Why EVERYTHING Changes After $10K!
Summary
TLDRThis video highlights the importance of saving your first $10,000 as a critical milestone in wealth-building. It explains how breaking this mental barrier boosts self-efficacy and accelerates future financial goals. The video covers momentum in savings, how small goals lead to larger achievements, and how investing more yields higher returns while keeping the same risk. Additionally, it emphasizes the importance of paying off high-interest credit card debt before investing, building financial discipline, and practicing delayed gratification to achieve long-term financial success.
Takeaways
- 💡 Focusing on saving your first $10,000 is more achievable and impactful than aiming for $1 million right away.
- 🧠 Reaching $10,000 helps break the mental barrier in wealth-building, making higher financial goals more approachable.
- 📊 A 1997 study by Bandura showed that breaking goals into smaller, specific steps improves success and self-efficacy.
- 🔢 Round numbers, like $10,000, are psychologically more motivating than numbers just below the target, even if the difference is small.
- ❄️ Saving the first $10,000 builds momentum, similar to a snowball effect, where accumulating wealth becomes easier as you progress.
- 🚨 Having $10,000 in savings provides a financial buffer for emergencies, which can reduce stress and improve mental well-being.
- 💸 Larger investments yield more significant returns with the same risk, making the risk-reward ratio more favorable as your wealth grows.
- 💳 It's critical to prioritize paying off high-interest debt, like credit card debt, before focusing on investing.
- 💪 Reaching $10,000 signifies financial discipline and the development of good money habits that can be strengthened over time.
- 🎯 The key to building long-term wealth is to reinforce habits by focusing on delayed gratification and long-term rewards instead of short-term purchases.
Q & A
What is the significance of saving the first $10,000 according to the video?
-Saving the first $10,000 is significant because it breaks the mental barrier of wealth-building, making larger financial goals seem more achievable. It serves as a psychological milestone that transforms how one perceives money.
How does reaching $10,000 affect your self-efficacy in personal finance?
-Reaching $10,000 improves self-efficacy, which is the belief in your ability to accomplish financial goals. This builds confidence and motivates individuals to pursue larger goals, as the initial success reinforces the idea that they can continue to build wealth.
What is the 'snowball effect' mentioned in the video, and how does it relate to saving money?
-The snowball effect refers to how financial momentum builds after reaching $10,000. As you continue to save and invest, your wealth grows faster due to compounding returns and the initial capital generating additional income.
How long does it take to save the first $10,000 compared to the next $10,000, and why?
-In the example given, it takes 8 years to save the first $10,000 by saving $1,000 per year with a 10% return. However, saving the next $10,000 only takes 4.7 years due to compounding interest and momentum, making each subsequent goal easier to achieve.
Why is having $10,000 important for dealing with emergencies?
-Having $10,000 acts as a financial buffer for most common emergencies, such as car repairs or medical bills. It provides peace of mind and allows individuals to focus on other priorities without the stress of unexpected financial burdens.
What is the 'unfair risk-reward ratio' mentioned in the video?
-The unfair risk-reward ratio refers to how the returns on larger investments are significantly greater while the risk remains the same. For example, investing $10,000 at a 10% return yields $1,000, while investing $10 yields just $1, even though both carry the same risk.
Why is it important to pay off credit card debt before investing?
-It's important to pay off credit card debt before investing because credit card interest rates (often over 20%) are much higher than the average stock market return. Failing to pay off high-interest debt results in a financial loss, even if your investments grow.
How does saving $10,000 help establish good financial habits?
-Saving $10,000 helps build financial discipline and establishes habits such as budgeting and saving consistently. These habits are essential for long-term wealth accumulation, as they form the foundation for reaching larger financial milestones.
What is the concept of 'delayed gratification' and how does it relate to wealth-building?
-Delayed gratification refers to the ability to resist immediate rewards in favor of larger, long-term gains. In the context of wealth-building, it means sacrificing short-term desires, like luxury purchases, in order to invest and achieve long-term financial security.
Why is it psychologically important to reach round numbers like $10,000 in savings?
-Psychologically, round numbers like $10,000 are more satisfying and motivating than similar but non-round amounts like $9,999. Reaching a round number provides a sense of accomplishment, which encourages individuals to keep working toward their next financial goal.
Outlines
💡 Focus on Small Financial Goals to Build Wealth
The author shares valuable advice from a millionaire: instead of aiming for a million dollars right away, focus on achieving your first $10,000. This advice highlights the importance of setting smaller, manageable financial goals. Reaching the first $10,000 helps overcome the mental barriers of wealth-building and builds confidence. Research by Bandura supports the idea that breaking down goals into smaller, achievable steps leads to greater success. The author recounts personal experiences, explaining how hitting that first milestone completely changed their perception of money, transforming what seemed unattainable into something possible.
🎯 The Momentum of Achieving $10,000
Reaching the first $10,000 sets the stage for financial momentum, much like a snowball rolling down a hill. Initially, saving this amount may take years, but subsequent financial goals become easier and faster to achieve as interest and investments accumulate. The example provided shows how saving $1,000 per year with a 10% investment return reduces the time it takes to reach each successive $10,000 goal. The key takeaway is that the momentum generated from the first $10,000 accelerates further wealth accumulation, making it easier to reach higher financial milestones.
🛡️ $10,000 as an Emergency Buffer
Having $10,000 saved acts as a financial buffer for life's unexpected emergencies, such as medical bills, car breakdowns, or job loss. This peace of mind allows individuals to focus on more important areas like health, knowing they have a safety net. The author emphasizes that saving $10,000 not only provides financial security but also helps free up mental energy, which can be redirected toward maintaining physical health and well-being.
💪 Train Well: Building Financial and Physical Strength
The author introduces Train Well, a platform that helps individuals stay consistent with their fitness goals by offering customized workout programs tailored to personal goals and schedules. The author shares their experience of working with a personal trainer through the app, noting how it helped maintain accountability and discipline. Just like with finances, having a structured plan and someone to hold you accountable is crucial for building both wealth and physical strength.
📈 The Unfair Risk-Reward Ratio of Investing
The author explains the concept of the 'unfair risk-reward ratio' in investing. They compare two scenarios: investing $10 and $10,000 in the stock market with the same risk and a 10% return. While both investments carry the same risk, the larger sum generates significantly higher returns. This demonstrates that the more money you invest, the greater your financial rewards, without increasing your risk level. The message emphasizes the power of compounding and the importance of building up a significant initial investment.
⚠️ Prioritize Paying Off Credit Card Debt
Credit card debt, with its high-interest rates, is a major obstacle to wealth-building. The author shares a cautionary tale of a friend who racked up credit card debt during a trip, highlighting how easily high-interest debt can spiral out of control. They urge readers to prioritize paying off credit card debt over investing, as the interest on debt often exceeds potential investment returns. Paying off debt first is crucial to avoid losing more money than you gain from investing.
🏆 Building Financial Discipline and Good Habits
Saving $10,000 not only marks a financial milestone but also shows the development of financial discipline and good habits. However, the author warns that at this stage, these habits are still fragile and need to be reinforced. They reference the book 'The Power of Habit' and describe the habit formation cycle: cue, routine, and reward. The real reward for financial discipline is long-term comfort and security, and the author encourages readers to focus on refining their habits for continued success in their wealth-building journey.
Mindmap
Keywords
💡Mental Barrier
💡Self-efficacy
💡Snowball Effect
💡Murphy's Law
💡Risk-Reward Ratio
💡Credit Card Debt
💡Delayed Gratification
💡Financial Discipline
💡Emergency Fund
💡Compounding
Highlights
Stop focusing on making a million dollars; instead, focus on your first $10,000.
Reaching $10,000 shatters the first mental barrier of wealth building, making larger goals seem more achievable.
1997 study by Bandura highlights that breaking mental barriers is key to personal finance improvement.
People are more successful with smaller, specific goals than larger, vague ones.
Seeing $10,000 in a bank account can be transformative for people who grew up without much money.
Round numbers like $10,000 have a psychological impact that smaller, similar amounts don’t provide.
Reaching $10,000 creates momentum for bigger financial goals, like the start of a snowball rolling downhill.
Momentum accelerates wealth growth; the time to reach the next $10K shortens significantly after hitting $10,000.
$10,000 can provide a financial buffer for emergencies and give peace of mind.
Having a financial buffer helps you focus on important areas like health, freeing up mental energy.
As your investment grows, the risk stays the same, but the returns increase significantly, demonstrating an unfair risk-reward ratio.
Credit card debt, with an average interest rate of 20%, is a major obstacle to building wealth.
Paying off credit card debt should take priority over investing because of the high interest rates.
Saving your first $10,000 builds financial discipline and strong money habits, a key step many fail to achieve.
Delayed gratification, focusing on long-term gains rather than immediate wants, is crucial to building lasting wealth.
Transcripts
so the best advice I've ever received
from a millionaire was this stop
focusing on making a million dollar
instead focus on your first 10,000 and
at the time I didn't fully understand
what that meant but I'm really glad I
listened in this video I'm sharing six
reasons why everything changes after
saving your first
$10,000 first reaching $10,000 shatters
the first mental barrier of wealth
building like all of a sudden the
thought of saving $155,000 or even
$20,000 doesn't seem so crazy anymore a
1997 study by Bendera found that
breaking mental barriers is something
that many people Overlook but it is by
far the most important aspect of
personal finance because you need
self-efficacy to improve and it's been
years since you've taken the SAT
self-efficacy is basically when you
believe in your own capabilities to
accomplish something like if you start
playing a brand new video game and
you're a level one Warrior there is
literally no way in heck that you think
you can beat a level 99 Mage it's
literally impossible Bandera found that
people who were given specific smaller
goals were way more successful than
those who were given larger vague goals
and this is something that I've
experienced firsthand like I didn't grow
out of money so when I first took my
personal finances seriously I could even
wrap my head around like a five fig
number like even when I was doing side
hustles like reselling candy at school
or designing clothes and selling them I
was still only thinking in hundreds
maybe a thousands but tens of thousands
never crossed my mind but when I first
saw my bank balance go to 10,000 it
completely transformed how I perceived
money and I know I know it's just
numbers on the screen but for someone
who didn't really grow up with much just
seeing that for the first time it just
makes everything feel possible you know
and for some reason $10,000 is always
the first mental barrier for many people
well a 2010 study found that people
respond much more to goals or objectives
framed in round numbers like if you Sav
$9,999 it's essentially the same as
$10,000
but for some reason it just doesn't hit
the same as when we see those nines turn
into zeros and we literally see five
figures in the bank account or if your
Apple watch tells you that you've walked
9,892 steps a day there's a good chance
that you would go out of your way to
walk another 108 steps to round it all
out next your first $10,000 is only the
beginning because $10,000 builds a nice
momentum for your next financial goal
your first 10K is like the first
snowball that you roll down a hill as a
snowball rolls along it's going to start
picking up Snow and it gets larger and
larger and the momentum carries it down
the hill at first it's not going to seem
like much right it's just snow going
downhill but eventually over time the
momentum will keep on piling on and it's
going to become overwhelming let's say
you start at $0 and you save and invest
$1,000 a year with an average 10% return
on your investment in the stock market
getting to your first $10,000 in this
scenario would take you about 8 years
but a mistake that most people make now
is that they think think it'll take them
8 years time 10 or 80 years in total to
get to
$100,000 but that's wrong thanks to the
momentum we just talked about it'll take
significantly less time for you to get
to 100K like after you have your first
10K getting your next 10K to $20,000
would only take you 4.7 years because
your initial 10,000 is generating you
interest and you're still keeping at it
with the $1,000 contributions every year
now 20K to 30k is going to take about .5
years 30k to 40K is going to take about
3.3 years and then from 40K to 50K it's
going to be about 2.2 years it's
fascinating to see that once you reach
$10,000 you can reach each additional
$110,000 faster than the previous one
and remember this is assuming that you
don't get any raises and you're only
able to save $1,000 a year if you can
increase your income over time and you
can save 2,000 or 3,000 a year just
imagine how much faster it would be to
reach 100 ,000 next if you ever planned
anything big like a surprise birthday
party a trip event or a vacation then
you've experienced Murphy's Law which
states that anything that can go wrong
will go wrong because suddenly your car
is going to break down you're going to
lose your job or you're going to break
your foot and now you owe a ton of money
in medical bills the good news is
there's a really solid chance that
$10,000 is going to dig you out of most
common emergency expenses essentially
having $10,000 puts a sizable buffer
between you and your financial
emergencies and this is really important
because it's going to give you peace of
mind just by having this buffer kept to
one side and available for you to tap
into whenever you need it it's going to
help you free up your mental energy to
focus on more important things like your
health and I don't think this is said
enough but it's great to build your
wealth but it's equally if not more
important to invest in your body like I
struggled with going to the gym for a
long time because I always had an excuse
when life got busy but what I think is
helpful is just having someone there to
to hold you accountable to make sure you
prioritize your health and body that's
why I'm excited to talk about today's
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clicking that link supports the channel
but more importantly the first 100
people to sign up with my link gets 14
days free and $25 off their first month
next and this one's a doozy there's the
unfair money risk reward ratio
specifically the Returns on your
investment is going to increase
significantly as the amount of money you
invest grows larger while the risk
itself stays the same and I know that's
a mouthful but just bear with me let's
say you invest $10 in the stock market
naturally that investment in the stock
market is going to come with some risk
and by the end of the year let's just
say you make a 10% return meaning that
you made an extra $1 or you have a total
of $1 at the end of the year now I'm not
trying to be mean but $1 is a pretty
small insignificant amount of money and
I bet if you look on the sidewalk hard
enough you'd probably scrap together
enough coins to add up to $1 so in this
example you risk $10 for a measly extra
$1 at the end of the year but and this
is where the risk reward ratio comes in
if you actually had $10,000 to invest in
the stock market and you have the same
10% return You' actually have $1,000 at
the end of the year which is I don't
know about you but significantly more
money and what many people don't realize
is that in both these scenarios you took
on the same amount of risk in the stock
market you waited the same amount of
time but because you started with more
money you took a advantage of the unfair
risk reward ratio now I think it's fair
to say that credit card debt is a big
problem in 2024 the average credit card
interest rate is over 20% Which squashes
any chance you have at Building Wealth
like I had a friend in college who made
some pretty questionable choices in his
senior year he saved up $3,000 for a
Europe trip to treat himself for
graduating college and it was all going
fine he was having a great time he was
staying in hosts until he decided to
later stay in an additional 4 weeks he
was just swiping his credit card for
everything and he didn't realize that he
massively overspent his initial $3,000
budget until he got home then he tried
to pay off his credit card debt with his
savings but obviously he eventually ran
out of money and what's worse is that he
was planning to look for a job when he
returned from his trip so he was missing
all his credit card payments and his
debt was just getting huge thanks to the
high interest but on the bright side
sort of the average credit card debt a
person in the US has is around
$636 meaning $110,000 is more than
enough to wipe out your credit card debt
and you still have cash left over for a
celebratory pineapple pizza I very
rarely say this but taking care of your
credit card debt is one of the few
things you should always do before you
start investing and here's why let's say
you rubbed Mr magic lamp and he gave you
$10,000 and now you want to use it your
First Financial responsible Instinct
might be to invest that money into the
stock market because everyone says
that's how you build wealth if you do
that and assume a 7% annual average
return you're going to have about
$10,700 by the end of the year but if
you also have a credit card debt worth
$10,000 and it has an average annual
interest rate of 20% Then by the end of
the year your credit card debt will be
$112,000 since you didn't pay it off the
problem is by choosing the investment op
option you're effectively earning $700
from the stock market but you're losing
$2,000 to credit card interest which
puts you about $1,300 behind for most
people credit card interest rates
strangle your chance of becoming wealthy
so you want to make sure that you clear
up your credit card debt first next and
something that's not acknowledged enough
is saving your first $10,000 means you
built some sort of financial discipline
and good money habits because people
don't just randomly stumble into this
kind of money 44% of Americans say they
can't afford a $11,000 emergency expense
so you've already done a great thing by
having $10,000 while $10,000 isn't
nothing it's also not that much money in
the grand scheme of things at this
amount the money habits that you
established are still pretty weak right
they're being propped up by little
sticks right now and you need to
reinforce those six so you can go up
from 10,000 to 100,000 according to the
book The Power of of habit you can
strengthen Habits by following this
process Q routine and reward basically a
q prompts a certain Behavior a routine
are the actions themselves and rewards
reinforce those behaviors which
ultimately form automatic repeatable
habits for instance the real reward for
most of us is a comfortable life and I
know that sounds kind of vague but just
hear me out the guy who spends $5,000 on
a reclining massage chair and the guy
investing $5,000 in the stock market are
in it for the same reward a comfortable
life and they both have the same queue
it's when they receive their paycheck
but the difference is their routine for
the massage share guy his routine is to
make a short-term purchase for the
immediate Comfort now but with the
stocks guy his routine is to make a
long-term investment so he can have a
more sustained comfortable life over the
long term dare I say 25 massage chairs
in Psychology this is called delayed
gratification once you sacrifice many of
your immediate ones so you can build
towards a bigger prize sometime in the
future it actually feels more rewarding
it's like saying no to the small cupcake
now because you know you're going to get
a chocolate three- layered ganache cake
later on if you have $10,000 you've
already accomplished the hardest part of
the wealth Journey which is starting
your financial habits now just focus on
refining your routine and focus on the
long term and that's going to get you to
$100,000 and eventually 1 million and
remember the first 100 people to sign up
with my link gets 14 days free and $25
off their first month which leads me to
something that you've got to start
accepting and it's that even if you're
trying your hardest to be better with
money sometimes you might still feel
like you're not doing it enough and that
might be because you don't know why
looking poor is so important click here
to learn the five reasons why you need
to look poor to get rich
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