ACCOUNTANT EXPLAINS: Why Net Worth Skyrockets At $100k

Hey there, real quick, before we jump into the episode, listen, if your earnings treadmill hasn't set you free yet, running faster won't either. Listen, hustle without principles just going to burn you out. So here's what I want for you. I want you to join me for my money machine experience. Live it is three free trainings. Deep dive into how to escape the treadmill and build a money machine that actually works for you. All right, grab your spot here by going to moneymachinelive.com and I'll see you in the free training. Ever wonder why money feels like it's crawling on the way to that first hundred thousand dollars, but once it hits that number, it suddenly takes off like you're someone running late for a flight? If you ever felt like maybe you're hustling just to stand still, saving, investing, and wondering if it's ever gonna work, I mean, I've been there. Here's the thing. In this episode, I'm gonna show you why the first hundred thousand dollars, that tipping point where you're compounding kicks in and the stress starts to ease. Why it happens, and how the machine begins to turn on. This is building your money machine, where we help you master your money, eliminate financial stress, and live a life by choice. Because earning more doesn't make you free. A money machine does. And that freedom, it doesn't start with your next raise or your next paycheck. It starts the moment you get your money to work harder for you than you did for it. Think of this as financial education with a bit of sarcasm and a whole lot of heart. And I'm Mel Abraham, your host. And I've been doing this for 30 plus years as an advisor, as a CPA, as an entrepreneur, and a person that has been on the road to financial freedom himself. And today, I'm breaking down why the first $100,000 is a grind, but the next 900,000, well, that's when the machine does. Machine starts to do all the work. So I'll show you exactly why. We'll break it down for you so you can stop trading your eff for earnings and start building real freedom. Let's do this.

You ever feel like building wealth is like pushing a boulder uphill wearing flip flops in a windstorm while everyone's yelling, just cut out coffee. Just cut out coffee. Let me let you in on a truth bomb. The first hundred thousand dollars that you're trying to make, that first hundred thousand dollars of investable net worth, it's a beast. It's A stubborn uphill, grind your knuckles down kind of journey. But something wild happens once you hit it. Your net worth doesn't just grow, it starts to compound. And like all of a sudden, the, the money that you got is. Got a caffeine addiction. And so today I'm just going to break this down for you. We're going to talk about why it's hard to do the first hundred thousand like it's climbing Mount Everest and why the money starts to sprint after that and how to ride that all the way up to a million dollars. And in the process, I want to give you access to a special tool that'll help you understand how to calculate your freedom number. That number that you're looking for is called the basic freedom number calculator. If you go to melabraham.com number, you can grab it for free. It'll help you calculate that. I'll put the link down below for you to make that happen, too. So let's jump in. What is net worth, really? Well, net worth simply is what you own, minus what you owe. Boom. That's it. Accountant mic drop. I mean, that, that's the gist of it, but we got to talk about the kinds of net worth because it's not all created equally. Okay? When we talk about net worth, and by definition, by the accountant's definition, it includes everything. It includes the house, it includes the car, includes the wedding ring, includes your sock collection, whatever someone might pay money for, that's part of your net worth. But when we talk about financial freedom, when we talk about building your money machine, we're talking about a different kind of net worth. It's what I call the investable net worth. That's the real deal. That's the machine that is going to be able to generate cash flow for you so you can live your life. It's like this ATM machine. It's your freedom engine, if you will, to make it happen. And so things, the kinds of assets that you find in investable net worth are things like stocks, bonds, business interests, real estate, things that will work for you when you aren't necessarily working. It's the thing that will allow you to separate your earnings from the efforts to earn it. That's what gives you a life of choice. And so what I want to talk about here is the investable net worth piece of this. You might have other assets. You might have boats, you might have cars, you might have your residents, but those aren't generating cash flow and they're not supporting your lifestyle. They're Creating a lifestyle just like my home. But they are costing money. Like this home costs money, real estate, taxes, insurance, all that. So I don't include it in the investable net worth. I do include it in the total net worth. But what we want to talk about here is nuanced. It's the investable net worth that actually matters when it comes to your financial freedom and your ability to have a life of choice. Your ability to separate earnings from the efforts to earn it and have a freedom based life. So that, that's what we're going to look at. And so why is it that you start to look at and say, how is it that the first hundred thousand just feels like it's a grind? Why is it so hard? And Charlie Munger, which was, he was Warren Buffett's partner for pretty much all his life, he said this, the first 100k is up B I.

With stuff there like, I don't want to say the word but, but you got to do it, okay? And so he said, it's, it's tough and it's true. You're hustling, you're saving, you're scraping your returns feel like the rounding errors. It's like you're listening to me and you're putting money away. Put money away and you go, I've been doing this for five, six years and all I got is an additional $67. It doesn't feel like you're getting ahead. It's what I call in my book on the wealth, the wealth creation curve, the wealth flatline. Because you don't feel like you're getting ahead. Here's why. Let's just make some assumptions. Let's assume that you're going to put $10,000 away, $833 away a month at an 8% rate of return, which, let's just look. That's the long term average of the s and P500, somewhere between 8 and 11%. But we'll use 8. Okay? It's going to take about 7.6 years at $10,000 a year to get you to that first hundred thousand dollars. 7.6 years. So, so now you look at it and you go, well, wait a second, so now. But I want to get to a million. But you don't hit even the halfway point, the 500,000, until 20 and a half years. So it took you 7.6 years to get the first hundred. Then to get to the first 500, halfway to a million, it takes you a total of 20 and a half years. And this is where a lot of people will start to look at and go, wait a second, that means that I got another 20 years to hit the million. That's not the way it works. See, remember I said that the key here is that we get over a tipping point. Once we get past the flat line, your money starts to work harder for you than you did for it. Which is what the sub title of. Of my book is, and that's why we have it here is, is that that we want our money to work harder for us than, than we did for it to go from a half a million dollars to a million dollars. At 8% and $10,000 a year, it will hit there in just another seven and a half years. So let's do the math again. 7.6 years to get the first 100,000, 20.5 years to hit the first 500,000 and only 27 and change almost 28 years to get to a million. Meaning that it was faster to make the last half a million than it was to make the first hundred thousand. That's the thing. Because what happened is that your money, your wealth, your net worth hit critical mass. And that critical mass is where the money starts to multiply on itself. So it's an important thing for us to really start to drive and understand what's happening because you have this compounding momentum that comes into place. And so building that first hundred k is important. It is one of the key metrics, the key tipping points in your financial journey. We gotta get there because the next 900,000 starts to build momentum in doing it. So it takes grit, it takes discipline. And you feel like you're dragging that money sled uphill and you don't know that there's an end to it. You know, you're sitting back trying to get it done. Now you'll see how this all plays out by downloading the basic freedom number calculator, which I put the link below. It'll help you run the numbers. But let's go back and say, okay, we understand the math. Why is it so hard to hit that first hundred? And I think one of the first things that we need to understand is that if we're starting at zero or you're starting like me, where my net worth was negative. And it can be, you come out of school and you don't have a whole lot of assets, but you've got a car loan and student loan and all that stuff. All of a sudden you're looking at a red net worth instead of a positive net worth. So you got to get to zero first, and then you got to get to that first hundred. But why is it so hard? And I think that one of the biggest things that we don't realize is that because to hit that first hundred thousand, we have to become someone different. We have to have an identity shift when it comes to money. See, we don't have the skills when we first start out. We don't understand money, we don't understand compounding. We're not sure what to do. We've never done before. It's like the first time that you started to try and tie your shoes, it was tough. You got your tongue sticking out and you're trying to tie the shoes. But after a while it became second nature. And so what happens though, at the beginning of starting something new, it's always a bit more difficult. And that first hundred thousand forces you to skill up, Forces you to sit back and ask yourself, am I deserving of it forces you to face the demons of your money stories, the money fears, and the shift that you need to make in your identity to start to build. That is, things like you shift from how do I earn more? That question to how do I build leverage into my life? How do I get my time back? So, yeah, it's about earning more, but you earn more by becoming more valuable. And you start to ask different questions during that journey to that first hundred thousand, you will shift from a what can I buy?

To a different question of what will this return? In other words, you look at it and say, if I'm going to put money into something, what do I get in return? People have asked me, does it make sense? You know, they'll ask me, I want to invest in a. In a program or a conference or a mastermind. You know, is that an investment or an expense? And I said, well, that depends on you. Presuming that it's a good program, conference or mastermind, then whether it's an investment or expense depends on you. In other words, what are you willing to extract from it? When you go in and spend money, when you go in and buy something, ask yourself, what's the return I'm getting? What do I expect in return? If it's momentary pleasures, then it's an expense and I'm all for it. I'm fine with that. Just know that there is no return on the other side of that. But if we are anticipating, we're trying to make something grow, there needs to be a return on investment on the other side of it. The other shift will be Something like going from an attitude of I hope I'm okay to I know I'm building a machine, a level of conviction and confidence to know that you're walking through it. Because you, in this journey to that first hundred, you shift from being a spender with good intentions to becoming a wealth builder in identity. You develop new skills. You start to understand why financial plans matter, why it's important to understand where your money's going. Now, I'm not saying deprivation and cut everything to the bone. I am saying that you're deliberate and discerning with where the money goes. And if I came in and floated into your life and I said, so tell me where your money comes in from and where it goes, you would be able to rattle it off and know that if you don't, then we need to fix that first. Because if you don't know where it's coming from and where it's going to, we have no ability to direct it. To build that first hundred thousand, let alone the million, you develop new skills to sit back and say, can I say no to the things that don't build freedom? When I invest in things or when I do things, does this move me closer to the freedom that I want? Does this move me closer to the life that I envision? You start to realize that investing early, even when it's boring, matters. You start to see hundred dollars not as stuff, but as future buying power. See, I remember, and I wrote this in my book. I have a kid who cuts my hair. He's 23 years old or so, and in fact, I just saw him yesterday, and we had a conversation once where I walked in there and I sat in the chair, and he looks at me, says, you know, one of my good friends, he just bought a $5,000 watch. And I looked at him. I said, that's. That's interesting. I said, does he make a lot of money? And he said, no, no, no, no. He's. He's like 22 years old. He's. He's my age and. And everything. I said, so. So hold on a second. He bought it. Does he. Does he have a watch fetish? Does he love watches? No, but his friends thought it was cool. I said, oh, okay. I said, interesting. So he bought a $5,000 watch. Now, I didn't bother to ask did he do it with cash or did he do it on credit? Because that would even make it worse. But let's assume he did it with cash. Let's assume he had $5,000, and instead he bought this watch. So he bought a $5,000 watch. Not something that he's into necessarily, but he did it because his buddies thought it was cool. Now, in his eyes, he bought a $5,000 watch to impress his buddies. In my eyes, I look at it, I go, if he put that $5,000 in S&P 500 fund and let it grow over time, every dollar you put in at 20 years old will turn into about $80 by the time you're 65. That means that that 5,000 would turn into 400,000. He thinks that he spent $5,000 to impress his buddies. I see that he squandered a $400,000 nest egg. Now, I'm not saying not to do it. I am saying, though, that if you're conscious aware that that is the actual future buying power that you're giving up, that maybe, just maybe you make a different decision. And I have no problem with him doing it. I just have a problem when someone doesn't realize that. So as long as you're informed, you understand it, you're intentional, you're conscious, and you're aware. Go for it. Okay? I'm not here to tell you what to spend on, what not to spend on, but I am here to let you know that if you're giving up some future buying power by doing so, so if it doesn't give you this visceral joy and that fulfillment, then maybe we put it off. Okay? This is where the identity stops from being like an employee that is employed by the dollars, that's driven by trying to, to drive the dollars into your life, to becoming a wealth architecture in doing that. So now you look at and say, okay, that's the first hundred thousand. Well, what changes after that first hundred thousand? Why does it accelerate? See, once you cross the six figure mark, the game changes. It changes. Now you've built enough of a mass that your money starts to do more lifting. See, instead of, Instead of having $1,000 at 8%, that makes you a small amount. You have $100,000 at 8%, that makes YOU $8,000. Okay, that's almost one month's income with zero effort on your part. See, all of a sudden, the sheer size of it starts to build on itself. You're no longer chasing freedom with your feet, you are chasing it with your feet, but you're building capital and that's chasing it alongside of you. And at some point you. That capital, if you stay in it, is going to overtake you. You actually, at this point, is when you start to Understand the power of that critical mass where you get a chance to start to diversify. You start to make decisions from the vision and not the urgency. You finally start to breathe and say, hey, there's a system that actually works. And when the system actually works, it works for me. And so when I look at that first a hundred thousand, this is the tipping point. Because you become something different. And when you get to that hundred thousand dollars, your money becomes something different. It does harder work for you, and that hundred thousand becomes five hundred thousand becomes a million. And before you know it, it multiplies and multiplies on itself. When you get a chance to start to see that, all of a sudden you start to build that machine where that the machine is generating enough income to support the lifestyle that you desire, the lifestyle that you envisioned. That's true freedom. That's what we're trying to get at with the money machine. So what most people miss, what most people miss, though, is the hardest part of building wealth is believing it works before it shows you proof. Because it takes a little while to get the proof. Because the first few years, like I said, is the flatline. You have to trust the process. The math will always math out. You gotta plant the seeds. And you don't. It's, it's not the beanstalk syndrome. It's not like if throw the, the beans out the window like Jack and the Beanstalk and the next morning you got a fully grown tree. No, you have to plant the seeds, you have to nurture the seeds, and you have to keep nurturing the seeds. And then you hit that hundred thousand dollars. Then from there it's 200, then 500, then a million net worth. Net worth at the beginning is a crawl. Then all of a sudden it walks. And then all of a sudden it runs. Then all of a sudden it jumps. Okay? If you're in the slog right now and you're trying to save 100, $200 a month and wondering if it matters, let me tell you, it does. You're building the engine. Not only that, you're building an identity. Not only that, you're building the behaviors and the habits of the wealthy. And in the long term, you're building the machine. Let it grow. Let it change your life, okay? Let it keep rocking and pushing, okay? And if you want to see how the numbers play out, do me a favor, just, just click the link, go to melabraham.com number and grab the basic number freedom calculator and grab it, run some numbers, play around with it. See what it does. It's totally free. All right? In the meantime, do me a favor. Let me know what you think. Let me know what you're at. Let me know where you're at. Drop a comment below and let's have a conversation. You don't have to do this siloed. You don't have to do this alone. That's why I'm here. I want to help light the path to financial freedom for a million families. I want one of them to be you. All right? I hope you found this valuable, and I hope that this will kind of spur you along to stay in the game, get past the wealth flatline and allow the acceleration zone to take hold. All right? Your future will thank you for it. All right? Until I get a chance to see you on your path to financial freedom, always, always strive to live a life that I lose you.

Thank you for listening to the affluent entrepreneurship with me, your host, Mel Abraham. If you want to achieve financial liberation to create an affluent lifestyle, join me in the affluent entrepreneur Facebook group now by going to melabraham.com group and I'll see you there.

And that's it for this episode of building your money machine, where we help you learn how to master your money, eliminate financial stress, and live a life of choice. If you found this valuable or helpful to you, here's what I'd love for you to do. If you do me a favor, go to Apple, Apple podcast, or wherever you're listening to this podcast and rate and review the show. It helps us tremendously to keep us at the top of the list so we can continue to get this information and this message out to people, because I truly believe that financial freedom is your birthright, and I want to help each and every one of you claim it. Thanks so much.