tipping point, we did an episode on this from your first a hundred thousand to a million. Is a big, big difference. And when you get to that first million dollars, all of a sudden a 10% rate of return is what? $100,000 in one year. So as you can see, as you start to build wealth, you are going to have this money compound so much faster.

It is amazing how fast this money can compound when you get to that million dollar market. So all of our goals listening to this podcast is we want to at least have a net worth of a million dollars in our investment portfolio. And so we wanna make sure that we are starting to. Build up assets towards that.

My goal for each and every single one of you is every single person listening right now. You may already be a millionaire right now. You may be just starting your journey right now. It doesn't matter what end of the spectrum you are on, I want each and every single one of you to become millionaires. We wanna create a million millionaires on this podcast.

And so that is the goal, is for each and every single person. To get there and the only way to get there is to start with phase one, getting to that first 50 K, then starting with phase two, trying to get to your first a hundred K. And then going beyond that is where we will start to unleash a lot of compounding and you're gonna see it accelerate so much faster.

If you haven't heard our past episodes talking about how to get to your first a hundred K, uh, those are gonna be some great ones for you to also reference. 'cause we go into a ton of this math. But in this episode, I'm gonna give you 10 things you need to be doing that are going to help you propel yourself to that first a hundred K.

If you're ready for. Let's get into it. Alright. The number one thing that we need to be doing when we are on the journey to our first a hundred k is we want to maximize our income. Now, I've talked about this a number of different times, but when I first started in the the corporate world, I was making $30,000 per year.

It was a entry-level financial job. Now, this was over a decade ago now, but it was an entry-level financial job. And this was something I realized very, very quickly that I have myself an income problem. I was living paycheck to paycheck because I did not make enough money. And for some of you out there who are listening to this podcast and you're like.

I don't even know how I can save a little extra. You most likely are going to have either an income or a spending problem, or maybe both. And if you have that income problem, this can be something that can be solved by doing a few different things. Number one is focusing on high income skills. Now, you may have heard us talk about this in the past, but high income skills are going to be the number one investment that you can make in yourself because once you have a high income skill, something like coding or sales or marketing.

Once you have that high income skill that stays with you forever and it's gonna help you increase your income over time for a very long period of time. And so learning how to develop some of these skills is gonna be really important. Let's say for example, that you work in a field that has additional certifications that you can get.

Well, if you go out and get those additional certifications and focus on gaining some of those high income skills, you're going to make more money forever. And so that's where focusing on that is very, very important. Secondly is asking for. A raise. Now we have a very specific system on how to ask your boss for a raise.

This is not something where you're going to walk into your boss's office and say, Hey boss, I want a raise and I want it now. That's what a lot of people do. I watch people do this. In the corporate world, they would have their yearly review. They would walk into their boss's office and say, Hey, I'm not paid enough money.

I want you to pay me more money. Their boss is caught off guard and neither one of them have collaborated, or they have not given the proper reasons as to why they deserve that raise. Instead, what we talk about is developing a six month system where you start six months before your yearly review, and every single month you are working with your boss so that you can get that raise.

That's the most important thing. If you want that system, if you go to master money.co/resources. It is there. It's called How to Get a Raise. It's a free ebook for you, uh, if you want to check that out. So those are the big two. I want you to think about. First is what are the high income skills that I can develop so that I can increase my income?

Why? Because we need to get more dollars into investments. Why? Because we know at the beginning, the more dollars that we get into these investments, the faster we can get to our first a hundred K. And so that is why it is so important. Early on to make sure that you are increasing your income. Your income will solve a lot of financial problems for you if you increase your income.

It is not all of it because we know so many different six figure earners who still live paycheck to paycheck. You still have to know how to manage money. You have to set up automation systems. But this is the first step, especially if you are at, at beginning of your journey and you're saying to yourself, well, I make $40,000 per year, or I make $30,000 per year, or I make $50,000 per year.

I want to increase my income 'cause I have a family. If that's you, then we are going to work on doing that now. We can also do something like a side hustle, and what I did is I did all three of these at the same time. So I would look at focusing on high income skills. I would ask for a raise to my boss, and I would go through the raise system, and I was focusing on building side businesses as well.

This is exactly how I did it, where I got to my first a hundred K, it took me two years to get to my first a hundred K, making $30,000 a year salary. And I did it because I focused on all three of these things. I increased my income was the biggest thing first though, is making sure I earn more so I could take more of those dollars and put it towards my first a hundred K.

And so starting a side hustle into something that could turn into a full-time job can be very, very helpful. Now, you can also turn in if you're like. Big, big goal right now is to get to your first a hundred K, and that's what you're thinking about and you just wanna do gig work. You know, you wanna do handy work on the side, or you want to drive for DoorDash or Uber Eats, or any of these different things, and you are just trying to hit that goal as fast as you possibly can.

More power to you. But my. Interpretation of a side hustle is more so doing something that could turn into a full-time business if you wanted to, or you could hire an employee to run that business and you can make a little more passive, and I'm doing that in quotations, but more passive income by having an employee help you run that business while you're at your day job or whatever else, because eventually if you have additional incomes that could turn into full-time businesses, that is what I see, additional security that is not going to interrupt your financial life.

If you lost your job, because if you lost your job, and let's say your side hustle is making half of your day job income, but you're only spending a couple hours a week on that side hustle, and then you turn it into a full blown business and you can make more than what you did at your day job, that is additional security.

That is absolutely amazing. Now we have episodes where we talk through, Hey, these are seven different side hustles that could turn into a full-time income. We've done two or three of them already. We have another one coming out pretty soon, so make sure you're following this podcast, but those are some of my favorite episodes to do.

Also is if you've been at a job for a long time and you have been there over the course of maybe the last five years, six years, seven years, and you have not gotten a raise, or you've just gotten that 2% or that 3% raise every couple of years, then maybe it's time to start switching jobs because.

Statistics show that those who job hop every two to three years are going to make 15 to 20% more than people who do not job hop. And so thinking through, am I really loyal to this company or do I need to find another company that's going to pay me more? Usually if you are not getting paid more and you've been there for a very long time, going to another company is going to be really beneficial for you.

And then also learning how to monetize some of your existing skills. So if you have existing skills right now. And you are looking to monetize some of those. Maybe you can consult, maybe you're really good at math and you can help kids tutor. Maybe you are really good at a specific sport and you can help coach kids.

There are so many different side hustles out there where you can use your existing skills to earn more, but that's number one is to earn more income. Number two is to live below your means. Now, this is going to be optimized. Spending is really what I mean by this. And optimizing your spending does not mean you're just cutting back.

Only what optimizing your spending means is you are figuring out what do I value? What do I like spending money on? What do I value spending money on, and what do I absolutely hate spending money on that I'm currently spending money on? Now, this is not like. I don't like paying my electric bill, so I need to cut that out.

That's not what I mean by this. What I mean by this is figuring out where am I frivolously spending money? That does not matter to me. Where am I taking my dollars and spending. And it really just does not matter because learning how to optimize spending can be one of the most valuable skills that you develop over time.

And so number one, we want to look at and evaluate where we are spending our dollars currently. So you can look at your last three months bank statements, pull those up. Sometimes I will throw them into chat. GBTI got some comments back from people saying I'm not throwing my bank statements into chat, GPT.

Okay. Black out the account numbers, black out all the additional information and just give it the data. That's all you gotta do. And if you're worried about anything else in there, then fine, but just black out those different things. It's a very simple process. Uh, and then you can go ahead and utilize that.

So, uh, chat GPT will go and it will, you know, look at all your last three months for you and total up and create budgets for you and all different things if you wanted to utilize that. I specifically use a budgeting app. So Monarch Money is the one that I am currently using right now, and it will optimize and gimme all my spending reports for me.

But we just wanna know and understand how much we have spent over the course of the last three months on certain things. If you don't wanna use any of these tools, then you can use a spreadsheet. If privacy is a huge concern for you, which I get it, it's a huge concern for me too, then you can use a spreadsheet and kind of go through this, uh, manually.

And so what I want you to do is look at how much you've been spending over the course of the last three months. And then we're gonna optimize. What are some subscriptions, for example, that you have been utilizing or spending money on that you really don't need anymore? That's the quickest way to just boom, boom, boom, knock it out because we can reduce some of these subscriptions.

Now we just found some money. And when you start to cancel subscriptions, for example, you take those dollars and you put them towards your freedom. That's what I want you to do. So let's say you have Netflix, you have HBO Max, you have Hulu, you've got it all. You've got Apple tv, you've got all of this stuff, and you are not using most of these subscriptions.

Well, instead, if you go and cancel three of 'em, let's say you saved 40 bucks by canceling three of 'em, and I want you to take that extra 40 bucks and now I want you to start automating into your investments because if you allow that $40 to just go back into your checking account and commingle in your checking account, what's gonna happen?

It is going to poof, disappear into thin air. I don't want your money disappearing in thin air. We wanna be proactive with what we do with our dollars. And so as you start to reduce spending in certain areas, you take those extra dollars and automate it automatically. I. You're gonna automate it into your investments.

If you don't know how to automate your investments, we have a free investing course that is every single Tuesday. If you go to master money.co/investing for beginners. It shows you how to open your account. It shows you how to automate your investments, and so definitely go and check. That out. Secondly, is we want to make sure that we have our spending in check.

So we wanna be spending 50 to 60% on our baseline expenses. Our baseline expenses are our needs. So this is going to be housing, food, transportation, debt, payments, the stuff that we need, medical care, all of that stuff is our needs. Okay? So that should be in the 50 to 60% range. If it's below 50%, great.

That's more power to you. That is absolutely amazing. If it is way above that range. Either we have an income problem or we have a spending problem. Okay? And so that's where we want to look at that, but we want it to be in that range. Okay? And so then we want to look at, well, hey, what do we have left here?

Well, we want to be spending 20 to 30% on things that we truly value, and we also wanna be spending 20% at a minimum. On our future value. Okay, so 20% goes towards investments. This is gonna, your retirement accounts, and this is going to your emergency fund. This is also gonna your brokerage accounts. So if you're investing your dollars, it is either going to your emergency fund or it is going towards some of those other.

Investments. So that's the second thing is just getting your spending in check, making sure you have that available. Next is we want to make sure that we are looking at some major purchases that are coming up. We are planning for those like your major car purchase or if you're gonna go buy a house and think through that purchase and make sure we run total cost.

Of ownership. Okay, so total cost of ownership is a very important metric that we talk about a lot on this podcast that allows us to figure out how we optimize our spending. So we have two total cost of ownership calculators. One is available, uh, both are available if you go to mastermind dot coast slash courses.

One is for cars, one is for housing, but you need to go and use that spreadsheet. It's free, uh, in order to make sure that you are spending optimally on those. Looking for ways to reduce and live below our means can be really important. You don't have to live really, really frugally. That is not what I'm talking about here.

Living super frugally is not what we are looking for. We're looking to optimize our spending so we can do what we want in life. A, if you wanna invest more money, which I think most of us listening to this podcast to B, if you want to go on more vacations and spend more time with your family on vacations, which I think a lot of people listening do see.

If you wanna spend more time with your hobbies, like. If you love to play golf or if you wanna do more workout classes, or if you wanna do more things that you actually wanna be doing day in and day out, maybe you wanna take art classes, you wanna be involved in different communities, but you have to pay to be in those communities.

There's so many different things that you can do. Uh, if you wanna be involved more in that stuff, then you have to make sure that you are optimizing your spending. 'cause you can afford anything, you just can't afford everything. As Paula Pant always says. And so I think that's really, really important, uh, to make sure that we are thinking through that.

And so when we start to look at our spending, we may say to ourselves, okay, well I'm spending a lot of money on eating out and I'm also spending a lot of money on just random Amazon purchase. Well, if that's you. The way to reduce your spending is to gradually reduce spending. This is gonna be something where it's not gonna be, Hey, I'm just gonna cut this all out all at once.

Instead, let's use eating out as an example. I always use this example for eating out because a lot of people over spending this category. So let's say you spend a thousand dollars a month eating out, okay? That may be really high for a lot of people, but let's just use this as an example for easy math.

Okay? Well, if you spend a thousand dollars a month eating out and you wanna get it down to $400, if that's the case, let's do this over the course of six months. So in month one, let's cut it back to. 900. Okay. In month two, let's cut it back to 700. Okay? In month three, maybe your friends come to visit you, and now it's back up to eight 50.

You made a mistake, no worries whatsoever. In month four, we're gonna cut it back to 600. Okay? In month five, we're gonna cut it back to 500, and then in month six we're down to 400. That's how you do it, is you wanna gradually do it over time because this reduces the pain. Felt okay. Reducing that pain, reducing that friction is what we wanna do with our money.

So we wanna gradually do this over time. Number three is as we start to progress through this process, we are increasing our income. We are starting to optimize our spending, which means when we optimize our spending, we are gonna find money. And when we find money, we are gonna put it towards wealth building activities.

Very important stuff to do there. Number three is we are gonna automate our savings. So it is so incredibly important to automate your money. It is the number one thing that will change your life. And I promise you, when it comes to your finances, that's why I like to talk about it so much. We're gonna do an entire mapped out episode, don't worry.

It's coming, um, on how to automate everything. And when we do that, I want you to understand how important this is. Setting up automatic transfers to things like your high yield savings count and your investment will be world changing for you. It reduces friction, it reduces your need to have willpower to save money, and it changes the way that you think about money because all of a sudden money is just automatically saving every month and it's automatically investing every month, and you don't have to worry.

And so I like to set up a savings account that has savings buckets, and we've talked about this before, but it is the bucket. Method and in the bucket method, what I teach is that you need to be saving into different categories in your high yield savings count. Now, why do we use a high yield savings count?

Why? Because it has higher interest rates than your regular old savings count at your bank. If you're at Chase Bank or Wells Fargo or Bank of America and you're using their savings accounts, they are paying you 0% interest. But if you get a high yield savings count, you're gonna get anywhere from three to 5% interest and make more money on your money.

And so it's literally free money. Make sure you're using a high yield savings account and make sure that high yield savings count has buckets. And so when you start to use these buckets, you can start to automatically save into these buckets. It literally allows you to budget inside your savings account so you can start to save for your emergency fund or for your next vacation, or you can start to save for your kids' college, or you could start to save for all these different things.

And so it's very, very important to make sure that you are automatically doing this every month so that it actually happens. So. Here's what I want you to do also is when you start to save money, you want to a start to save in your emergency fund, at least one month of expenses if you don't have one yet.

So we're gonna do the 1 3 6 method for your emergency fund. So one month of expenses. Then once you hit one month, we're gonna add another two months of expenses in there to get to three months, and then after you get to three months, we're gonna add another three months of expenses to get to six months.

Our goal is to get to ultimately two six months expenses. Saved in an emergency fund that's gonna protect you against life, that's going to protect you against anything that will happen to you, because the last thing you need is for wealth building to get interrupted unnecessarily. And so your emergency fund protects you against life.

Your car is going to break down. Your house is going to have some sort of issue. You're going to have some sort of medical issue throughout your life. It's not if, but when will that happen? Your emergency fund protects you against that, and it also protects you against the biggest thing of all. Which is job loss.

If you get laid off, you are one person's decision away from having zero income. Your emergency fund helps you solve that problem because it gives you a six month runway to go out and find another job. That's very, very important. This is huge. If you have not heard our episode talking about the 1 3 6 Method in detail, we have an entire episode on that.

Make sure you check that out. It's called the 1 3 6 Method for your Emergency fund. Savings is a non-negotiable expense specifically for your emergency fund. That is gonna be really, really important. Number four is to invest early and consistently. So getting to your first a hundred K, you've gotta invest your money.

You have to start investing your money to get to that first a hundred K. This is going to help you grow your money over time. And so opening the right accounts is very, very important. So once you have three months of expenses saved in your emergency fund, that's when we talk about you can start investing your.

Dollars and so you can start investing those dollars by opening up investment accounts. Now we here at the Personal Finance podcast love things like tax optimized accounts. That means you can use things like a Roth IRA or an HSA or your 401k and always be getting your 401k match. Those are things that we absolutely love to invest in.

And if you start early, it is gonna be so much easier for you to grow your money over time. Someone who starts in their twenties is going to have to invest half of what someone has to invest when they start in their thirties. And so it's a massive, massive difference because time is your biggest asset when it comes to investing money.

And so starting early is gonna be really, really important. Secondly, what do you invest in? We like to invest in low cost index funds and ETFs. That's what I personally invest in. You could be a dividend investor if you want to. If you like individual stocks, you can look at that as well. I like low cost index funds and ETFs because I, I am a passive long-term investor now.

If you wanna learn how to invest, again, we talked about this earlier in the show, but you can go to master money.co/investing for beginners, and that is a free masterclass teaching you how to open your accounts, why we invest in index funds and ETFs, and it talks about automating your investments as well, so make sure you check that out.

Now also what you want to do is always be reinvesting your dividends when you have them. If you're investing in things like index funds and ETFs, because this is going to help your money grow faster. And you want to avoid market timing. So the big thing here is we don't day trade here whatsoever. This is not something we, we are jumping in and out of investments.

Instead, we stay invested for the long term. Now, why do we stay invested for the long term? Why don't we day trade a? Nobody has a crystal ball. Nobody knows what's going to happen in the future. And for people who say that they do, they are lying to you. Nobody knows what's gonna happen in the future in financial markets, and you can even say day to day and week to week, we host another podcast called The Business Show.

And on the business show, I give you your daily news in 10 minutes or less. And on that show you can see every single day when the news comes out, none of these publications know what's gonna happen next. They always say it's doom and gloom and. Oh, the market's surging back again and it's, oh, it's doom and gloom.

It just ebbs back and forth. The market day to day is absolutely ridiculous. It is a popularity contest and you don't wanna play that game. So instead what we are is long-term investors because you can take out a stock market chart and you can look at that time horizon for the longest time horizon you can get on your phone.

So take out your stock app. And look at the last 20 years, okay? If you can, or go to the longest time horizon on the Apple Stock app, it says all just push all. And what you're gonna see is that stock chart goes in one direction. When it's a long term, it goes up. And so that is historically what has happened, and that's what we anticipate as long term.

Investors, you do not wanna be market timing whatsoever. You wanna stay invested for the long run. So invest early and consistently is the fourth one. So let's just recap. The first four. We talked about maximizing our income, living below our means, automating our savings, and then we want to make sure that we are investing early and consistently.

Now, if you just do those four things alone. Just starting off, and we'll talk about the fifth one in a second, which is also very important. But if you just do those four things alone, you can become very, very wealthy. Now, as we go through some of these other ones, I'm really excited for this because you can hit your first a hundred K even faster, and we'll talk about those next.

Alright, so number five is to reduce or eliminate debt. So one of the most important things that you want to be doing is after you get one month of emergency funds saved up, you want to look at your debt and you want to say, do I have high interest debt? What does that mean to have high interest debt?

What that means is, any debt with an interest rate above a 6% interest rate, we wanna make sure that we are paying that down and we wanna eliminate that high interest debt. So this for a lot of people, is gonna be credit card debt. If you have credit card debt right now. Then we wanna get rid of that as fast as we possibly can.

In fact, we call that a pants on fire emergency, which there, Hey, you made a mistake. There's nothing wrong with admitting that you are in credit card debt. And now it's time to eliminate it. So we wanna make sure that we get rid of that debt as fast as we possibly can. But you can also look at other things that may be out there.

Like a personal loan could have high interest debt. You may have some car loan that has high interest debt because you had some predatory lender who tried to. Take advantage of you and it's a 10% interest rate or something like that. And so if you have high interest debt outside of your mortgage, I want you to focus on paying that down as fast as you possibly can.

This is going to A, help you increase your net worth to your first a hundred K, but B, it's going to give you extra dollars so that you are able to take those extra dollars and put them towards wealth. Building activities, put them towards your investments so that you can grow that much faster towards your first a hundred K.

So my favorite way to do this is to look at your debts, put them in order, and figure out which ones you can pay off really quickly. If there are some that you can pay off really quickly and you just get rid those outta the way. And then outside of that, you wanna go buy interest rates. So whichever one has the highest interest rate you want, knock that out.

Okay. So that's how I would think about that. So that you can get rid of it really, really quickly and you wanna avoid unnecessary new debt. That's a big thing I think a lot of people, uh, mess up on, is you don't wanna go back or deeper into debt. Instead, we wanna make sure that we are creating a situation where we are being wise with our finances.

In addition, if you get a tax refund or if you get windfalls. Those windfalls need to go to that high interest debt. They don't need to be going towards you buying a new tv. They don't need to be going towards you doing some other things. Instead, let's take those windfalls and take the majority portion of those and put them towards high interest debt.

If you gotta treat yourself a little bit fine, but I would rather you take all of it and put it towards that high interest debt. Now, if you are in debt. We have a free debt course. If you go to master money.co/courses, we have a free debt course that is actually gonna help you get outta debt. So if you're interested in that, make sure you check that out.

Number six is we want to optimize our taxes. Now this is gonna be a fun one because we wanna make sure that we are paying less than taxes. The last thing you wanna do is pay more to Uncle Sam or pay more to the country that you reside in. And instead we want to reduce the amount that we are spending in our taxes.

So. Number one is to max out our pre-tax accounts. So this could be things like your 401k, your traditional IRA, your HSA. Those have tremendous tax benefits. So if you're investing your money, you can definitely, definitely do that. You can also take advantage of employer benefits like your FSA or your ESPP employee stock purchase plan.

So those may have some employer benefits that can help you over time. And a lot of investors out there are also taking advantage of things like tax lost harvesting. If that's you, you wanna make sure that you get a little help with that. You don't wanna be doing that on your own every single time. Uh, 'cause that's gonna be something else that you could do.

So the big ones are these pre-tax accounts. So the way that these work is, if you have a 401k, for example. And you are putting dollars into a 401k, you are getting a tax deduction upfront, or you're not paying taxes at all. The easiest way to think about this is when you put money in, you're not paying taxes on that money, your money grows, and then when you pull the money out, that's when you pay taxes.

Just remember, uncle Sam always wants his money, and so when you pull that money out, you gotta make sure that you are paying taxes. And so that's gonna be the time when you pay taxes. Now, with an HSA, it's a little different. An HSA stands for health savings account. And we have an entire episode, uh, coming up on this, an updated one, so I hope you guys are ready for that one.

But with an HSA, what we're talking about here is this is what I call the super retirement account because money goes in tax free. You can invest and the money will grow tax free, and you can pull the money out tax free as long as you have a. Qualified medical expense. And so the HSA is a very, very powerful account, and the IRA works the same way as the 401k, but it has lower contribution limits and there's just some additional rules surrounding it.

Now we also have other retirement accounts like the Roth IRA. Now Roth accounts are amazing because they grow tax free and you can pull the money out tax free. So when you contribute money into a Roth IRA, it's money that's already been taxed. You've already been taxed on it from your paycheck, and so you, when you contribute it, you've already had after tax money that you're putting into the Roth, the money can grow tax free when you invest it.

And this is the amazing part because the majority of your wealth over time, especially if you're in your twenties, thirties, forties, the majority of your wealth over time is going to be the growth. And so because it is the growth, that means a Roth IRA is truly beneficial for a lot of people. Now, the Roth IRA has income limits, meaning you can only make so much money in order to contribute to a Roth IRA.

And so if you're above those income limits, what you need to do is called a backdoor Roth, IRA. Now, the backdoor Roth IRA is going to help you get money into a Roth IRA. We have an entire episode on that if you wanna check that one out. And then the last thing is to optimize your tax strategies to get a CPA.

If you don't have a CPA, already having one in your corner is tremendously beneficial to you. In the long run, I would make sure that you work with a tax professional, especially if you have a very complex situation or if you own a business. Those are very, very important reasons to work with a tax professional.

Alright, number seven is going to increase your savings rate over. Time. So we want you to start saving 20% of your income right off the bat. If you can't do that, you can follow what we call the 1% rule, meaning starting with the max amount that you could start with, and then increasing that by 1% every single month until you get to 20% of your income saved.

This reduces the pain and the friction. It allows you to increase your income slowly over the course of those months. And will allow you to get to that 20% number. But over time, in reality, if you wanna get to your first a hundred K, and in reality if you wanna get to your first million, you wanna make sure that you are increasing the amount that you're saving over time.

So when you get bonuses, when you get raises, all of those, here's how we think about those, is the 50 50 rule, meaning you take 50% of your bonus and put it towards your investments and increasing your savings rate. And the other 50%, you can blow that money on whatever you want unless you have debt. So you can blow it all on vacations.

You can blow it all on trinkets. I don't care what you blow it on, you can blow it on whatever you want, but we wanna make sure that we are taking 50% of those raises and 50% of those financial windfalls and putting them towards some amazing stuff. Now, if you're someone who out is out there and you're saying, well, I just got an inheritance that was $200,000, I'm gonna take a hundred thousand dollars to go blow it.

That's not what I mean. What I mean by this is for people who get raises, maybe get a bonus every year and it's 10 grand. We'll take five grand, spend it on a vacation. Take five grand. And increase your savings rate. That's how I want you to think about this as you start to go through that process. So increasing your savings rate over time is really, really important.

And then thinking through as you start to, one quick way to do it again, is to cut back on some of those expenses and optimize your spending. That's gonna help you get that savings rate up. Pretty, pretty quickly. Number eight is to protect your money. So obviously the emergency fund, we have already talked about that is the number one fortified way to protect your money.

But we also wanna think about insurances, for example. And so getting renters or homeowners or car insurance, making sure those are optimized is really important. Avoiding scams and two. Good to be. True. Investments are also really important to protect your money and then making sure you are staying wise.

So for example, one thing I always do is when I'm shopping online, I like to utilize credit cards because credit cards have a little bit better financial protection than debit cards do. And so for me specifically, I like to get those points of rewards and I like to use those credit cards. Now if you have been in credit card debt in the past, that's not for you.

But if you haven't and you wanna optimize the way that you are protecting yourself online, utilizing credit cards is a great way to do that. Freezing your credit is another great way to do that, to prevent identity theft. And so making sure that you freeze your credit is gonna be really beneficial for a lot of people.

Uh, when they are not getting a loan or when they're not trying to buy a car or get a loan for a house or opening a credit card, then you can freeze your credit. And the way that you do that is you go to the three major credit bureaus, freeze your. Your credit, and then you unfreeze your credit when you're not utilizing that.

So this helps you not fall prey to scams online in things that can happen there. In addition, another thing that you can do is you can remove your personal information from the internet. And so one of the best things that you could do out there is if somebody gets a hold of your personal information, they can take that information and go start to file for student loans in your name, or they can go file for credit cards in your name if they start to get ahold of your personal information.

And so the way to avoid this. Is to get your information removed from data brokers because data brokers can sell your information to so many different people, including scammers. That's the worst part about this whole situation, is that data brokers can sell your information, so you need to get your information removed from these data brokers.

The fastest and easiest way to do that. Is to use a service called delete me. If you go to join delete me.com/pfp 20, you can actually get 20% off. Delete me, uh, at that URL, and it is by far my favorite service that I have used over the course of the last couple of years because delete me. Is a service that helps you remove your personal information so incredibly fast.

So delete me is a great way to get your personal information removed from the internet. Also, you wanna make sure that you have a basic estate plan to also protect your money. So things like having a will, having beneficiary designations, those are gonna be really, really important. Uh, and having those in place.

I use a website called Trust and will to do mine and it was a great, you know, simple way, uh, to kind of get that done. If you guys are interested in that, just let me know. Number nine is the way to stay on track when it comes to getting to your first a hundred k is to build systems so that you stay on track.

So, automating your bill payments and tracking your payments is number one. Making sure you just automate all of that so that you don't fall behind on bills so that your credit score doesn't get masked up. You just wanna automate all your bill payments. Secondly is you wanna make sure that you're utilizing some sort of automated budgeting system now.

I like to utilize something that has a spending plan in place. So I use a tool called Monarch Money. There's other great ones out there, like Yap is a great one and there's a slew of other apps out there that you can use. I like Monarch Money, I've been using it for a long time. And what you can do is then you could do a monthly check-in on your progress.

And so there are monthly things that you always wanna be checking on, like your savings rate, how much you invested over the course of the last month, but you also just wanna do a check on your spending. And why I like Monarch money is it literally does the budget automatically for me, so I. Automate all of that system.

Uh, so I don't have to think about it ever. In addition, if you are someone who struggles with motivation with your money, see if you can find an accountability partner. Maybe you both are working towards your first a hundred k together. This is an amazing way to facilitate some of this. So here's something we're working on and I want to kind of talk through this a little bit, is we are working on a community that is gonna help you really just master your money in general.

You could start from wherever you are right now, it's gonna help you automate all your money. It's gonna help you put together these financial systems and it's gonna help you connect with accountability partners as well. Uh, in addition, there's gonna be so many more things than just that, but these are just some of the things that are gonna help you have build systems and stay on track is to have some of this stuff in place.

Next is to review and adjust your investment allocations annually. So these are some of the systems also that you wanna have in place is to review, uh, some of those allocations and you wanna make sure that you're tracking your net worth. Your net worth is your scorecard, and this is how we get to our first a hundred K.

You wanna make sure that we're tracking that so that you can see where your money is moving and how close you are getting to your first a hundred K goal. Now lastly is this is a big one for a lot of people. On average, it can take people seven to eight years to get to their first a hundred K. Uh, if you have an average salary.

Now, that may sound daunting to a lot of people, but I think this is something I want you to understand. Once you get on this path, you need to develop a long-term mindset, and your mindset is going to be everything. When you are on this journey to your first a hundred K people who are not successful with their money, what they do is they have this short term mindset.

Maybe they try this for three months and all of a sudden they quit. And the way that you develop this long-term mindset is with those automations. So automations are gonna remove the friction and the willpower of you trying to remember to save your money or to invest your money. Instead of just automating it every single month will reduce that friction and willpower and that will allow you to be consistent automatically.

I don't think most of us can rely on our willpower, especially when it comes to saving money. Hey, there are so many different shiny objects out there and so many things. We wanna spend our dollars on that. That money is going to disappear some months. So if we can develop this long-term mindset and understand.

Building real true lasting wealth takes decades sometimes, and that is completely okay because by the end of it, you are gonna have the discipline to reward your future self. And so that is how I define discipline. It is a person who is delaying gratification so that they can reward their future self.

It is someone who does not fall prey or get tempted by the instant gratification in today's world. And instead they have this long-term mindset, and that's what I want for each and every single one of you. Building wealth is doing all of these things. It is thinking about growing your income. It is doing the small things right?

So it's thinking about growing your income. It is thinking about how can I optimize my spending? It is thinking about how do I invest my dollars the best way it is thinking through how can I go out and reduce my debt and get rid of my high interest debt? But in addition, this is one of those things that you are trying to work through the grind in phase one, you are trying to work through the momentum in phase two, and you are investing early.

You are investing consistently. You are optimizing your taxes, you are protecting your money. If you do all of these things, you'll get to your first a hundred K. But guess what? Once you have your first hundred K, you already have the habits built to become a multimillionaire, and all of you who get to your first a hundred K in that seven to eight years, I truly believe that you'll be a multimillionaire, not just a millionaire, a multimillionaire with the same exact habits.

It's consistency day in and day out. My story is I was broke. When I first started my job by the age of 25, 2 years later, I had my first a hundred K. By the age of 32, I had my first million. It is because I developed the long-term mindset and I had the habits in place to be able to do this. I know each and every single one of you can also do this, which is why I am so passionate about teaching you this.

So if you guys have any questions, please make sure you join that Master Money newsletter. Send in your question and we will get your question answered either on the show. Or we'll get your question answered via email, and that's gonna be something that we absolutely wanna prioritize, helping you as much as possible.

Listen, thank you guys so much for listening to this episode. Make sure you follow the podcast on all your favorite podcast players, and if you're getting value outta this episode, consider leaving a five star rating and review. Thank you guys again, so much for listening. We will see you on the next episode.