Why The First $100k Is The Hardest (It Gets Easier)

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. I don't know if you've heard this before, but they say that the first hundred thousand dollars of wealth is the hardest to create. You know, in actuality, they're right, but the question is why? And how do you make sure that after your first a hundred thousand, how do you accelerate it so it isn't so hard? It does get easier, and I'm going to show you how. Welcome to this episode of the Affluent Entrepreneur Show. See you in the episode.

All right, so what is it about that magic hundred thousand dollars, that first hundred thousand dollars of wealth that makes it so difficult? And, you know, I don't know if you've heard that, but I've heard it plenty of times in my decades of working with individuals to help them build their wealth. Is that, God, that first hundred thousand was the hardest. And they're right. Now, there's some logical reasons for it, there's some psychological reasons for it, and there's some mathematical reasons for it. I'm gonna walk you through. Why is it so hard? What do you need to focus on to make it faster, make it right, and then to accelerate it after the first hundred thousand dollars? So let's get going. All right, so the very first reason that, that the first hundred thousand dollars is challenging or a little more difficult is, is this, is. It's this idea of compounding takes time. It takes time to build wealth. From a compounding interest standpoint or growth standpoint, when you first start out, you're putting money in. You're putting little incremental money in. You're putting $100 here, $10 there, $500 here. But $100 at 10% makes you $10. And it feels like, oh, God, I got a measly $10. It's what I call the wealth flatline. And when we're not careful about it, we get, we get kind of discouraged, if you will, because the wealth flatline looks a little bit like this. Is that as you start your, your wealth building journey. You're putting money in, you're putting money in, you're putting money in, but you feel like you're not making progress. Here's what's happening is that you're actually compressing a spring and you're compressing a spring. And the only way to get past this, well, flat line is, is time. So you got to stay in the game, you got to stay on the field. But a lot of people don't because they get discouraged. Because what's going to happen is once you hit it and that spring releases, your growth accelerates from here on out. But that first hundred thousand dollars is hard because we're in the wealth flatline and it doesn't feel like we're making progress and it's discouraging and all that stuff. My first hundred thousand dollars in net worth was at 29 years old. And let me tell you, in my 20s it was really hard to, to push through that. But once I got there, it started to accelerate. In fact, I have a graph that shows how the time compressed over and over again. So that's the first reason that, that it's difficult. The second reason is frankly, you need to build your financial habits. Here's, here's the thing. The majority of your wealth creation is driven by your behaviors and not your money. See, when we come into it, we think, gosh, if all I did was fix my money and make more money, I would be fine. But that's actually not truly the case. It's about your behaviors, it's about your decisions, it's about your habits. But you haven't developed the behaviors, you haven't developed the habits. You haven't understood that because you're new to the game. You're just starting to build wealth. You're just starting to get yourself going. So what ends up happening during this time is there's a tremendous amount of learning, There's a tremendous amount of friction. It's like learning a new language. It's just like learning when you first started learning how to walk or ride a bike. It takes a little bit, but once you get beyond.

Becomes much easier. But the idea here is this. It's about creating behaviors and habits that make it second nature. So now your wealth creation becomes really automatic. It becomes part of your financial identity, as I call it, to allow you to make the right decisions that drive the right behaviors, that drive the right financial results. So that's the second one. So time compounding takes time and building financial habits. The third is psychological limits. This is about Your stories, this is about your beliefs. This is about the things that are in between your ears that are holding you back. Here's the thing. We're never, in most cases, none of us were ever taught about money. We didn't have formal education. So we have these ideals about money that were created through observe, observing other people. I say that our financial lessons are caught, not taught because we're not having these conversations. So what happens is we have these stories in our head. Money is dirty, money is for the greedy. I don't have, I didn't come from money so I can't have money. I'm from the wrong side of the tracks. All, all those stories around, oh my gosh, to have a six figure net worth, that's a lot. And so you're, you're coming from a place that you've never been which means that you're unfamiliar with it. It's no different than the first time you go to the gym, you lift some weights and a day or two afterwards you're sore as hell. But what we're dealing with here is we have to break through our comfort zone and the psychological barriers of our stories and our beliefs. And really I think that the hundred thousand dollar mark is necessary. The friction and the stress around it about why it's so difficult is necessary because it develops you into a better steward of wealth so you can carry beyond a hundred thousand dollars. This is why I think that people that partly why people that win the lottery within a couple years are broke again because they haven't built the skills, they haven't broken the psychological barriers, they haven't created new belief systems, they haven't created new skills. And so they're not prepared to handle it. And so this journey to that first hundred thousand prepares you psychologically skill wise and everything else to make that happen. So those are the three things I think that make it difficult. But if that's what makes it difficult, what do we need to focus on to make it easier to make it faster? Well, there's a couple of things that I think we can focus on. And the first focus area is to increase your savings rate. And, and what I mean by this is this, we come into this believing that gosh, if I just make a lot of income that's gonna, that's gonna turn around and be, be the solution to all my prayers. Now don't get me wrong, a big shovel of income helps you get to your wealth number to your financial freedom number a lot faster if you do the right things. See, I think there's something that I call the four wealth drivers matrix. And I teach this, it's in my upcoming book, building your money machine that talks about it. But the reality is that there are four things that drive your wealth. And the first piece of it is your income. So it has an impact. But we all know people, Mike Tyson, okay? Burt Reynolds, Willie Nelson. There's so many name people that you might recognize that made hundreds of millions of dollars and ended up broke. So clearly it isn't about the income alone that creates wealth, because they had plenty of income. What it's about is how much of that income they're putting to work for them in what I call the money machine. How much are you saving? How much are you investing? And we want to push that savings rate as high as possible. And, and, and when we do that, that's what starts to drive our wealth, is, is to really push that savings rate. So the very first thing is to look at how you can increase your, the percentage of income you're putting away for purposes of, of investing. And you might say, we want to push our clients to 20 to 25%. And you might say, well, wait a second, we can't do 20 to 25%. That's okay. Do 1% increments. Start somewhere and keep pushing to increase, Keep pushing to increase. Just like lifting at the gym, you get used to a weight, you put a little more weight on, a little more weight on, a little more weight on. With that, you start to build strength. With that, you start to build muscle. Okay? Same thing with your money. With you start to build your money muscle, you start to build some of the things that are, that are coming about when you do this correctly. Okay? So pushing the savings rate up is the first focus area. The second focus area is to have a cash resource plan. Okay? Now some people, they would call this the B word budget. Okay? I call it a cash resource plan for a reason. Here's what I believe. I believe that every single dollar that comes into your life needs to have a job description. And here's what I mean by this. Think about this. Can you imagine hiring 10 people and they come into your business and you have them for the first day in the conference room and you're having a conversation with them and say, I bet you notice that we do things a little differently here. We don't give you job time, we don't give you job descriptions, we don't give you roles, we don't give you goals, I don't give you tasks, but I want to double our business in the next two years. Like, is that really going to happen? No, I mean, you would never run a business like that. You would never hire a bunch of people like that. Yet that's what we're doing with our money. See, I believe that every dollar that comes into our life needs to have a job description before it ever comes into our life. We need to know that that dollar is for our mortgage, that this dollar is for our clothing, for our food, for our entertainment, for, you know, the yard work, whatever it is. But we define it in advance. Just like we were going to hire the employees, we would define their job description in advance. And so when we do that, we can, we can create an environment that develops the muscle to create habits and behaviors that will support wealth creation at an accelerated rate. And so it's important for us to do this in advance to make that happen. Now, there's another interesting thing that, that I've seen over the years happen with this is that let's say that you put money away for a vacation or you already put it in the plan for a vacation or for a nice dinner out or a nice evening out. See, because it's already planned in advance, you can actually spend it without guilt and shame. Versus what a lot of people do is they go and spend money and they come back and after they had a nice night, they go, oh, God, hopefully I can afford that. You know, should I? Maybe we shouldn't have got that bottle of wine. But this way you already know. And so this is an important, a hugely important aspect, when you start to bring that in, number three, is to build what they call other people call an emergency fund. I call it a peace of mind fund. Because I want you to have peace of mind that no matter what happens, you're okay. The people that you love are okay. The things that you do are okay. Now, we're different than most. A lot of people say three, maybe six months. I actually think that that's, that's wrong. I think that's too short, especially if you're an entrepreneur. I think you need to think in terms of nine to 18 months, almost 12 months. Here's why. When you have liquidity cash available now, mind you, we can put it in, in high yield savings accounts, we can get five, five and a half percent at the time of this filming, which isn't horrible. But remember, this isn't about investing the money. This is about, about keeping it safe, keeping you safe, giving you liquidity and giving you peace of mind. Every dollar has a Job description. The job description for these dollars is safety, liquidity, peace of mind, not investment growth. So you're going to have that money there to cover you if, God forbid, something happens like what happened with me with the cancer and I had to step away for a while, something long term. If you have, you'll have the liquidity. If an opportunity comes up, an investment opportunity comes up. Let's say we have an economic downturn and you want to pick up a piece of property that, that you can get at a really good price, well, you have the liquidity to do that. So this not only becomes your peace of mind fund, it becomes an opportunity fund depending on how much you have in it. And so we want to make sure that you have that there so you don't end up in the ditch doing it, doing it that way. All right, number four, the fourth focus point for you. I want you to invest wisely and simply. Too, too often. Again we get caught up in, and this has happened to me, these crazy esoteric investments that sound really good, that have a lot of complexity to it. Well, y' all complexity will find you as you become more successful. So don't go searching for it. When you have complexity, it creates risk. When you have complexity, it creates friction. When you have friction, you have risk, you have potential losses, you have lack of understanding. You have all kinds of things. We do not invest in trends, we do not invest in memes, we do not invest in things that are going to be adrenaline rushes. You're investing should not be an adrenaline rush. We take a long term view. We're very specific with how we invest. I want my investing to be boring and just let it grow. Okay? Let it grow. I take advantage of time, I take advantage of, of the compound effect. I consider low, low cost index funds and ETFs as the way to start because it's a diversified basket that allows you flexibility. So if we have some downturns or we have a couple companies go bad, you don't go, go down, down the drain with it. So I want you to invest wisely with things you know and know about and you do it in a proper diversified type of portfolio so you're not taking a skewed level of risk one way or the other to make that happen. All right, and the fifth focus area for you right now would be, would really be how to increase your income. Get a bigger shovel. If you're doing all these other things right, then get a bigger shovel. How do you increase your income? I've done some videos on this there's, you know, whether it's side gigs. The biggest thing though is to figure out what your worth is. Too often we don't ask what we're worth. Make sure that you're getting paid your value. That means that you detach it from the hours that you're spending and look at the solutions you're giving. So looking for ways to build additional income streams or scale your current income, whether it's in a job or a business, is going to give you a bigger shovel so that savings rate can, can put more in and more work for you sooner. Okay, now it might require you getting new skills, it might require you get doing other things. But remember, the objective here is to get you past that first hundred thousand dollars of wealth because everything accelerates from there. You got to get you past it. It's going to force you to grow to make that happen. All right, so it leads me to the next piece. And the next piece is. Okay, you reached 100,000. Now what? All right, let's talk about that. The first thing is this. I want you to figure out and really think about diversification. Here's what it is. If you invest in one asset, you have the potential for it to go to the moon. Because if you happen to, if you happen to get it right and it goes, goes to the moon, you're along for the ride. Here's the problem. If you happen to get it wrong and it goes to the core of the earth, you're along for the right also. So here's the thing. A diversified portfolio, especially when you first start out, the reason you do that is it's going to allow you to better manage your risk. And we talk about risk in other videos, it's about your risk tolerance, which is the psychology of the risk, the risk capacity, which is the logic of the risk, the mathematics of the risk, and the risk need at that intersection. Risk need is how much risk do you need to take on to hit the numbers that you want. So the idea, it's what I call the risk triad, is to make sure that you have a properly structured portfolio that reduces the risk at the lowest possible level without, without inordinately reducing your returns. This takes some work, it takes some planning. But once you've received, you've got to that first hundred thousand. Now let's focus on even more diversification and making sure that you have the money working harder for you than you did for it. Just like the book says, to make it happen. All right, now number two, at this stage, you're going to focus on future funding and retirement and retirement goals. Okay, you're going to start looking more closely at longer term goals because now you start to have a critical mass that you're going to grow from. Because think about this. A hundred thousand dollars, that makes 10% becomes 110,000 in a year. That number, if you look at the rule of 72s at 10%, the 100,000 becomes 200,000 in seven years. In seven years, another seven years after that, that 200 becomes 400. So all of a sudden your first hundred becomes 400,000 in 14 years without doing anything. We need to then now start at this stage, right? Really thinking about retirement goals, other goals, big purchases, funding, education, all those things. We have a process that we call the wealth priority ladder that we use for our clients and folks to make sure that they understand what to do with every single dollar and when to make sure that they do it right to maximize their growth and minimize their risk and keep them on the path to financial freedom. That leads me to number three in this, and that is you gotta, you gotta consider taxes. I know it's, it's a bad word, taxes, but the fact is, is that taxes matter. When you live, depending on the state you live in, you could be paying taxes anywhere from from 20% to 50%. Well, if, if someone's gonna dip their hand in your pocket and take 50 cents on the dollar, you doggone better better find out. And understand. You don't need to be a tax expert. You just have to have a basic understanding how do you make sure you keep the majority of the money in your pocket? Don't let them dig in. And the way to do that is to make sure that you understand some of the tax elements that can help you, that you can use to your benefit legally. Because look, we have to pay taxes, but that doesn't mean we have to overpay taxes. So we're going to use the tax code, the way it was structured to legally reduce our taxes as, as, as possible. And at this time, you want to, to make sure that, that you're in play to do that. All right, that leads me to this last piece that I think is important. So you got your $100,000, you got your first hundred thousand dollars net worth. You know what your focus points are, you know what the next steps are and what you want to focus on. After the $100,000. What do you need to be careful about? All right, so, so let's look at what you need to be careful about here And I think that this is really an important thing to understand. The first is this lifestyle. Sometimes our lifestyle gets away from us. And we call it lifestyle inflation. We call it lifestyle creep. All of a sudden we make more money, so we grow more expenses. And now all of a sudden you're in a situation where you go, wait a second, I went from making 50,000 to 100,000, but why do I feel like I have no more money than I had when I had 50,000? It's because your expenses got bigger. Here's why. We start with our clients, to always start with a lifestyle vision. What do you want your lifestyle to look like? Not everyone else's. Not what the media says, not what social media says, not what they're parading, not what the. What the comparisons. But what is your lifestyle? If it is a tent in Montana, great. If it is a yacht in Monaco, fine. If it is somewhere in between, totally cool. The question is, are you living your life and not to allow the additional dollars or the influence from anyone, anyone else to create lifestyle creep? Because what happens is the income goes up, the expenses go up, and you don't get ahead. What we should do. I'm not saying not to enjoy it, but to be intentional about it. My wife and I, look, we spend a fair amount of money, but we do it with intent. We enjoy our lives. We know that we're growing our wealth. We continue to grow our wealth, but at the same time, when we're going to spend additional money, we spend it on things that have sustainable joy, that bring us a tremendous amount of joy. We love to travel and we do it well. So that's where we spend a lot of our money. That our dogs, our time at home, that kind of thing. But we don't overspend, we don't leverage it. We don't put ourselves in debt. We don't do any of that type of stuff to do it. And we don't just spend because we have the money. We'll put things away and we'll do it differently. So beware of lifestyle inflation. Lifestyle creep in there. Number two here is beware of high risk investments. Oh, my God. I could talk till. Till the cows come home, as my dad would say, all right, about this. And I got caught in it. I got caught in an investment that was high risk. Actually, it wasn't an investment. It turned out to be a Ponzi scheme. It wiped out one third of everything I owned, one third of everything I owned. And well into the seven figures between me and two buddies we lost over four and a half million bucks. Okay? Because I had some success, I had some wealth, I had some things going on, and I thought, oh, let me, let me take on a little more risk. Let me go after a few more things. Oh, this looks cool. I didn't understand it completely, and I did that. The tendency as you have more success is that more people will come to you with investment possibilities. More people will come to you with opportunities. You have to stay. Stay. Very true. This is why we give investing rules. I didn't follow the rules in the Ponzi scheme. That's why I got hurt. The rules came out of the Ponzi scheme. That's what's kept me safe. We lost, like I said, lost over seven figures, 1/3 of my net worth within 18 months. Not only did I recover it, I tripled it. Part of that is because I put rules in to keep me safe. Part of that is that I have criteria to keep me safe. Beware of high risk investments. Like they say, it sounds too good to be true. It probably is. And I. And if you don't have a set of investing rules, get a set of investing rules before you go into an investment and you live by those rules. And if you happen to. To. To pass on an investment that. That goes to the moon, so be it. Okay. So be it. I'd rather you be safe and be here for the long term than try to hit for the fences every time and end up striking out more than you like. Okay? So beware of high risk investments. And the third thing is this. Don't neglect insurance. Yeah, I don't need to sell you insurance. And I am not an insurance salesman. I won't sell you insurance. But I do think that there's some things to be clear about. There are some things that you need to have in place. Because if I think about the three elements of building the money machine, one is to generate the income. The second is to accumulate the income. The third is to insulate the income and the assets. The problem is that if we don't insulate it, we could lose it through lawsuits, through accidents, through mistakes, through taxes, all those things. Having the right insurance in place is really important. So, for instance, health insurance, I get it. It's a complex field. Our health insurance don't get me going. Our medical system here is all messed up. But. But the fact of the matter is that we need health insurance. Think about if I had no health insurance when I got diagnosed with cancer, we wouldn't be having this conversation.

So the Right. Health insurance for those of you that are income earners for your family. You might need some long term disability insurance to cover you if you can't work for the long term. So you want to look at that life insurance to replace your income if, God forbid, you were gone. But specific life insurance, I'm not a proponent of whole life, universal life and all those newfangled stuff that they can bury commissions, bury fees, do all kinds of crazy things in you don't wrap investments. Insurance. Insurance is meant to be insurance. Investments are meant to be investments. Life insurance is meant to be life insurance. And I get term insurance and that's about it. Liability insurance on your home. Okay. On your car, that kind of stuff. Umbrella insurance to cover you if you, if you have claims that are far greater than some of the things that you have. So this isn't meant to, to, to tell you all the insurances, but the point is, is that don't neglect making sure that you have the proper insurances in place to make sure that you've covered yourself from any kind of potential losses. You're not going to be 100% covered, but by making sure that you have the right things in place, you will limit the exposure. All right, so that's the game that you got to play. First hundred thousand dollars, yeah, it might be more difficult, but it needs to be to develop you as an investor, develop you as a, as a wealth steward, to develop you to be prepared to be on the road to financial freedom. But beyond that, it will accelerate, it will go faster, it will grow faster, and you will find yourself in the financial freedom zone pretty doggone quickly. When you develop the right habits, the right behaviors and the right choices that you're making along the way, I hope that this helps. I hope that this gives you some perspective and hopefully gives you some direction. All right. As I always say, I hope to see you on the road, I hope to see you on another episode as we go together on this path to financial freedom. And until then, always, always strive to live a life without losing. 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 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.