How Much You Should Save In Your 401K (By Age)

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. If you're someone that wants to master your money and build wealth, but maybe you're just afraid that you might make a bad financial decision or bad money decision, I get it because I've been there. But I've got some good news for you. I'm going to break down in this episode the 10 Things that Financial advisors like myself will tell you to avoid. This is building your money machine, where we help folks like you learn how to master your money, remove financial stress, and and live a life of choice. And I'm Mel Abraham, and I've had the blessing of working with hundreds of clients over three decades as their money mentor, as I paved the path and helped them navigate the path to financial freedom. And I want to do that for you. Let's do this.

All right, so you're on the path. You're sitting back saying, I want to be financially free. I want to be able to master my money. I want to eliminate financial stress and money stresses. I want to. To be able to take care of my family and to have a life that's driven by options and choice instead of a life that's driven by the daily demands or the expenses that I have. And so you get involved with personal finance, you start to understand, you start to invest in the 401k or you start to use other investments, and you're building wealth and you're doing all those things. But here's the thing. I know it literally takes one big mistake. One mistake, and you could wipe it all out. I mean, let's face it. In 2005, I made an investment that turned out to be a Ponzi scheme. It wiped out one third of everything I own. Okay. Well, into the seven figures, me and two friends lost over four and a half million dollars. Okay. Could have wiped me out. Now I was able to recover. It took a little bit, but I was able to recover. Surpass it. We tripled it within 18 months and have continued to grow since then. Now the Thing is that one of the things that I tried to do is avoid certain things that could put my wealth, my financial freedom, my family's lifestyle in jeopardy. And I want to walk through 10 of those today. These are the worst things I think you can do with your money as, as you're trying to build wealth. And they can get in the way of your ultimate vision, your ultimate destination of financial freedom, of being in control, of mastering the money and having that freedom. All right, so let's jump in and let's make this thing happen now before we do, I do a lot of this stuff. If you have not subscribed to this channel, I want you to subscribe to this channel. In fact, I want you to share it with someone else. Because doing this financial freedom journey is always easier when you have someone else to. To have the conversations with. So subscribe, share, let people know. Let's light the path to financial freedom. All right. For as many people as possible. Okay, let's do this thing. So let me jump in. I'm going to jump to the iPad and we'll start off with the very first thing that I think we need to think about. This is the things not to do. All right, so number one is investing without a plan. And I see this a lot because here's what's. What's happening with, with folks. They will come to me and they will say, mel, I've got $10,000. Where should I invest it? I don't know. I honestly don't know. I don't have an answer. There is no in the box answer. I each person is at a different age, stage or circumstance in their life. And depending on your age, stage and circumstance, that defines what you should do. Here's the challenge. When you invest without a plan, it's haphazard. It's not moving you towards something. This is why in my book, building your money machine, the very first part of the book is us defining your life, defining what it is you want out of your life. Because it's important to me and it should be important to you that you're living your life, not someone else's. Not what the media says, not what your parents say, not what your siblings say, not what the social media says, not what your neighbor's doing, but yours. And so we start off with the vision in our life. That vision will then define the plan to make the vision a reality, because that's where we want to go. It's just like planning a trip. This just happens to be a financial trip. We figure out the destination, we figure out why that destination is meaningful and, and, and appeals to us. And then we, we put a plan in place. Now the plan will then define the strategy. The strategy will then determine the tactics. The tactics are our investments. See, if we start investing first without a plan, we might have great investments, but they're the wrong ones for us. So investing without a plan doesn't get us necessarily to the vision of our life. So the key is investing with a plan that was driven by what it is you want. Now the other thing that happens is that if we do this without a plan, we have the tendency and the possibility to take on more risk in the investments than we might or should. But when you have a plan, part of that plan is going to be looking at the, the risks and the kind of investments you should be in. So number one, number one is, is when we, we turn around and we are investing with our plan. So that's a, that is a don't do this is one of the worst things you can do with your money is sitting back and saying, I'm just going to invest and I don't have a plan. Okay, this is going to keep you out of trouble. Now number two, these top two are, are huge. Okay? And number two is prioritizing consumption over investing or savings. And, and here's. This is about living for today. And I hear it all the time. Oh, yolo, yolo. You only live once. Yeah, I'm gonna live it fully today. I get it. What are you gonna do tomorrow? Tomorrow's coming. Your future's coming. If we don't save for retirement, it is. There's a study out there that says that the, the ex expected rate or amount necessary for to retire is $1.46 million. $1.46 million. Yet the average savings is like at 89,000. I mean like, we are way off from from where we need to be. And, and part of it is prioritizing consumption over savings. Now some of it also may be, gosh, things are just more expensive. I don't want to be tone deaf to that. And we got to figure that out and we got to manage it and we got to figure out our income. There's a lot of things that go into it. But what I'm talking about is what's your mindset? Is your mindset one of short term gratification and I'll deal with it tomorrow and kicking the can down the road? Or is your mindset one of I'm going to make sure that I do what I need to do today, but I'm going to prioritize my tomorrow. I'm going to prioritize investing. I'm going to put it in a place that I'm going to build habits and decisions and behaviors that will build my future as well as allow me to live at a level in my present. Okay, and I get it, you've got limited income. Well, that's great. We got to manage our expenses and we have to figure out how to elevate our income. It might be side gigs, it might be side hustles, it might be asking for a raise, it might be simply owning the value you bring to the table. It might be skilling up, it might be getting new, new skills through education, training, certificates, all those things. But we have to, when we prioritize consumption, which is typically stuff over investing or savings, we, we then put our, our financial future in jeopardy. So, so number two is prioritizing consumption over savings and investing this. Number three, which may sound odd for some folks, is not tax planning. I think taxes are, are despised as much as root canals. It's about it, you know, but here's the thing. Taxes are a requirement. They're a necessity. You can't avoid them legally, you can't avoid them. Okay?

And if they can cost you 25 to 50 cents on the dollar, depending on what state you live in, it is really important for us to get a fundamental, basic understanding of taxes and how they impact us and to look at it from that perspective. So I have the opportunity to minimize how much the government's taking from me at 30 cents on the dollar and 50 cents on the dollar. You, you may be required to pay taxes, but you're not required to overpay taxes. The tax law, the tax code was created to be used and it is not illegal, it is not immoral, immoral to use it for what it was mean. And if you have the ability to take advantage of the tax code in a legal way, to take real deductions in a legal way, why not do it to use tax advantaged accounts like Roth, like 401ks.

To take deductions that maybe apply to you, like the Augusta rule, all those things that will reduce how much goes to the government. Because if I can reduce how much goes to the government legally, I increase how much stays with me and grows my wealth in the future. So I get that it's not a fun topic. I get that it's not an easy topic because the tax code is complicated, but it is a necessary topic to get involved in. And so one of the things that I think is, one of the worst things we can do is neglecting it to, to disregard it, to just think that we have no control of it. Now if you have a business, you have much more control of what can happen than you would as a W2. But even as a W2, there's some things you can do with how you use your retirement accounts and other, other deductions, charitable donations and things that you can use for planning that can help. So the point is, is that you got to get involved with taxes at some level. Okay, Number four. Number four is ignoring the impact of fees, not looking at the fees that you're, you're, you're paying. Okay. There some investments, you know, managed funds, managed accounts can have extremely high fees. And you gotta look at it from, from this set of eyes. Every dollar you give to someone else is a dollar that you don't get to yourself, that you don't get not only the dollar, but you don't get the growth on that dollar. So it can cost you dramatically if you're not careful about fees. And the fees can sound very small. Oh, it's just, you know, 1%, 2%, which doesn't sound like a lot. But when you take the 1 or 2% and then you compound it and the growth of it and you do it every year, it can, it can become a very large number. Now I am not one that says I don't want any fees. I have advisors, I pay them a fee and I gladly pay them a fee because they provide a level of service that is necessary for where we're at. They do a lot of other work. They're not picking just investments. And in fact, I am involved with all of that as, as it goes. They do a lot of other things to compensate them for, and that's why the fee gets paid. But there's also expenses inside. If you buy a, a mutual fund or index fund, you could be paying high expenses in there on high fees that you're unaware of. I just looked at a 401k for someone and saw that the expense ratios on some of the investments that they have for their employees is astronomical. And if we could just replace the funds that are available to them, we could literally put 1% more into the pockets of the employees. And so, so it's important to sit back and not just ignore fees, to not be blind to them and ask, you know, are these fees making sense? You should be able to invest in low cost, low fee index funds that are really, really significantly low. I mean, they're not 1%, 1 1/2% fees. They're, they're far less than that. They're a fraction of a percent in fees. And most that it'll take you from paying $150 per 10,000 in fees to, to $4. That's, that's the dramatic impact of it. And you think about it and you say 100, $150 to $4.

Dollars left to you on every 10,000 every year. It adds up and as, as it grows. And so I think it's important to not ignore fees. I am not saying to avoid fees again. I just want to make sure that I'm getting some economic value out of it and, and everything. I'm just not being it, I'm not being naive and saying, well, it's just what the fees are. And if you happen to be in an, in an employer plan that has high fees, go to your hr, have a conversation with them and say, look, is there a way for us to get a lower cost alternative, lower cost.

Options in our plan? Because then we keep more money in our pockets, which gives us more financial stability and security, which gives us a more financial wellness and peace, which allow us to be more focused at work. All those things come into play to make that happen. All right, number five, the number five thing to which is the wor. One of the worst things to do is this to follow trends or fads. I've talked about this before. Listen. Market trends and fads, they are, they are fleeting moments, memes and, and now it's so easy to get caught up and you think about the whole GameStop thing. They talk about it on a Reddit post, it starts to drive the price up, but there's no economic basis for it to go up other than the chatter about it. And then when they stop chattering about it, it tanks. And the people that bought last, they get hurt. Is the epitome of a pyramid scheme. We, what I want you to do, listen, everything that I do, the way, all the frameworks, the processes that I use with my clients and I teach on this channel and in my book, all focused on an unshakable financial foundation first, safety first, growth second. Okay? And so what ends up happening is when we start to, to move into trends or fads or memes, we tend to take on more risk because we don't understand it. We're trying to jump on the bandwagon. We are making an emotional decision to jump in the game. And so you End up in the game typically too late.

And you get out of the game too late, which means you get hurt. You, you want to make sure that what you're investing in has some. Some history, some foundation, some business model, some cash flow, some growth has the, the, the makings of an actual real investment that's supported by its operations, by the economics, and not just driven by some meme, some talk, some trend, some fad. Okay? I put in rules, and they're the rules I teach. They're the, the criteria I follow. And it's all because of that. The Ponzi scheme I got caught in and I lost. One third of everything I own is to make sure that I'm safe. And if, if it doesn't satisfy the criteria, if I can't follow my rules, they don't get my money. Even if it could have made me a billion dollars. I don't care. I'd rather leave some money on the table than watch it go to the core of the earth. Okay? And I want that for you too. So, so we don't follow market trends and fads or memes like that. Now, number six. Number six is not looking at liquidity. In other words.

Not, not looking at what you need in cash. There is a reason that in chapter 12 of, of my book Building youg Money Machine, we talk about the wealth priority ladder. And in that, wealth priority ladder starts off with giving you that unshakable foundation. And part of it is liquidity. Having the cash to sustain yourself if something happens, having the cash to take care of you if you can't work, having liquidity available. So not 100% of everything you have is tied up investments and you can't get at it, you know, then you end up becoming investment rich and, and cash poor. And you cannot live that way because if you need the cash and you have to cash out investments in a hurry, the investments might be down or you have to take a discount to get rid of it and get the money in. It's important to plan for liquidity in the process, not just for emergencies, but also for opportunity. Markets go up and down, whether it's the stock market, whether it's real estate markets, whether it's opportunities. And opportunities come and go. You want to have liquidity, what we call dry powder, if you will, that is on the sidelines to one portion of it to take care of emergencies, but the other portion may be to take care of opportunities that come in our way. And too often we overlook our liquidity needs, especially when the market's going up, market's going up. You say, oh gosh, I don't want it in, in cash or a high yield savings account. I'm only getting 5% on it. Okay, but you got to remember that every dollar that comes into your life has a job description.

And some dollars are meant for investing some dollars, their job description is to pay your bills. Some dollars, their job description is to give you the peace of mind of knowing that you have the liquidity to take care of yourself. Allow each dollar to do their job and don't move it to another job. Okay? So overlooking liquidity needs. Can, can, can be a problem. Number, number seven. Number seven. Okay. Is too much leverage or debt. Look, and we're in a high interest rate environment as, as I, as I'm filming this. But, but when we over lever. Now, I am not a believer that all debt is the devil, but all debt, it has two personality traits, no matter whether it's productive debt or destructive debt. Now I do believe you absolutely avoid destructive debt. You avoid the debt that you're using to pay for a lifestyle that you cannot afford. You avoid using debt for the lavish vacations, the depreciating assets.

The stuff you're trying to buy on credit. That's consumption. And its consumption is worse because not only is it consuming, but it's also doing it on debt. So you have this interest cost that goes with it. The two personality traits of debt is that all debt costs. Whether it is productive debt or destructive, it costs, it's called interest. And if you're paying someone else interest, that means you're not getting it. That means you're losing out.

The other thing is the other person I trade is all debt stresses. It stresses us financially because it is a burden on us, but it also stresses us psychologically because it's a burden on us. So it is important to sit back and say let's do debt smart. Even if it's productive debt, it needs to be smart. There are people out there that were over leveraged in real Estate in 2008 and they thought they're still good because it's real estate. Real estate always goes up and you were giving, getting loans easily and they were, they were doing 100% financing in some cases and, and no income qualification. And when the market turned and price and the values came down and they couldn't sell the properties and they couldn't get tenants in the properties, they couldn't cash flow the properties, they had all this debt that they couldn't carry and properties got Foreclosed upon. We have to be smart with our use of debt and leverage. Otherwise we could put ourselves in a very precarious position when or if there is a market downturn or a flattening or a problem. Okay, leads me to number eight, not rebalancing. What do I mean by this? Not rebalancing your portfolio so you have an investment portfolio. Every single person is very different in their, in what I call their risk, their risk profile. Their risk profile is built on three things. Their risk tolerance, in other words, how much they can stomach, their risk capacity, how much logically and mathematically can they carry. And their risk need. What risk do they need to take on to achieve the goals that they need? And that intersection is going to define their risk profile. I call it the risk triad and I walk through a lot of it in the book. But the thing is that everyone's different. Your age, your stage, your circumstances in life will change. If you're 23 years old, you're different than someone that's 63. If you have five kids, you're different than someone who has no kids or is an empty nester. If you've got, if you got college bound kids, it's different. If you have aging parents, you have to take, it's different. So what we need to do is we build a portfolio based upon your risk profile and, and what we're trying to accomplish. And everyone's portfolio is different. Here's the mistake that most people make. They go through the exercise and they, they do their risk assessment and they understand it and they build the portfolio and they never look at it again. So maybe they built their portfolio structure the percentages of investing in equities and internationals and all that stuff. And real estate in their 30s, now they're in their 50s, they can see on the horizon, retirement. They can see things that they need to do, but they never change their allocation, their asset allocation and rebalance their portfolios. And what happens is that one, your risk profile changes as you get closer to the, the needing the money. But two, as the poor pro portfolio grows, you have stocks that go up, you have stocks that go down. Okay, you've got investments that go up, investments that go down. They become, they become different percentages just because of the sheer growth of the portfolio. And now all of a sudden things are skewed and you might be in a portfolio that is far too risky for you for your age, stage and circumstance. One of the things that I do, I sit on a pension plan committee of a company and we manage effectively a $50 million pension. And as a committee, we look at the percentage. How much percentage in equity do we have, how much percentage in fixed income do we have? And when the market goes up and the percentage in equity goes above a certain threshold, we rebalance, we adjust to keep us within the parameters, to keep us within the risk profile. Most of the time as individuals, we don't do that. And it puts us at a higher level of risk without us even knowing if we're not careful. So I, my suggestion to people is to, you want to look at your portfolios at least once a year to say, do I need to rebalance? Do I need to adjust anything? Do I need to do something a little different? This leads into.

Number nine, which is kind of similar, but that is not looking. Disregarding diversification. So disregarding diversification can be a problem for you because if you are concentrated in a single asset or a single type of investment, if you have a lot of stuff in tech, or you have one stock, or you have one property and you have all of your eggs in one basket, if you will, or a, a class of baskets, or a sector, an industry, you take on a trim, a skewed level of risk. There is a need for diversification. Now I know that there's some people that say, no, no, no, just go all in. I think it's a mistake because remember what we're trying to do. Unshakable foundation of safety first, growth second. I will give up a little growth to make sure that I'm safe. But because what I know is when you swing for the fences too many times, you will strike out more often than not. And so what we need to look at is making sure that we have a broad based, diversified portfolio based on our risk profile and make sure that we stay in, in that realm and that we're not overly concentrated in a sector, an industry, a company, an asset class. Okay, Disregarding the diversification is number nine, then number ten. Ooh, this one's a big one. Being impatient. Oh, man. Wealth creation, it's a long term game. Wealth creation requires you to get on the field, stay on the field, and keep playing the game. Long term, the longer the term your, your view, the, the higher the likelihood of successes. There was a study done with S&P 500. One year returns. One year returns on average, your.

You would, you would win about 70% of the time. A little over that. Okay. It would be up if I went to five years.

And said, I'm going to hold it for five years, a little longer, it goes over 80%. When I go to 10 years or more, it goes to 94%. The longer we look at things and be patient, the higher the probability of success is when we follow the other rules, the other criteria, and the other investing principles to do it effectively. The other thing that happens is this. And you've seen me talk about this repeatedly, is that wealth creation is not a straight line. Wealth creation doesn't do this. It does this. Okay? And what happens is, too often people don't have patience down here because they're in something called the flat line. The challenges. And the subtitle of my book says it's. It's getting your money to work harder for you than you did for it. And the only time you do that is when you pass the tipping point and you end up in this acceleration zone up here. But too often, we don't have the patience when we're down here and we cash out. Well, the only way to bypass this is time. And if I cash out, I start the clock running again. We have to get in the game and stay in the game long term. Why did I get caught in that Ponzi scheme? Because I got impatient. Because I thought I had a quick win, because I thought it was gonna. It was gonna be the answer to my prayers. I was gonna be able. I literally created a spreadsheet and started projecting out what was gonna happen. If you're investing gives you an adrenaline rush, because it is. It's, you know, get rich quick, and it's up and down, and this. That the wrong investment. You're investing long term. Your wealth creation is a boring journey. It is systematically long term, and you will. Look, I talked to someone else that I think four or five years ago, trying to remember when he rolled out his 401k. When he rolled out his 401k was a little bit over 400, $440,000. He didn't look at it. He didn't rebalance. He didn't do some of the things and just started looking at it, and all of a sudden, it's at over $800,000, y'. All. That's what I'm getting at. Get in the game. Get on the field. Play the game, and play it long term. Stay in the game. Be patient with it, because time will be your friend. Okay? So Those are the 10. The 10 things that I think are the worst things to do and other advisors think are the worst thing to do with your money. Avoid those 10 things, and it'll put you in a better place for your journey to financial freedom, for your ability to. To master your money, for your ab. To eliminate and reduce the stress around money, around finances, around wealth creation. Okay. I hope that this helps. I hope that this gives you a perspective and gives you something to consider, maybe even something to discuss with. With your family, your loved ones and. And how you want to approach things. My job here is simple. I want to light the path to financial freedom for a million families. I want one of those families to be you. I truly believe that financial freedom is a birthright. They don't want us to talk about it because that's the way we were raised. But I want to talk about it. I want to help you claim it. I'm not selling investments. I'm not selling insurance. I'm not selling any of that. I'm going to sell you on the possibility of your dreams. If you're willing to do the work, if you're willing to follow along, if you're willing to get the behaviors and be in the game, I'll be here to guide you. I'll be to. To light the path. All right. All right. Until we get a chance to see each other another episode or on the road or out there while I'm speaking, as I always say, always, always strive to live a life that lives you.

Thank you for listening to the affluent entrepreneur show with me, your host, Mel Abraham. If you want to achieve financial liberation to create an affluent lifestyle, join me in the Affluent an 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 Podcasts, 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.