Once Your Net Worth Hits This Number, Saving More Barely Matters

There's a point where saving more barely matters, and I can show you exactly where it sits. In fact, for one example household I'm going to walk through today, it lands actually near $3 million with two milestones on the way around $900,000 and $1.8 million. Now, your numbers will be different, completely different, because this line isn't a universal threshold. It comes from your life, your lifestyle. And by the end of this episode, you'll know how to calculate yours. But here's the thing that trips almost everyone. The net worth on your statement and the net worth that buys you your freedom are two very different things. The gap between them is where most people get stuck. Well, I'm here to fix it. This is Building Your Money Machine, where we help you master your money, eliminate financial stress so you can live a life of choice. And I'm your host, Mel Abraham. And I can't wait to give you the four gateways, the exact crossover points, and how to calculate your numbers so you're not pushing too hard, but just enough. Let's do this. So how much do you need to save? How much is too much? How much is not enough? Well, let's jump in. Number 1, most people are playing the wrong game. See, I was sitting across from a guy a while back, successful, sharp. He slides his balance sheet across the table. And I'm looking at it, it's impressive as far as the numbers go. He has multiple homes, he has boats, he has cars, he's got jet skis. I mean, it's crazy. A net worth statement that would make most people's jaws drop. And then I asked him one question. If you stopped working tomorrow, which one of these assets would replace your income? All I got was a blank stare. Not because he didn't understand my question, but because he did. See, for the first time, he finally saw it. Almost nothing on that impressive piece of paper would put food on his table if his paycheck stopped. He'd spent decades building a monument, and monuments don't pay bills. So here's the truth most people never hear: wealth is a cash flow game. Not an asset game. Not an asset game. See, your net worth, that headline, that net worth headline, it's just a fuzzy number. And it moves with the housing market, you know, and if you're including cars that are losing value while you're sitting there in the garage, all those things don't count. They don't do anything for you. I mean, you can count those things for the net worth itself, but it isn't gonna generate cash flow. Cash flow in the way that it would support your life. That number of all those assets of— if we look at his boats and his jet skis and his cars and all that stuff, that's the number you would get in a garage sale. It doesn't tell you whether you're free. So let me make this real. In my neighborhood, there are two homes owned by the same family. Beautiful homes, expensive homes, because I, I don't live in a cheap neighborhood. And in all the time that we've walked past them, I've never seen anyone there. No renters, no Airbnb, no family using them, just two dark houses. That's it. They gotta pay the property taxes, they gotta pay the insurance premiums, they gotta pay the HOA fees, they gotta pay the upkeep, they gotta pay the utilities. In their eyes, they might think that those are assets. In our eyes, in the definition of the money machine or what I'm looking for, those aren't assets. They're very expensive lawn ornaments. Ornaments with plumbing. They are liabilities. Now, on a net worth statement, those homes look like they're winning, but in real life, it's this leak of cash. Every month they sit dark, they drain the cash, they tie up money that could be working somewhere else. Now, I don't know their situation, I don't even know them, but when we start to look at those as assets, that doesn't help us when we get to our retirement years to pay the bills, to put food on the table. Now, I'm not saying that they're not assets. I'm just saying that they're not cash-flowing assets because of the way they're using them. And so you could sit back and say, well, you know, it's still an asset. Well, it is. However, it's also costing you to upkeep it, but it's also costing you the fact that there's an opportunity cost to holding it. If I took the money out of that and put it into an investment that was generating cash flow, that is the opportunity cost. So we need to draw a line through the balance sheet. On one side are use assets, lifestyle assets, the home, the cars, the clothes, the shoes, the all the stuff that serve your lifestyle. I don't wanna discount those. I don't want to disregard them. I want to recognize them. They're real, they're valid, enjoy them. On the other side though, are productive assets, what I call investible assets. Those are the ones that generate cash flow whether you show up to work or not. Dividend-paying investments, stocks, portfolio, rental income, interests, distributions, those kinds of things that will hit your account because the money is doing all the labor for you. That second category, that is your money machine. And it's the only part of your net worth that this video is about because when I say there's a number where saving barely matters, I'm not talking about the garage sale number, on the other side of the balance sheet. I'm talking about the machine that generates the cash flow. So that's what we wanna talk about. Say, okay, how much do we need? Well, here's what happens. Every person that's going through a financial journey is going through 4 gateways. Now, most people will think financial freedom is just one giant number, and it's so far away, it might as well be a fantasy. And because it feels like a fantasy, they never really start. But what they don't realize is that journey runs through 4 gateways and each one changes your life before you ever reach the last one. Gateway number 1 is financial stability. This is the first step in the journey. This is where your investible assets on that one column where your machine can generate enough income to cover your necessities. This is the roof over your head, your healthcare, the food, your clothing, your transportation. This is just your survival, not the niceties, but the necessities. Survival is paid for. This is what I call financial stability, because now I have a machine that takes care of all of my needs, not my wants, but my needs. So if everything went sideways tomorrow, the job, the business, the economy, or your survival is covered by these assets. That's not a small thing. That's the foundation of everything else that we're gonna build. Now, most people never even know it's a milestone, and they could aim at it, but they didn't know it was there. Now, we're gonna go through these and then we'll put some numbers to 'em. Gateway number 2 is financial security. Now you've built enough assets that generate enough cash flow that it covers your current Lifestyle expenses, all of it. That means your streaming services, your dinners out, vacations, the stuff that makes your life feel like yours. So if your income stopped tomorrow, nothing about your life would stop. That is what I call financial security, because now all your expenses are paid. All of your expenses are paid. That leads me to gateway number 3. Gateway number 3 is financial independence. This is when the machine, all the assets, are generating enough cash flow to replace 100% of your income. Not your expenses, your income. Your work at this point just became a choice. It became optional. And then the final gateway, Gateway #4, is Financial Freedom. This one rides above all others because it's not about your bills. It's not about your paycheck. It's not about your income. It's when you have enough assets, that machine, funds the life you envision, your dreams, the travel, the giving, the legacy, the contribution. This is why I say it's the life first and then the money. The vision defines the number, never the other way around. Now, let's put some math to it because the gateways without numbers just, it's like poetry, I don't know. So let's walk through this from a math standpoint. Say your necessities are running $3,000 a month. That's your housing, your food, your healthcare, your transportation. $3,000 a month, $36,000 a year. And right away I can tell two things about this person. One, they know what their survival costs are. And two, they definitely don't live in California. Okay? Now you're looking at this. Now I gotta get a machine that's gonna generate $3,000 a month for me that takes care of my necessities. Once we go beyond that, we go to the next stage from stability to security. And our overall bills for the month are $6,000 a month, but our income is $10,000 a month. So what that tells me is in order to hit financial security where your bills are covered and your current lifestyle is safe, we need to have a machine that generates $6,000 a month, $72,000 a year. And then if we go to the next stage, which is financial independence, this is where we cover 100% of your income and your, your work work becomes a choice instead of demand. And let's say it's $10,000. In this case, we need a machine that generates $10,000. So that's the latter. 3 concrete targets instead of one impossible fantasy number to, to do that. Now, what is the target itself? Well, here's what I think we need to look at is I'm gonna use a benchmark analysis that is commonly used, but it is only a benchmark. It's a ballpark. It's not specific enough for you to get detailed, but at the beginning, it's where I want you to start because it's easy. And so what you do is you take the amount that we came up with, $3,000, $6,000, or $10,000, and multiply it by 25. This is using what's called the 4% rule as a starting point. So at $6,000, that's $72,000 a year times 25, that's $1.8 million. So that means I need $1.8 million in investible assets to be at financial security. Run the same math on the other rungs. If you look at just stability, your survival, $3,000 a month is gonna give you $36,000 a year times 25, that's $900,000. So by the time you hit $900,000 in a portfolio, Effectively, you've hit stability 'cause you can fund your necessities, your survival. But then let's go to $10,000, the independence number, if you will. That's where you can replace 100% of your income. $10,000, $120,000 a year times 25, it's $3 million, okay? That's the numbers. And then when you look at your freedom number, you do the same math, but Hear me on these. These are only one household. This is just an example. It's not a finish line I'm handing you. Your gateways are gonna be completely different 'cause your necessities, your lifestyle, your income, your vision is gonna be completely different. But the formula is the same. The gateways are the same and they're defined the same. So that's how we figure out how much we need and how much matters. And now people say, well, wait a second, you're talking about savings in cash. Yeah, I am gonna talk about savings in cash here in a moment, but I'm talking first about the idea of what do I need to build from a net worth number? But there is one wrinkle I wanna throw in this math just so you understand that it's there. And this assumes that $3,000, $6,000, or $10,000, All of it is supported by your assets, the cash flow from those assets. But if, for instance, you get Social Security or some other income stream that's coming in, a pension plan or something like that, you get to reduce that. So watch what happens if $6,000 is your security number, but you're getting $3,000 from Social Security. That means you only have a $3,000 difference that the machine needs to fund. It cuts the machine in half. So it is something that you need to think about and say, am I getting other income sources that I could reduce it and really start to build it in a, in a different way to make that happen? All right. So, so for some people, you might actually be much closer than you think because you have these other income streams. Now, I'm not going to get into is Social Security going to be around and that kind of thing. But some people have pensions and Social Security probably around in some way, shape, or form. Okay? So that's what the gateways are, and that's what we're gonna pass through. Now, here's what those gateways did for the guy with the blank stare. See, once he saw the ladder, once he saw that, everything changed. He and his wife went through their balance sheet piece by piece and asked one question about everything that they owned. Are we getting the joy out of it that we thought? The vacation home they never visited, they sold. They ran the math and realized it was actually smarter and less costly to go rent a place for the weeks that they might go at a fraction of the cost of owning a place. Same enjoyment, a lot less cost, putting other money elsewhere to work for them. The extra vehicles gathering dust, just sitting there, Gone. Every dollar that came in and came out of those dead assets went into assets that cash flowed. It literally took them about a year and a half to clean up the balance sheet. And that's real. This isn't an overnight flip. This is something that's gonna take some time. But now, 3 and a half years in, they're squarely past financial security. They're closing in on financial independence. The same family, the same income, different game. Because they understood the 4 gateways. So 4 gateways, and your money starts changing your life at Gateway 1, not at Gateway 4. Now here's where it gets interesting, because the title of this video made a promise, and there's a point on this ladder where saving more barely matters. But let me show you exactly where it is and where the acceleration effect starts to kick in, because almost nobody sees it coming. Nobody. So here's the thing: savings starts to matter less the moment you cross the financial security line. Now hear me out, I am not saying it doesn't matter, but once the machine starts to cover your full lifestyle, you're no longer saving to survive. It's less important, but it still is important because savings serves a very important function. Now, the real line, the one this video title points at, is Gateway 3, Independence. Because when your machine replaces your entire income, your life no longer depends on your savings at all. And you could stop tomorrow. Your income keeps arriving if you stop, generated by the assets instead of your effort. And right at that line, something happens that almost nobody talks about. And it's my favorite piece of math in this whole journey because it's what gets people to realize, oh, I'm gonna keep doing what I'm doing because of what happens. Let's go back to our example. $6,000 a month in expenses, $10,000 a month in income. That's a $4,000 gap. And what normally is happening here is that The expenses are getting paid. The additional $4,000 is used to build the money machine. That's what's going on. And that's what's saving and investing and building the fuel. Now, once you hit independence, your machine is actually producing $10,000 a month without your effort. Your job is still also producing $10,000 a month. Your expenses are still $6,000 a month, but now you have the machine producing $10,000 a month and reinvesting it., and you still have the $4,000 difference if you keep working to add to it. So what ends up happening is that you get the compounded effect of the $10,000 that are coming from the machine itself, plus the $4,000 you use to build the machine, and it accelerates your path to financial freedom and building the machine even faster. See, everyone thinks that independence is the finish line. No, it's the point where the machine goes into overdrive, where the wealth curve doesn't level off, it steepens and accelerates, where money starts to get momentum. But here's the catch that keeps barely matters from ever becoming doesn't matter. See, that overdrive only exists if the fuel keeps flowing. Stop investing the surplus and nothing breaks. Your bills are covered for life, but you just voluntarily downshifted the fastest wealth-building phase you'll ever experience because savings stop, investing stop being necessary. That's exactly what makes this so powerful because now every dollar you add is pure acceleration. And that's why I don't want you to stop here at independence. I want you to keep going until you achieve the financial freedom number. That means keep the employer match. That means keeping the contributions. That means keeping putting money in, but maybe you slow it down a little bit. The pressure changes, the sprint ends, but the smart plays, they stay smart. So savings matters less at, at when you hit that financial security gateway and pass the financial independence, your life is no longer depending on it, but it's still the shock absorber. It's still necessary at some level. It never goes away because savings has a job and that job is to protect you. It's not the engine. The belief is that the savings will build the wealth. It doesn't, it never did. Compounding builds wealth, assets build wealth, the machine builds wealth. Savings has exactly one or few jobs, that's it. And it's the same job it has had for day one to now. And that it is the shock absorber in your life. Think about your car. The engine moves you forward. The shock absorbers keeps the potholes from breaking the axle. Nobody confuses the two, but in money, people confuse them constantly. So we ta— started this conversation talking about the net worth number and what's important there because that's the driver of it. But then we came down to the savings element and cash in a maybe a high yield savings account that you're putting away. Treat the savings account like a wealth plan too, which is there to protect what you're building elsewhere. And the size of the shock absorbers change with your life, just like the size of your machine. Here's what I mean by this. I can't give you a, a number for that applies to everyone, but I can give you the formula. And that formula is this, is at the beginning, I want you to look at 3 to 6 months worth of cash flow, your expenses covered in a savings account. That's just the bare minimum. That's just an emergency fund. That is all it is. Ultimately, I want you to push to 9 to 18 months, what I call a peace of mind fund in the wealth priority ladder, to give you the latitude to take consideration sustained downturns, sustained issues, a health issue, or to take advantage of opportunities. That's the game that I want you to play. All right? So I hope that this helps. I hope this starts to, to bring this home to you where you start to understand that savings isn't the path to wealth. Buying and building cash flowing assets is the path to wealth. That's the path to freedom. But savings has a job and that job is safety. That job is being a shock absorber. That job is to make sure that you can take advantage of opportunities when they arise. That's it. So we don't wanna oversave because then we have lazy cash. We wanna keep it somewhere between 3 and let's call it 18 months. When you go 3 to 6 months for emergency, 9 to 18 months for peace of mind in a high yield savings account. And then the rest of your net worth, the rest of the work is building the machine through the 4 gateways of stability, security, independence, and freedom. For you. That's the game. That's the way that, that we need to build it to make it happen. All right. I hope that this helps. I hope that you start to, to see the power in what you're doing here and that there's a place for savings, but there's a place where you can slow it down, too. All right. Let me know what you think. Let me know if this hit for you. And if you have any questions, let's have a conversation. Would love to do that. And in the meantime, while you're here, give me a thumbs up and maybe a subscribe. You know, the algorithm likes it and it warms my heart too. Till I get a chance to see you in the next one or on your path to financial freedom, as I always say, always, always strive to live a life that outlives you. See you in the next one. Cheers for now. 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'd do me a favor, go to 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.