Wealth Building: Strategies for Reaching One Million Dollars

Reaching a net worth of $500,000 unlocks potential financial momentum and rewards for diligent savers.

### Navigating Wealth Growth: From $500,000 to $1 Million Net Worth
* 💰  Transitioning from a net worth of **$500,000 to $1 million** marks a significant financial milestone, placing individuals in the **top 21% of the population**, even without considering home equity.
* 📈  For a 30-year-old saving $10,000 annually at an 8% return, reaching **$500,000 takes approximately 20 years**, but the same amount can be added in just **3.5 years as one approaches retirement**.
* 💡  By age 65, consistent saving and investing can lead to a total net worth of around **$1,911,000**, demonstrating the **power of compounding and long-term commitment**.
* 🔍  Individuals must assess whether they are in the "**make wealth**" or "**maintain wealth**" phase, as each requires different strategies and approaches to **risk management**.
* ⚖️  In the maintain wealth phase, the focus shifts from **maximizing income to protecting assets**, emphasizing the importance of **risk capacity over risk tolerance** as one nears retirement.
* 💵  It's essential to evaluate liquidity needs, ensuring that there are **sufficient liquid assets available for unforeseen expenses** without needing to borrow.
* 🚫  Lifestyle creep can pose a risk as net worth increases; individuals should be cautious of **unnecessary spending that could jeopardize future financial stability**.
* 📝  Ultimately, understanding personal happiness and making informed decisions about lifestyle changes can help **maintain wealth without sacrificing long-term goals**.

[Music] okay Brian, if we were talking about from $100,000 of net worth excluding home equity to $500,000 excluding home equity, it's like getting close to and reaching the boiling point. Then this next strata, I think, is officially in the boiling point. I think this is where escape velocity exists for most folks, and this is when your net worth outside of your home is somewhere between $500,000 (half a million dollars) and then seven-figure land (a million-dollar total net worth). Yeah, and we're being hard on you here. I will tell you, I'll go ahead and share with you, this puts you in the top 21% of the public. And remember, because we're being so conservative, we're not even counting the home equity. But in a lot of the cases, these people are likely millionaires when they look at their total net worth. But we're kind of getting excited about the fact that you have at least $500,000 of your army of dollar bills.

that are now have the potential to work for you harder than you can with your back, your brain, your hands. So, how do we maximize this and make sure that you're doing everything you should? Yeah, one of the things that's so exciting is that the bigger the numbers get, the bigger the numbers get. And let me show you what we mean by that. If you're a 30-year-old and you're saving $10,000 a year, and you can make 8% annually on your investments, it'll take you about 20 years to get from zero to $500,000. So, you've been working for a long time to get this money moving in that direction, and it is no small feat. But this, again, is where it starts to get exciting. This is where momentum begins to be your friend because what took you 20 years to accomplish in the beginning of your journey, by the time you start closing in on retirement at age 65, in only three and a half years, you can add $500,000. What took 20 years in

the beginning only takes three and a half years. This is the law of numbers that at 65, this good behavior is rewarded with right under 2 million. It's $1,911,000. So when you say that yes, the last fun $500,000 took three years, 7 months, it's because this thing is cooking. I mean, and this is why it is so slow in the beginning that you'll start doubting why am I doing this, but if you can just stay the course, you will be rewarded. And then you get to the point, and this is why I always say it's so unfair when you're in your 20s and 30s, you're like, I don't know why I'm going through this 'cause life is mean. You have the messy middle where you're short on time, you're short on money, but if you stay the course, you're going to get in your 40s, and guys, you're going to live the life you've dreamed of because now your money is going to start doing all

that hard work. Your vacations are going to get a little bit better. You're going to be able to make life decisions 'cause you're on your time that much sooner. This is why we stay the course in our 20s and 30s. You still bedazzle your basic life, so you're not living a miser life. You're living that Financial mutant life, but don't skip this step. So how do we do it? How do we stay the course? How do we begin moving from that $500,000 net worth or wherever we are towards that $1 million net worth? Well, I think the first thing is you have to make an assessment. Am I in the make wealth phase of my journey or am I in the maintain wealth phase of my journey? CU. Those two phases are very, very different when it comes to wealth building. Well, yeah, you look at risk completely differently. You know, when you're in the make wealth, you obviously should balance the risk-reward, even when you look at debt payments and so forth, 'cause you're like, Hey, what's

the incremental decision difference of if I go get this in my 401k versus prepaying my mortgage or other things that are out there. However, once you're in the maintain wealth stage, this is the part where you say, Hey, it's not just about maximizing every dollar that comes into my command. It's also how do I risk my portfolio so that there's nothing that can derail all this hard work, all these assets that have been built up, so I don't make silly decisions or stupid decisions that kind of knock this whole thing away and keep me from staying wealthy. It's not about how much you make; it's about how much you get to keep over the long term. Another thing that you might begin doing in this phase is you might be considering more Advanced Tax Strategies. If you've not started that yet, this might be backdoor Roth contributions or maybe some sort of Roth conversions, or maybe through your employer you have Mega backdoor opportunities, or you want to start looking at that after-tax account.

now getting larger. Should I start thinking about capital gain avoidant strategies, or should I look at loss harvesting, or are there ways I should do charitable planning with appreciated assets? As your portfolio gets bigger, as the numbers in general get bigger, some of these advanced strategies might be more valuable to you than they may have been 10 years prior in your wealth. Well, this is a good conversation I always have with people, is that 'cause when you're talking about to get wealthy versus stay wealthy behaviors, a lot of people who get wealthy, they did it through risk. You know, I think about my entrepreneurs, I think about my real estate investors, they think they're cowboys. I mean, they can handle whatever comes their way, but I've always had to have that hard conversation and says, Hey, look, you have done a great job of building wealth, but now we have to start thinking about this a little differently and risk capacity. Because every, I think most people, we think in terms of risk tolerance, meaning how much can you

emotionally handle before you say uncle and and and you actually head for the exits on it. That's what happens when you do your first Investment Portfolio. You know the person who's who's helping you out with that or you're doing a 401k enrollment meeting. They'll talk about risk tolerance but I tell you once you get into that maintain or stay wealthy phase. There's a different risk element. It's called risk capacity and what we mean by that is is that yes you might have the tolerance to ride through any Wild Thing from an emotional standpoint. However you might be to the age now that you don't have the time for the money to actually recover. It's easy to talk about recovery in the 20s 30s and 40s because you have decades before you actually need these assets to live off of. When you get closer to retirement or actually are in retirement it might take you six or seven years to recover everything that you might have lost in the next economic downturn. That is a problem and

that's why risk capacity is just as important in your planning as risk tolerance is. Another this is another fact asset of that same coin. As you think about risk and the things that could take you off track as you're moving towards 1 million, one of the things you should do is reconsider your cash position. Am I actually holding enough liquidity so that I can do the things that I want to do? We see far too often folks will get to a million dollars of net worth outside of their home, which is an incredible feat to get to, but they are not liquid at all, meaning if they want to go buy a new car, they need to replace something at the house, they have to go borrow money to do that. So as you're moving from 500,000 to 1 million, you may just want to assess your liquidity needs. Do I have liquid capital available and ready should I need to access it in the near to intermediate term? I'll be the cold water here. Lifestyle creep, no, you know this is

one that I think I want you to be honest with yourself about your lifestyle inflation. I think it was when you're getting close to the seven-figure mark. Um, you're going to start feeling better because you do start to see those quarterly reports where now your assets are moving faster than even your savings rate. And you'll be like, well, now I can kick it up and not. And maybe I tell you that's why we have to know your number course and other things that we're always trying to educate people. But you got to do the homework to actually know, are you ahead of the curve on this? Is because what I worry about is people feeling like, hey, I'm at the point where I've built up, you know, $600,000 in assets. Maybe I can afford a nicer home. Yeah, I can move the goal post again. Easy to justify. You can because just because you can doesn't mean you should. I would. I would really encourage you to spend some time knowing what makes you happy, what makes you tick, even without financial

Resources involved, like what do you actually make you happy, so that you can kind of, once you understand that, you won't be susceptible to somebody whispering in your ear, Hey, you ought to get the super nice car, you ought to get the bigger house. Now, maybe some of these luxuries are a good thing for you, but I don't want you to do it at the expense of your future self. So, make sure you measure twice, cut once on these big decisions. If I'm hearing you say this, bro, there's nothing wrong with lifestyle creep or lifestyle inflation, so long as it's not robbing from your future self.

$500K-$1M Net Worth: Top Wealth-Building Strategies

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The Importance of Reaching $500,000 in Net Worth

Reaching a net worth of $500,000 to $1 million, excluding home equity, is a significant milestone, putting individuals in the top 21% of the public.

This level of wealth allows for greater financial freedom and the potential for investments to work harder.

With consistent saving and an 8% annual return, it can take 20 years to reach $500,000, but momentum can lead to adding the same amount in just three and a half years as retirement approaches.

The path to financial success is slow in the beginning, with significant rewards only seen after 3.

Staying the course during the challenging 20s and 30s is crucial, as it leads to a more fulfilling life in the 40s.

Assessing whether you're in the "make wealth" or "maintain wealth" phase is essential for effective wealth building.

Transitioning from Wealth Building to Wealth Maintenance

In the wealth maintenance stage, the focus shifts from maximizing income to managing risk and preserving assets.

Advanced tax strategies, such as backdoor Roth contributions and capital gain avoidance, become more relevant as the portfolio grows.

The conversation around risk also changes, emphasizing risk capacity rather than risk tolerance as individuals transition from wealth building to staying wealthy.

Risk tolerance and risk capacity are both crucial in investment planning, especially as one approaches retirement.

While risk tolerance relates to emotional resilience during market fluctuations, risk capacity considers the time available for financial recovery.

It's important to assess liquidity needs when transitioning from a net worth of $500,000 to $1 million, as insufficient liquid capital can lead to borrowing for essential expenses.

Lifestyle inflation can become tempting as assets grow, leading to justifying bigger expenses.

It's important to know your financial goals and what truly makes you happy, independent of money.

Making thoughtful decisions about luxury purchases can help avoid negatively impacting your future self.