The Personal Finance Podcast - Your First Million Is The Hardest (Here is How to Do it!)

Episode Date: August 28, 2024

In this episode of the Personal Finance Podcast, we're going to talk about why your first million is the hardest. How Andrew Can Help You:  Don't let another year pass by without making significant strides toward your dreams. "Master Your Money Goals" is your pathway to a future where your aspirations are not just wishes but realities. Enroll now and make this year count! Join The Master Money Newsletter where you will become smarter with your money in 5 minutes or less per week Here! Learn to invest by joining  Index Fund Pro! This is Andrew’s course teaching you how to invest!  Watch The Master Money Youtube Channel! , Ask Andrew a question on Instagram or TikTok.  Learn how to get out of Debt by joining our Free Course  Leave Feedback or Episode Requests here.  Thanks to Our Amazing Sponsors for supporting The Personal Finance Podcast. Shopify: Shopify makes it so easy to sell. Sign up for a one-dollar-per-month trial period at  shopify.com/pfp Monarch Money: Get an extended 30 day free trial at monarchmoney/pfp Thanks to Fundrise for Sponsoring the show! Invest in real estate going to fundrise.com/pfp Indeed: Start hiring NOW with a SEVENTY-FIVE DOLLAR SPONSORED JOB CREDIT to upgrade your job post at Indeed.com/personalfinance Thanks to Policy Genius for Sponsoring the show! Go to policygenius.com to get your free life insurance quote. Delete Me: Use Promo Code PFP for 20% off!   Links Mentioned in This Episode:  Why Your First 100K is The Hardest (The Math That Explains Why) From House Hacking to Future Millionaire with John Eringham (Johnefinance) House Hacking: How to Live Rent Free (Seriously!) 9 Modern Side-Hustle Ideas That You Can Eventually Turn Into Full Time Businesses! How to Buy Then Build a Business with Walker Deibel How to Get Rich Buying Boring Businesses With Codie Sanchez Download the Wealth Builders Matrix Here: https://mastermoney.co/wealth-builders-matrix/ Connect With Andrew on Social Media:  Instagram  TikTok Twitter  Master Money Website  Master Money Youtube Channel   Free Guides:   The Stairway to Wealth: The Order of Operations for your Money  How to Negotiate Your Salary  The 75 Day Money Challenge  Get out Of Debt Fast  Take the Money Personality Quiz Learn more about your ad choices. Visit megaphone.fm/adchoices

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Find your advisor at IG Private Wealth.com. On this episode of the Personal Finance Podcast, while your first million is the hardest. What's up, everybody? Welcome to the personal finance podcast. I'm your host, Andrew founder of MasterMoney.com. And today on the Personal Finance Podcast, we're going to be talking about why your first million is the hardest. And we're going to also talk about how to do it. If you guys have any questions, make sure to hit us up on the Master Money newsletter by going to mastermoney.co slash newsletter. And you can respond to any of those newsletters. I will personally see that response. And you may be able to even get your question answer on the show for our

money Q&A episode. So really excited about that. Also, follow us on Spotify, Apple Podcast, YouTube, or whatever your favorite podcast player is. And if you're getting value out of the show, consider leaving a five-star rating and review on your favorite podcast player. I cannot thank you guys enough for doing that. Now today, we're going to be diving into why your first million is the hardest. And I'm going to give you the steps on how to do this. I'm going to give you the practical steps that you can actually take each and every day in order to achieve your first million dollars.

And your first million is the hardest for a number of different reasons. But one of the biggest ones is you need to start investing your money. And once you start investing your money, compound interest needs to get to work. And compound interest, for all intents of purposes, it does. takes time to get to work. And most people don't have the patience to allow compound interest to start to grow your wealth. Compound interest works exactly like a snowball. If you roll a snowball downhill, it's going to start off small. But as time goes on and as it rolls down that hill, it gets larger and larger and larger. And that is exactly how compound interest works as well. In fact,

we have a spreadsheet that kind of shows this on why your first million is the hardest. If you guys want to copy that spreadsheet, we will link it up down in the show notes below. But if you look at this sheet, and if you're watching on YouTube, we'll put this sheet up on the screen so that you can check this out. But if you're watching on YouTube, why your first million is the hardest, we have something that is really, really important on this sheet. And what I did was I took $1,000 per month. If you invested $1,000 per month at an 8% interest rate, what would happen? And let's look at the compound interest in how your money would grow over time. Because the biggest thing we want to understand is what is the difference between our contributions and our returns? And this is

very and very important to understand. Now, why is it so important to understand? Because most new investors at the beginning need to know that your contributions are going to be the majority of your portfolio's growth. That is how it works at the beginning. That is the time that you have to put in is your contribution are what propels your portfolio forward. And this is why so many people who start off investing think their portfolio is going nowhere. They're saying, hey, I'm just putting so much money into this portfolio and I am absolutely getting nowhere. The reason why you're getting nowhere is that's how this thing works, my friend. Your contributions are going to be the majority at the beginning. But as time goes on, all the sudden, that is going to skew and your returns are

going to be the majority of your portfolio. If you've never heard of our episode talking about why your first 100k is the hardest. Charlie Munger has this famous quote that says your first 100K is the hardest, but you need to do whatever you can to get there as fast as possible because after 100K, it gets a little easier. You can take your foot off the gas a little bit if you are really, really hustling. But the part of that quote that always gets left out is he says my first million was the hardest of anything I have ever done. And that is where we are going to be talking through this today. If you read the book, The Tao of Charlie Munger, we just put it in our newsletter recently as one of our book recommendations. If you didn't know that, our newsletter has

book recommendations every single week. And the Tao of Charlie Munger talks about how he talks through his first million was by far the hardest. And here's why. Because I created this metric, basically what I call the CVR. And the CVR is what percentage of your portfolio is contributions, the C versus returns. And so if you look at the CVR number, it is going to be the contribution number first with a slash and then the return number. And so if you're looking at this spreadsheet that I have called Why Your First Million is the hardest, the beginning of this spreadsheet, you will be able to see that, hey, in year two, when I start to contribute my money, in year one, obviously my returns are going to be 0% of my portfolio. But in year two, when I start to contribute my money,

88% of my portfolio is actually going to end up being my contributions. And 11% will be my returns. that's in year two. In year 3, 81% of your portfolio is going to be your contributions and 18% is your returns. It's going to start to skew as time goes on and has your portfolio grows. The crazy thing is by year 9, we are looking at a portfolio where it becomes 50-50. So 50% of your portfolio is going to be your contributions and 50% of your portfolio is going to be your returns. And now the interesting thing about this is that by year, nine, your total contributions would have been $108,000 and your year-end balance or your portfolio balance is going to end up being $158,000. And so the growth for that year is very, very interesting.

Now, as time progresses on, you'll start to see it skew. Now, what happens at your first million? Well, once you get to your first million, all of a sudden, only 13% of your portfolio is going to be your contributions, and 86% of your portfolio rounded down is going to be your returns. Now, that is a number. I can. absolutely get behind because now your portfolio is doing all the work. It is working way harder than you ever could. And this allows you to really take your foot off the gas once you get to your first million. And if you look at this, you know, this portfolio at year 26, it took you 26 years to get to your first million. By year 40, you're already at 3.5 million. So it only took you 15 years

to get to 3.5 million, or it took you 26 years to get to your first million. This is how compound interest works. It starts to accelerate once you. It's a lot. you get to that first million, it starts to accelerate your first 100,000 for sure. This is why we talk about that all the time. But then when you get to your first million, it really starts to take off and you can see a massive, massive difference in how much cash your portfolio will be spitting off as time goes on. Because think about a million dollars at an 8% rate of return. It is going to be making $80,000 that year at an 8% rate of return if we're doing simple, simple math here. And so all of a sudden, you get to $2 million. Now it's, well, it's going to spit off $160,000

per year. So it's going to grow a lot faster. And this. is why we want to get compound interest rolling as much as possible. Now, you don't have to have it all in one account. It can be in your Roth IRA, your 401k. They can all be separated. But at the same time, we want to make sure that we are thinking through this process. So any new investor listening to this podcast who is trying to get to their first million, I want you to remember this. And the reason why we're just talking through this really quick at the top of the show is I want you to remember how difficult it is at the beginning. But then you just got to stay the course. You have to understand the path that you're on is going to be something that is tremendously beneficial to you and your

family and you are going to reap the benefits dramatically as time goes on. It is going to be something that will change your life, but you have to stay the course in order to be able to see those results. Now, let's get into the ways to get to your first million. All right, so the first way to get to your first million is going to be good old fashioned living below your means and tracking where your money goes. Now, this may be something that you don't want to hear, but at the same time, I'm going to show you exactly why you should listen to this. And we're going to take some principles out of the book called The Millionaire Next Door. The Millionaire Next Door is a book by Thomas Stanley.

And it is one that absolutely changed my life. Why? Because the Millionaire Next Door will change your mindset surrounding money. So initially, I thought millionaires were people who drove Ferraris and they'd spend a ton of money and they'd always be on yachts and private jets. Instead, what the Millionaire Next Door showed was the majority of millionaires are regular everyday people. In fact, you probably know a lot of them. They're just regular folks who are maybe even living next door to you who saved and accumulated wealth slowly over time. Time was their greatest

asset. They realized that and they made a bunch of decisions that I will talk about right now that help them become millionaires over time. And one of the biggest ones is living below your means. If you can live on less than you make and you can invest the difference, you will become wealthy with time. And I can absolutely say that with certainty if you are making the right choices and you understand where that money needs to go. Your dollars need to be invested in order to grow. And if you are not investing your money, you will never be able to retire. I'm going to tell you that right now. You cannot retire with a pile of cash unless you have a hundred million dollars or something crazy like that. You need to make sure, unless you have a really, really large sum,

you need to make sure that you were investing your money. Why? So you can outpace it. inflation, you can grow your wealth, and over time, you will be able to reap those benefits. And so let's talk about living below your means for a second. Because in the millionaire next door, they found that all the millionaires they surveyed, they actually intentionally chose to live in modest homes, they drove regular cars, and they avoided expensive luxury items. Now, I am not telling you at all to avoid the nice house or to not have the nice car and or to avoid luxury items. In fact, this episode will be out by then. I just bought my wife a luxury item for her birthday.

She listens to some of these episodes. So I'm not saying don't do that. Your boy just did it. But at the same time, what I am telling you is that, if you are not at the point where you can do that yet, you need to be modest and you lead to live this modest life. When I was on my path to my first million, I was very frugal.

In fact, I tracked every single penny that went out of my bank account. You've heard me talk about the reverse budget and you don't have to track your money. and that is a great budget to have. And the reason why we talk about the reverse budget is because most people are not going to be willing to do a line-by-line item budget. But if you are willing to do a line-by-line item budget,

it'll make a tremendous difference in your life and it'll be the most optimized way to save money. Now, because these people decided to keep their living expenses low, that means the gap, the difference between their income and their expenses, the gap, that is where wealth is built. And so they could take a larger portion of that gap and start to invest that money, money to build and maintain wealth. Secondly, living below your means means that you need to think

like a wealth accumulator. So there are people that are high income earners who are not wealth accumulators, meaning you can have a very, very high income, but it doesn't matter how much you make as much as how much you keep. Now, I hate that saying for two reasons. One, it makes people not put enough emphasis on income when income is the number one factor you need to focus on when it comes to building wealth because the more you can grow your income, the more you can take those extra dollars and put them towards investments that will grow your financial freedom over time. And so income is an extremely important factor. In fact, it is the number one most important factor in my opinion when it comes to building wealth. So I want you to focus on income,

but it also matters how much of that income you keep. Most people out there who are high income earners, and I'm saying most intentionally because this is very, very true, most high income earners do not keep enough of their money. In fact, there are people who live paycheck to paycheck making almost a million dollars a year. I just had a conversation with somebody. They were making high, high six figures. I'm talking eight, nine hundred thousand dollars a year and they were living paycheck to paycheck and asking me what to do. It doesn't matter how much you make fully. It matters, but it doesn't always matter how much you make. It matters how much of that money you can keep. And developing a financial plan is going to help you do that. So focus on increasing your net worth,

focus on increasing your income and focusing on keeping as much as that income as possible by keeping your baseline expenses low and your discretionary spending lower on things you don't value. If you can spend on things you value and cut out everything else you don't value, that is going to be one of the best lives you could ever live. Now, another way to live below your means is to focus on financial independence, meaning keeping your North Star in place. There's a reason why you're doing all of this. And financial independence for most of you is the biggest reason. If you're listening to me in your office right now or you're sitting in the middle of a cubicle, I want you out of that office and to have financial freedom so you could do whatever you want day in and day out.

And the only way to do that is to keep financial independence at the forefront of your mind. And so in order to do that, you have to think through. Well, my goal is to have 25 times my expenses saved up and invested in the stock market. Or I want to make sure that I replace my income with rental properties. And so if that is your goal, then keeping that at the forefront is going to change the way you spend money. It's going to change the way you take specific actions. It's going to change the way you do a lot of things because you're pursuing financial freedom and you are pursuing your most valuable asset, which is time.

In the millionaire next door, another thing they talk about is that there are a lot of people with a big hat and no cattle. And so what this is referring to is folks who live the fancy lifestyle, but they don't actually have the means to live that fancy lifestyle. There was a study that just came out recently that the highest consumers of luxury items, meaning designer items, are actually some of the poorest individuals in America. And that is one of the most heartbreaking things I could ever come across, because that's the one thing we want to change for most people. Again, nothing wrong with designer, nothing wrong with luxury. But you have to be able to afford it. And you don't want to be the person with the biggest

hat at the ranch, but doesn't own any cattle. You want to own the cattle. The cattle are what make you money. The investments are what make you money. And so taking your dollars and instead of going out and buying Louis Vuitton, you buy into LVMH, the parent company of Louis Vuitton. And that's going to be something that could absolutely change your life as well going forward. True millionaires avoid that trap. They avoid the trap of focusing on what other people think about them. And instead, they focus on their own personal life and their investments, especially early on. These dollars are so incredibly valuable early on. You have to focus on the right thing. Another way to live below your means is having the self-disciplined a budget.

So if you are a type of person who is someone who does not want a budget, we have something called the reverse budget. The way the reverse budget works is you save first, you save your money first and invest it, and then you spend what is left over. How do you do this? You calculate whatever your baseline expenses are or fixed costs is what other people call them. And your baseline expenses are going to tell you, well, this is how much I at least need to have

every single month. And so you save that money off the top automated. So you automate money savings off the top. top and put it into investments in your emergency fund. And the rest of the money, you can go and spend however you please. And we have different episodes talking about how to go spend that money. And so that's the thought process for most people. So that's the reverse budget. But if you weren't disciplined enough to have that line by line item budget, it is going to be really, really powerful for you. So one quick tip for you is if you're a person who has a very specific budget, so I use

monarch money right now. And so what I found, at least in myself, is that if I don't go in there and start checking monarch money just for two minutes a day, then I will never, if I let it go, I will never go back in there because I know I have an hour long task to check all my budget for the entire month. So for me specifically, I like to do it in small little chunks each and every day. You don't have to do that. You have to fit the way your personality works. You have to fit the budget in the way your personality works. And if you're not the budget person, maybe your spouse is in your family or somebody else in your family is, have them do it. More power to you. But just make sure you have that in place. Now, I am toying.

with the idea, by the way. And if anybody is interested in this, please let me know. I am toying with the idea of hiring a personal finance assistant. Now, I know so many things are automated. Now, Monarch Money is one of them where it is basically your automated personal finance assistant. I want an extra real person that is going to go in there and that it's going to make sure that everything is optimized. So you can hire folks like a virtual assistant, you know, from the Philippines or wherever else. And you can have them come in and kind of categorize all your expenses, make sure everything is correct and then tell you some of the areas you're overspending. Now, all these places will alert you.

But I'm thinking about taking that one extra step just to see what happens. It's an experiment for you guys just to see what happens. So stay tuned for that if you're more interested in that because I want to see the difference between just having AI automation with your budget and having a real person looking at it every single week and then giving you reports. I want to see how my behavior changes. I think that's going to be very interesting on the psychology side. So I'm going to test that out.

I'll keep you guys posted. And then lastly, a lot of these principles that we're talking about right here are specific values that you want to have in your household, hard work, frugality, financial prudence, making sure that you are diligent. All of these things are really, really important stuff and it helps you set an example for you and your family. So that's the first one is to live below your means and track where your money goes. The second one, and this is for most Americans. Debt is at the highest it's ever been. In fact, the consumer debt trends are actually a little bit alarming. And that's because a lot of people can't afford their lifestyle that they're living currently. And consumer debt right now at the time I'm recording this is $17.79 trillion. That is a massive number for most people. And so if you have something that is high interest debt, then you absolutely need to treat that as a pants on fire emergency. Now, interest rates are coming down. This is kind of an occurrence thing, but they are coming down right now at the time of recording.

So you may be able to get out of some high interest debt. But if you are in a very high interest debt situation, I'm talking credit cards. Most credit cards are 20% or above. I'm talking personal loans. Anything above a 6% interest rate outside of your mortgage. We'll talk about your mortgage here in a second. But outside of your mortgage, I need you to pay that off as fast as you possibly can. It is an emergency.

Why isn't an emergency? It is an absolute trap to be trapped into that debt because over time you're going to be paying a massive amount of interest. Now, let me give an example scenario because I put together, I did the math here just to give everybody an example scenario, because I think it's a lot easier to hear about an example than it would be just to hear me preach to you all the time. And so in this example, let's say you had a $10,000 credit card bill. So you had $10,000 in debt on a credit card. And the interest rate on that credit card is about 20%. That's actually low for a lot of credit cards. The average last time I looked was 23 or 24%. And the minimum payment typically for credit cards is going to be 2% of the balance. So that'd be like, like $200 initially, but that will decrease as the balance decreases, okay? And so let's say, for example, you make that $200 payment. Well, on that $200 payment, you're going to be paying $167 in interest. And the only portion that's going to the principal is $33. Let me say that again, because I don't think this is sinking in for a lot of people. If you had to pay $200 a month

with a 20% interest rate, $33 would reduce the principle, meaning the amount of money that you owe, and $167 is what you're throwing in the wind, and that money goes to the bank. Why do you think banks are so wealthy? One, because of reasons like this. And the massive amount, I mean, on $17 trillion in consumer debt, they are making a crazy amount of money

every single month on interest. And so what you need to know is you beat the banks at their game and you pay off your credit card every single month. And if you have to do it every single week, to stay on top of it, you do it every single week. because high interest debt is a pants on fire emergency. You cannot be going backwards with your money, and that is what credit card debt will do. It'll start to accumulate against you if you don't pay off

fast enough. And so I need you to understand credit card debt will absolutely destroy your wealth building ability. It will hinder your ability to build wealth. A, you're losing out on monthly payments that you could be putting towards investments. B, interest is eating every single dollar that you make towards that payment because the interest rates are so high. You're not even paying down the principle. So that item that you just purchased, think about every $200 item that you purchased on that credit card, you're going to be paying thousands of dollars for it. It's crazy. And so you need to understand that compounding can work against you just as much as it can work for you. So A, you need to treat it like a pants on fire emergency, which is why we talk about A, get your emergency fund funded for one

month and then go after that debt. You need to attack that debt as fast as you possibly can. Investing can wait. Why? Because your investments on average return 7 to 10%, but a 20% interest rate on your credit card needs to be taken care of way before that. You should put all investing on hold and you should be attacking that credit card or that interest rate. So please, number two, is if you want to be a millionaire, if you want to become a millionaire early in life, or you want to become a millionaire within the next decade, you need to make sure you get rid of that high interest debt or it will not happen in the way you think it will. So that is your high, high priority. Anybody who wants to become a millionaire listening to this episode, we have a free debt course. If you go to mastermoney.com

slash courses, we have a debt course on there that is absolutely free. We make it free because I'm not going to charge anybody who is in credit card debt to teach them how to get out of debt. So it is free. Please check out that course. It takes you about an hour to finish and it will show you exactly how to get out of debt and give you a plan. Now, let's jump to number three. after this break. I remember when I needed to hire someone fast, but finding the right person quickly felt impossible. And if you've ever been there, you know how stressful this can be. That's where Indeed comes in. When it comes to hiring, Indeed is all you need. Instead of struggling to get your job post noticed, Indeed's sponsor jobs help you stand out and hire faster. Your post jumps up

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Indeed.com slash personal finance. Terms and conditions apply. Hiring, indeed, is all you need. 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.

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buy a house. And one of the biggest factors you need to understand is total cost of ownership. We've talked about this so many times in this podcast. We have something called the total cost of ownership calculator that each and every single one of you can go and download if you want to. And this is going to help you run this calculation. But what total cost of ownership is, is when you go up buy a house, most people think the mortgage payment is the end of costs and that's all they have. But total cost of ownership will factor in insurance. It'll factor in repair costs. It'll factor in capital expenditures. The big ticket I things like replacing a roof or replacing an air conditioner. It'll factor in maintenance of the home.

And all of a sudden, you realize you bought a house and these items really, really add up. And when you do the math, houses are not that great of an investment. Now, people always get mad when I say this. But let me look at it right in the eyes if you're watching on YouTube. Houses are not very good investments. And if you know the numbers, you will know why that is, especially when it becomes your personal residence. In fact, historically, most people's personal residence has appreciated a lot. So people look at, hey, I bought it for this amount and I sold it for this amount. So I made this much money.

You did not make that much money. The amount of money that you made is you have to take out all the maintenance, all the repair costs, all of the upgrades you did to the home. All of these things add up to way more than anybody else even realizes until they do the math. And most people who have used our total cost of ownership calculator cannot believe, how much money they spend on their house. And so I want you to make sure you're running total cost of ownership and trying to keep those housing costs low. I have always tried to keep my housing costs below 20% of my income.

Now, I know for a lot of people, that sounds absolutely crazy. For you, it needs to be at least 30% or less of your gross income. It needs to go to all housing costs. That means mortgage, rent, plus all of the additional costs associated with it, like insurance, taxes, maintenance, all of that stuff needs to be 30% or less. If it's over 30% you're becoming house poor. And you can get mad all you want. Where you live definitely does matter.

And if you live in an area like New York City where the housing costs are really high, then you need to lower something else like transportation costs. Maybe you take the subway or something else, but you need to lower something else so that it offsets that really high housing costs. High costs of living areas, to me, are just not worth it because the housing costs are so high. And it's very hard to build well from those areas. Very hard.

Now, a lot of you listening, the majority of my listeners are in high cost of living areas. If you look at the numbers, it's New York, Chicago, California. And so you got to make sure that if you're in those high cost of living areas, you are really looking at some of the other areas in your life and seeing, which ones do I not really value? Can I reduce the costs in some of those areas? Otherwise, you're going to be spending all of your money on your living expenses because you're in a high cost of living area. So it's really important to do that and really important to think through some of that stuff. Now, this is also to say that there's nothing wrong with renting. Renting is obviously a great option. In most areas of the country, most of my peers will agree.

that in most areas of the country, you're actually better off renting than you are buying a house right now. Because housing costs are so incredibly high and it just doesn't make a ton of sense when you do the math. So I want you to use that calculator. I want you to think through that process if you have not done so already. It is linked up down in the show notes below. Now, how do you reduce housing costs? Some of the ways are to choose a smaller space. Like if you're single, for example, and you don't need as much space as you've been renting or buying in the past, Choosing a smaller space is a wise decision.

Now, I get it. If you love your house, if you spend a lot of time at home, maybe you work from home, you're always at home, and that's your safe space and you like spending money on your home, there's nothing wrong with that at all. If you like spending a certain amount of money on your home, as long as it's within your means and below that 30% threshold, then you can definitely make the space your own. I get it. But having less space can be more.

Also, consider choosing your location wisely. Your location really, really matters when it comes to living expenses. and so that's another thing I would do. Third, is learn to negotiate because negotiating your rent or rates on your mortgage is going to be another really, really big thing to do. Now, for those of you who have a mortgage right now that you've gotten like 2021, 2022, 2023 over the course of the last couple of years when interest rates were really, really high, I want you to think through a strategy as to when you want to either refinance

that mortgage or figure out how you want to structure that loan in a different way. you have like an 8% mortgage or a 9% mortgage, your costs are really, really high on that. And so it's going to matter a lot how much you are spending on an interest rate on that house. So you got to either think about refinancing it here and then your future and waiting for interest rates to drop. So you got to do the math and say, hey, with closing costs, if I refinance, does it make sense for me to refinance now? Do I need to wait for rates to drop, you know, a half a percent or more if they will? Nobody knows if they will or not. And so that's the other question that you have to ask yourself.

Another option is to house hacking. House hacking is one of our favorite ways to reduce our housing costs. This is when you buy a duplex or a triplex or a quadplex, something like that. You live in one unit and then you rent out the other unit. So your living costs are either offset. They could be free or you could even make money depending on where you do this. And house hacking is by far one of my favorite strategies. We have an entire episode on house hacking if you want to listen to that one.

And then obviously regular maintenance on your home is going to be something that helps, you know, just preserve the lifespan of your home. And then if you are in a house that's too big, maybe your kids moved out. A lot of listeners here have kids that are grown or about to be in college. Maybe you want to downsize your home. That's a lot easier said than done. But it is something that you could also definitely consider as time goes on. So reducing your housing costs is going to be a big one. The big three are housing, transportation, and food. Those three costs. If you can reduce those costs and control them, you will be able to will wealth, I promise you. Number four is you need to pay cash for cars.

paying cash for cars is a number of different things. Number one is a car is a depreciating asset. So avoiding debt when it comes to a depreciating asset is going to be really, really important. You want to make sure that you were avoiding any debt whatsoever on a depreciating asset, especially high interest debt. Now, I understand you need to get from point A to point B. You need to get to work. Sometimes you have to take out a car loan when it comes to being able to afford a car, especially early on in your financial journey. But as time goes on, try to make it your goal to start paying cash for cars. And if you can start as early as possible, you can find a Honda or Toyota. We've shown examples in videos and things like that where you can find a Honda or Toyota for $10,000 or

less. And so if you can pay cash for a car like that and drive it for a longer period of time, that is absolutely fantastic. And you have no idea how tremendous that can be to helping you get to millionaire status faster. It's going to help you tremendously. But also not having a car payment gives you that financial flexibility. You're not making massive debt payments towards cars. the average car payment right now is over $700. $700 per month if you invest those dollars instead is going to be well over a million dollars over the course of 30 years. And so if you can do that, it'll make a massive financial difference in the long run by taking those dollars and investing them instead of putting them towards car payments. Now, if you have to have a car payment because you got to

get from point A to point B, then I suggest that you follow a couple of different rules. The first rule is to make sure that you put at least 20% down on that car or you get gap insurance. One of the two there. And so what this does is when you drive a car off the lot, typically it starts to depreciate. Now, this is mostly for brand new cars. If you have a brand new car, when you drive it off the lot, it loses about 20% of its value right away. And so if you got an accident when you drove that car off the lot and you had a new car and you totaled that car, you would actually have to pay some money out of pocket because the value of that car dropped that 20%.

And so gap insurance will help cover that gap and or putting 20% down will give you enough equity in the vehicle to protect you if something like that were to happen. The second rule is to make sure your car payments are four years or less. So that means 48 months or less. And the reason for this is we don't want you having long-term car payments forever. Instead, we want you to take those extra dollars and put them towards building wealth. You should be driving these cars for 10 years or longer. And so putting that towards wealth is going to be really important.

The third rule is make sure that your car payments are 7% or less of your gross monthly income. And the reason for this is we don't want you to spend a large portion over monthly income on car payments. And the last number is 10. Try to drive that car, especially if it's a new car, for 10 years or longer. 24-7-10. 20% down, 4 years or less in the car, 7% or less of your income spent on the car and 10 years or longer driving that car.

That's the rules. Now, number five is something I think is one of the most important factors in becoming a millionaire, and we're going to jump into it next. Now, if you all remember, a few months back, we did an episode called three ways to become a millionaire by 30 in the roadmap to do it. And this is for people who want to become millionaires really, really fast. I became a millionaire at the age of 32, and we went through, there's only three real ways that you could become a millionaire by 30.

Number one is that you have a large financial event, so it's either, you know, you invested in crypto early, you sold a big. business. You had an IPO. You had some big patent that sold. You had a big real estate deal that went through. You received a significant bonus at work for some of the stuff that you were doing. So that's number one. Number two is you got an inheritance from a parent or parental support. They gave you money and helped you through your life. Or maybe they paid for your housing and cost so you could save all your money when you started working. So you got some sort of inheritance or parental support throughout your life. And the number three is the one we're going to talk about today. And that's

where you have a high income. Now, a high income itself won't make you wealthy, but nearly every single person who is actually wealthy had a high income, especially if they had a high income early. Now, over time, you could become a millionaire easily at a lower income and become a millionaire in your 50, 60s, 70s, and 80s. But those who became millionaires early also had a high income if the other two did not happen to them. An income by far is the number one factor in order to build wealth. It is the number one thing that I think most people need to focus on. And so when you try to focus on your income, it is the foundation to building wealth. The amount of money that you can earn impacts directly your capacity to save, impacts your capacity to invest, it impacts your capacity to

pay off debt. It will change everything in your life if you can earn a higher income when it comes to your net worth. In addition, you can also take that income and put that towards income producing investments that grows your income streams, it grows your overall wealth, and it's going to allow you to really take that next step. And so we need to find ways to increase our income. And obviously you can do it through a side hustle. Side hustles are very well talked about. And we try to find side hustles for you on our side hustle episodes that you can also turn into full-time businesses, because I think that's the most sustainable way to have a side hustle is something that can actually turn into a full-blown thing where you can hire people, put them into place and make bigger businesses

out of them. And I'm not a huge fan of driving for Uber. I mean, I know people have to do that to get by and there's nothing wrong with that whatsoever. But I'm not a huge fan of that kind of stuff. What I'm more so a huge fan of is starting up a business that you can start to scale over time and you could do it part time from your house and you could always do it part time if you need it to. Those are the side hustles I like. We have another episode by the way coming out on that because I know that was our most popular episode this year was the side hustles that you can turn into a full-time business. We have another one coming. And so that's one way you can do it. Another way you can do it, though, is focusing on your day job. And when you focus on your day job, you want to focus your time on

learning how to negotiate your salary, learning how to build skills so that you have the leverage to negotiate your salary and starting to network with other people who can help you earn more income. Those three things will catapult your success over anything else because you spend so much time at your day job. I want you to focus a lot of your time on learning those skills. And those skills will help you, even if you go to become a full-time entrepreneur, they will help you tremendously in that area. And so thinking through that and who you know, what you know, and how you can actually negotiate your salary with the person that can go up to bat for you at your company, it's going to be a huge, huge factor. If you want to learn how to step by step

negotiate your salary, we have, if you go to mastermoney.com slash resources, we have a free ebook there that tells you, hey, here's how to negotiate your raise step by step. We have a very specific system, and that's a great place to start to look at that as well. So leveraging your career growth, leveraging side hustles that can turn into full-time businesses, those are the way to grow your income. For me, I started a bunch of side hustles. A bunch of them failed. Some of them are now full-time businesses that I own. And so it's something where you got to try things, fail, and try again. You may fail on the first couple, but if you continuously try, you can turn some of those into a full-blown business that can make a huge

difference in your life. And the last thing millionaires do is they take as much cash as they possibly can, number six, and they funnel it into investments. Now, obviously, this entire show is most of it talks about investing here. And the reason for that is because one of the most important things that you can do with your money is you can take your dollars and you can put them into investments and they can grow over time. Now, where do you invest those dollars? There's three core areas that we like here at the personal finance and master money. Number one is investing in the market and specifically investing in things like index funds and ETFs are the main core way that I invest. If you want to learn how to do that, we have a course that teaches you how to do that called

Index Fund Pro. You just go to mastermoney.com slash courses. And so index funds are one of the best ways to do this. It's a passive way to invest your dollars over time. Number two is real estate investing. And real estate investing is something that I have been doing since 2017. It is one of the ways that can really help you grow your money. But you have to be interested in real estate in order to do it because there's a lot more work involved in real estate. Number three is buying businesses. And this is one that we started over the course of last year is buying businesses. And is where I spend a lot of my time now as buying businesses. And I think it is really a huge opportunity for a lot of people. Why? The baby boomer generation.

is retiring. And because that baby boomer generation is retiring, 50% of the businesses out there could come to market over the course of the next decade. And because of that, there's going to be a lot of businesses out there where baby boomers don't even know they could sell their business, for example. And so that's where you come in and you can help them. It's a win-win situation, and you can set up deals where they're seller financing and or a bunch of other things. If you've never heard our episode with Walker Dibyl, who wrote the book Buy Then Build, we talk all about this. And it's definitely a great book to listen to. We also had Cody Sanchez on the show, and she talked through how to buy boring businesses.

So those two episodes I would definitely check out. Those will dive deeper into buying boring businesses. And so these are some of the things that I think most people need to be focusing on when they become a millionaire. Is doing these things, some of it's just the boring stuff. Some of it's the day-to-day grind. Some of it's letting time do its thing and compound interest do its thing. But becoming a millionaire is not a super flashy overnight success thing. It's not going to happen fast.

and it's something that takes a little bit of a grind and a little bit of hard work. Warren Buffett, Charlie Munger, all of them had to grind before they actually made their first million and they all talk about how difficult it actually is. Then once you get to that first million, all of a sudden the world opens up a little bit more and a little bit more and a little bit more over time. And so trying to get to that point in time is a difficult process. But once you get there, it is totally worth it. And if you're pursuing financial independence, if you're listening right now and you want to

become financially free, I encourage. encourage you. Continue listening to this podcast. That's what we're all about is teaching you as much as we possibly can on how to achieve that financial independence so that you can get to the next level. Listen, thank you guys so much for listening to this episode. I truly appreciate each and every single one of you. If you guys have any questions, please reach out to me at the Mastermind Newsletter and we will be able to answer any questions that you may have. I truly appreciate each and every single one of you and we will see you on the next episode. Frozen lasagna, medium power, 15 minutes. Sounds like.

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