Why Your First $100,000 Is the HARDEST (CFP® Explains)

Well, this is the One of a Kind Financial Show Daily, and I'm Mike Milligan, your host. I am a Certified Financial Planning Professional, the founder of One Oak Financial, the host of the Ideas by Mike podcast, and the author of The One of a Kind Financial Plan and Retirement Déjà Vu. And I come to you daily to talk about what's happening in the markets, in the news, and how it impacts your one-of-a-kind financial plan. Today, a brief conversation on how the markets ended on Friday, And a special report on a question I got from a reporter. Educate, coach, plan, never miss a moment. Those— that's my mission and my motto. Let's get to it. On Friday, the markets ended mixed with, uh, Dow and the S&P ending up and NASDAQ and Russell 2000 ending up down. We're still obviously waiting on what's, uh, reports on what's coming out of Iran. and the impact of oil and more earnings announcements that are going to come. We've had over a third of the S&P 500 companies report at this point with more to come this week. And more on that and how it impacts your money as the week goes on this podcast. But a reporter sent out a request to me recently, and I want to read it to you word for word. Seeking US-based financial planners and wealth advisors to explain why the first $100,000 is often the hardest to accumulate and what strategies actually help people reach it? Here's the thing, folks. When I saw this query, I smiled because I don't just get that question from reporters. I get it at the kitchen table, the conference room table, in the Zoom meetings, online to answer on my radio show. I get it from the students at Old Dominion University. I get it in the comments to this very show. Mike, why does the first $100,000 feel impossible? And I'm not the only one talking about it. Just this week, Fidelity published a whole piece on why the first $100,000 is the hardest milestone in investing. And Charlie Munger, Warren Buffett's late right-hand man, called the magic number— he called this the magic number decades ago. So the big institutions and the legends agree with what I've been telling you from this microphone. I'm going to give you that full answer, not the 2-sentence quote that ends up in the article. But the whole thing, every question that reporter gave to me in my interview, I want to answer it for you live on the One of a Kind Financial Show Daily. So let's, let's go.

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Why is the first $100,000 the hardest? That was the first question. Uh, because at the beginning, your money isn't working. You are. Think about it. When you've got $5,000 saved, the market has a great year, up 8%, you might make $400. That's a nice dinner out these days. That's a trip to Costco, as one of my clients told me on a call last week. That's not a life change. Compounding, the thing everybody promises you, hasn't shown up to the party yet with that little bit of money. So the first $100,000 is built almost entirely by your own two hands, your income, your discipline, and your choices. Fidelity's new research that came out last week said it exactly that way. Early on, most of your growth comes from what you contribute, not market returns. They even called this the least rewarding phase of investing. Their words, not mine. And it comes during the stretch of life that throws the most at you, whether that's repaying student loans, buying your first home, kids, the transmission that goes out the week after the water heater ruptured. See, you're building the habit and the balance at the same time. And I'll tell you a secret. The habit is the hardest of the two. Now, Charlie Munger understood this better than anybody. Back in the '90s, he told a room full of shareholders, And I'm cleaning this up a little bit for this show. I don't care what you have to do. If it means walking everywhere and not eating anything that wasn't bought with a coupon, find a way to get your hands on $100,000. He said also that the first $100,000 is a— well, he used a word I can't say on the show, but then he said, You, you got to do it. And here's the kicker. After that, his words, you can ease off the gas a little bit. Why was Munger so worked up about this one number? Because of compounding. He knew that once the foundation is poured, the building goes up fast. One quick note for accuracy, because we're educators here. Munger said that in the mid-1990s. Adjusted for inflation, that's roughly $200,000 today. But the real principle hasn't moved an inch. The first pile is the hardest pile to accumulate. That's how I answered the reporter. And let me go into the next one. He asked, what are the habits that separate people who get there? Well, in over 2 decades of doing this, meeting with people face-to-face, the people who reach $100,000 have 3 things in common. Number one, Their plan is written down. See, the financial plan is the most powerful document you could have at your arsenal. It answers the question, why is money important to you? It puts a vision out for what you want your life to be, mostly centered around community health and impact. And then we get to the actual writing of the plan. What is your income? What are your current assets? Uh, what are your goals? What are the obstacles to getting there? What are the problems you have and what can we do to solve them? And then that's when we start the implementation. But the plan is written down. It's not in your head. It's clear. It's simple. It's on paper that you could put on the kitchen table. A portfolio, by the way, is not a plan. A 401 account, it's not a plan. It's an account. So number one, the plan is written down. Number 2, they automate it. The savings happens before they can talk themselves out of it, right? This is not optional. It's not something you do by clicking a button yourself. It's something you automate. We will automate our Netflix payment, right? Or our homeowner's insurance through our mortgage payment. We'll automate all that stuff. But guys, paying yourself has to be an automatic event. So number 2, automation. Number 3, they know the why. They know why money is important to them. That's the first question I ask every single client, because a goal without a why does not survive a hard month. That's how I answer the reporter. He goes on to say, ask me, what mistakes slow people down? I said one word and he wouldn't accept it without further clarification. I said, waiting. Waiting for the raise. Waiting until the debt's gone, waiting until they understand investing better. The market doesn't pay you for waiting. A confused mind is something that distracts people from getting to the goal. Chasing— then people start doing things like chasing hot stocks, jumping in and out of the market, buying whatever your brother-in-law bought, listening to people at the water cooler. That's motion, folks. It's not progress. And then there's one sneaky thing that happens, a mistake that shows up and slows people down, and that's lifestyle creep. Every raise gets spent before it's saved. The tax refund that comes in goes to pay last year's vacation bill on the credit card. If your savings rate doesn't grow with your income, you're running on a treadmill and wondering why The scenery never changes. And then he asked me a couple more questions that I want to highlight for you. And one of them was, he asked, well, Mike, what do you do about savings before you have $100,000? Investing has a smaller role than you think, but it's powerful. Before $100,000, your savings rate matters more than your rate of return. So don't let fear of panicking, the panic of putting in the wrong funds, stop you from starting. Just keep it boring, right? Take the employer match if you have a 401. If you put in 5 and they put in 5, take it. That's 100% return on your contribution. You'll not find that anywhere. Use Roth options while your tax bracket is low. Buy broad and leave it alone. The real job of investing at the early stage, isn't the return, it's building the muscle of being an investor. So when compound finally— when compounding does show up, you don't flinch. And remember, as education goes, guys, it's not a recommendation. If you want a recommendation on what you should invest in, you have to schedule an appointment with One Oak Financial, www.oneoakfinancial.com. Me or one of our teammates licensed to help you with financial advice will do that because your situation is one of a kind and you need a one of a kind financial plan. He then goes on to ask me about debt. And I just said, there's got to be an order of operations written down. First, you got to have a starter emergency fund. And I'm not going to take full credit for this. Dave Ramsey does it best in his Baby Steps, $1,000 emergency fund, followed by getting rid of some debt, then 3 to 6 months of living expenses, then fund your college. Then he goes on to eventually get out of debt, right? But there's different kinds of debt, good and bad. Some that other people pay, like if you have a renter in a property, some low mortgage interest rate debt, but you have to get rid of the cash flow sucking debt, personal loans, high interest credit cards, even car loans, right? Get rid of those.

Right.

And then make sure that your income is greater than your expenses. Here's the truth. Debt-free with nothing saved isn't a finish line, folks. It's just a different starting line. And we can do 2 things at one time as long as one thing is not robbing from the other. And then the last thing he asked me, and I thought this was absolutely critical, and this is why I wanted to record this as part of the One of a Kind Financial Show Daily, is he asked me, what is the one strategy that always works? And if I had to pick one thing I've seen work over and over again, it's automate a percentage, not a dollar amount. Of every paycheck, write your plan down on one page and make it a percentage. That way, if you have a bonus, if you get overtime pay, if your income goes up, so does your savings. The percentage scales with every increase Right? You don't have to make a new decision. And that one-page plan is something that explains what the goals are in the future. Everyone I've watched hit $100,000 and keep going had 2 different things. And everyone who stalled had to make constant decisions whether or not to keep going or not. And eventually that stalling ended up with a no. Automate and discipline. So as I wrap up today, here's 3 steps that, um, that I want to tell you, 3 steps that I want you to do this week. Step 1, I want you to write down your why. One sentence. Why is money important to you? Put it at the top of a page and then just let that page become your answer. Free flow it. Don't write in any order. Anything you could think of, Make it a collage if you want to, right? Some people call it a vision board. Why is money important to you? Number 2, automate 1 percentage. Pick a percent of your paycheck, 5, 10, 15, whatever is true, and automate it today. And if you don't have any, start with 1, right? And then let every future raise do the heavy lifting. But ideally, find the highest percentage you could do and let it—

Go.

And then finally, number 3, and this is the big one, get educated because you can't plan what you don't understand. I teach a course called Personal Financial Planning. I do it live with Old Dominion University. And then there's a recorded version, a sprint version, I call it, where you can do it on your timeline. I talk about the psychology of money, debt budgeting, cash management, insurance, and protecting what you build, investment allocations. retirement and taxes and estate planning, your legacy. In the same course, um, I teach as an adjunct lecturer that I do in the sprint version, uh, it's pick your poison, right? Here's my promise to you. When I teach that, right, you will understand your money better than most people who don't take the course ever will. And you'll have a clearly written down paper, one-of-a-kind financial plan, right? Because you are one of a kind. Your financial plan needs to be too. So I'm going to put the link to the financial planning course in the comments today. You could also head over to mikemilligan.com, click educate, and you can grab a seat. See, the first $100,000 is the hardest, folks, but you were never meant to do it confused. You were meant, and you're not meant to do it alone. We're here for you. The One Oak, One Oak Educates, my partnership with Old Dominion University, where the One Oak Collective, where I coach, and the One Oak financial team, where we plan. My mission, educate, coach, plan. And I'm Mike Milligan. Whatever you do this week, join us daily on the One of a Kind Financial Show Daily. I'll jump back into deeper details about the market tomorrow, but for now, never miss a moment.

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This has been for educational purposes only, and it's not for investment purposes. Review your, review your, your plans, your accounts, more clarity on your own terms. If you need assistance with that, you can reach out to oneoakfinancial.com. That's the number oneoakfinancial.com. I am an investment advisory representative with Advisory Alpha LLC. Ideas by Mike doing business as One Oak Financial Investments. An unaffiliated entity of Advisory Alpha LLC.

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