This is the affluent entrepreneur show for entrepreneurs that want to operate at a high level and achieve financial liberation. I'm your host, Mel Abraham, and I'll be sharing with you what it takes to create success beyond wealth
so you can have a richer, more fulfilling lifestyle. In this show, you'll learn how business and money intersect so you can scale your business, scale your money, and scale your life while creating a deeper impact and living with complete freedom, because that's what it really means to be an affluent entrepreneur. Have you ever wondered where you should be with your investing, with your 401K, with your retirement plan? You know, what's a good balance to have if you're
30 or 35 or 40 or 55? And so there is a study that has been done for 23 years by Vanguard. This is the 23rd year that is has been done. It's how Americans save. And that study just came out with some interesting statistics that I want to break down for you. There's 5 million participants that were surveyed that are part of this study. So it is a broad based study about their habits, their investing, their balances, their savings, and all of
that type of stuff. And so I think it's important for us to look at. Now, I want to give a perspective here, because I think it's important to understand what the, the landscape looks like, but not if it's going to be something that used to belittle, beat yourself up, judge yourself, blame yourself, should haves, could haves, would'ves. All the stuff that is going to bury you emotionally, that's going to cause you to feel better,
bad. The reason I'm doing this episode is to inform you, is to make you aware, I'm gonna break down what is going on, why they're doing it, but I'm also gonna break down what I want you to be doing, depending on where you are in these age ranges and where I think you need to focus to move, move through it. Because if we're gonna use it to raise the awareness, great, let's use it to raise the awareness, but also use it to become the springboard of making the right
choices to move forward. So can you promise me that you're not going to sit back and feel bad if you feel like, oh, my gosh, I'm below the average, or that you're not going to take your foot off the pedal if you sit back and say, oh, I'm above the average? I just want you to understand where things are, what is happening, where your focus needs to be, and how to use it as a guidepost
on your journey to financial freedom. I mean, that's really what we're, we're after, is how do I master my money in a way that I am in control of it and it's not in control of me. And how we do this is, in my estimation, is that we build our wealth and we build ourselves a money machine, just like I talk about in my book, building your money machine.
Because when you have that done right, you now get a chance to live a life that isn't driven by the daily demands of expenses and costs and all of that, but driven by the choices that you have in your life that you want in your life, the vision you have for your life to make that happen. And so I want to be able to do that. Now, a lot of my training and my teachings on this channel and everything is about that, is about lighting the path to financial
freedom. If you have not subscribed to this channel, I want you to do it now. Click. It takes two tenths of a second to jump on and subscribe. And if you're out there, why not share it? Share it with someone you care about. And let's. Let's get them in the game and let's light the path to financial freedom for both of you together and make that happen. All right? So let's just jump in. When it comes to your financial journey, planning is important.
And it starts with your vision for your life. It starts with, what do you want? I get. I get that you might look at it and say, but I have this lofty vision. I had a lofty vision. I didn't know how I was going to achieve it. The how gets in the way of the what I want you to focus on at the very beginning what you want in life, health, wealth, relationships, families, spiritual, all of that. I want you to focus on what you want in life.
Nothing. How you're going to get it first, because how will get in the way. Then I want you to focus on why you want that in life. In fact, the first part of my book, building your money machine, we start with life because we have to define our life before we define the financial journey to make it a reality. Hopefully, that makes sense. You never, ever detach your money journey from your life's journey, because when you do, that's when you end up with a big bank account but a bankrupt life.
And so it's important for us to make sure that whatever we're doing in our bank accounts, in our investing, is driving towards the life we want. And that's why financial planning is so important. Because financial planning done right is life planning. It plans for the stages of your life. It plans for the journey of your life. It plans for beyond your life. Okay. When it comes to building wealth, we think that income is the biggest driver of our wealth. And
it is important. It is important because the bigger our income shovel is that we can use towards building wealth, the faster we can build wealth. The challenge is it's not the most important. In fact, a study of 10,000 millionaires showed that 80% of them, 79% of them, eight out of ten, effectively were first generation millionaires they created in their lifetime. It wasn't gifted, it wasn't one. It wasn't a inherited, but created. 31% of those
never made much more than $100,000 a year. If that's the case, it's not the amount of money that matters. Then what does? I think the most important thing is something called savings rate or investing rate. How much of that money are you putting away for your future benefit? How much of your income are you putting into 401 ks or Roths or iras or to serve you in the future? How much of it are you using to build your money machine? The higher that percentage, the better off you
are. That drives things more than anything else. More than income. Okay. And the important thing in the wealth priority ladder, in chapter twelve of my book I talk about, I want you to start putting 20% to 25% away. Now, you might sit back and go, there is no way in God's green earth I can do that. I get it. You can't do it. Now about behaviors. We'll start with 1%. I'm good with it. Then 5%, then
10%. We're going to keep building. But the point is that we want to push the savings investing rate up enough to allow us to achieve the dream life that we want. The other most important element is time. So time, you don't control. Time is the only part of time you control, can control, is the present moment. What are you doing now? And when it comes to investing, the sooner you get in on the field, the sooner you get investing, the better off you'll be. And people will
say, well, is it a good time to invest? And the answer is, if you haven't been investing in the past, if you haven't started investing, then now's a good time. Would it have been better a year ago, ten years ago, 20 years ago? Certainly, because then you have time on your side. But we can't do anything about the past I can't do anything. The fact that maybe I didn't invest for a decade, I can beat myself up, but that doesn't serve. So don't blame yourself. Don't
say should've, could've. Widows, if you're not in the game, now's the time. I can't do anything about the future. It's the only thing I can do is now. So I want you to focus on a couple things. What are you doing now to get in the game so you can control your money, build your wealth, and live a life of choice? And how are you controlling your savings rate, your investing rate from your income, that percentage that puts away. Okay. With that as kind of the playing field, let's
jump in. Let's look at what this study said and where the balances are and where you might be relative to that and what to look at. And we'll start off with at age 25 and under. Okay. Under. Under. Age 25. So I'm gonna. I'm gonna jump to my iPad. So let's just do this. This is under 25 years old. Okay. If you look at this, what they. The study showed is the average balance. The average balance in the 401k in the retirement account was $73,051. Okay, now that is up. Okay. The
prior years. The prior year's number was. Was 62 64. Okay, so it's up from the prior year. Now, part of that is up because of. Because of market gains. The market went up during that year of over 20%. So you expect that it's going to be up the median. Okay, I like using the average, but the median, just so you. You know what it is. The median, which is the midpoint. Okay. This year. This year, the median was $2,816. Okay? Prior year, it was 1780, $6. So again, it went
up. But I like, I like us focusing in on the average because I think it. It encompasses all the data. The challenge with the average is sometimes big numbers. When you start to get into big numbers, it can skew the average, and you can see a disparity. But here's a couple of things to think about. Those that are just starting out less than 25 years old, you're just starting out, you're just beginning your contributions to a 401k, you're getting the employer match, those kinds of
things. The contribution rate here, the contribution rate for these folks, in other words, how much they're putting away, is about 7%. So what does that mean? That means that if you have a salary, and I'm using 100,000. Just to make the math easy for me. The contribution then would be 7%. $7,000. 7%. Here's the other side of that is that 63% of the plans that they
studied match. Now this is a big factor to consider because one of the things that we do in the wealth priority ladder is we want to make sure that we get all discounted and all free money. That is that we have access to. And the free money you have access to is the employer match. If the employer decides that they're going to match 100% of the first 6%. Think about this. Let's say the employer match. And I'll do this in green because it's free money. Is 100% of the first
6% contributed. That means that if you put in 7000 the employer is going to put in another 6000. Okay. So your total contribution for the year between match and you is $13,000. You got $6,000 in free money. Y'all don't leave that on the table. Make sure you're grabbing it. So where do you want to focus? And then where's your target for this age range? The focus is this. Get in the game. Because the tendency at this age is to sit back and think. You have time. Think about this.
At 8% every dollar you put away at 20 years old will go up about 80, 85, 88 times. Okay. By the time you retire, if you wait till 25 that drops in half. It's about 44 times. If you wait another five years to 30 it drops in half again. It's about 23 times. So the point is, is that wouldn't you want a dollar put in that is 88 times more powerful than the one that's 44 or 23. Yeah. Get in, get in early and make sure that a minimum you are capturing
the free money from the employer match. Okay. So I get that the average contribution rate at this, at this stage and age is 7%. I want you to push it up as much as possible. Here's your target. For those of you that are trying to build you and you want to go, where should I be? Fidelity says this. At this age your target should be 0.5 to one times your income in retirement. So if my income is 100,000 then I want it to be fifty k to
one hundred k in retirement. Clearly if that's the case that I'm 100,000, this is nowhere close. Okay. So I say that so you have some metric to move from to consider. Okay. That the key here is then this. I want you to focus on a couple things at this, at this stage, increasing the savings rate, making sure that you manage and don't go into high interest debt, especially in today's environment. Starting to build a liquidity and
what we call a peace of mind fund. In my book, building your money machine and making sure that you are, if you have debt like, say, student loan debt, because you're coming out of school and going in that, you're starting to get that thing paid down, you're going to focus on establishing a good credit score, managing your, your debt, and doing those, those kinds of things. That's where your focus should be at, at this stage. Now let's move to the next decade. So we're going
to move to age 25 to 34. Okay. The average balance at, at 25 to 34 here is, it goes up. So you're looking at 37,577. Okay. The median, the median is 14,993. Okay. But again, I'm focused on this. Okay. Now the contribution rate goes up a little bit. The contribution rate now moves to 8%. Again, I think that we want to push that percentage up as best as possible to do that. Now, where should you be
in this, in this decade of your life? Now this is an interesting decade because you're starting to come into your own in a career. You may be just starting your career out, but then you get into those, the thirties. And the thirties is what we call the messy middle. This is where you start thinking about building a family, getting a home, and all of a sudden your financial life gets turned upside down because you're starting to make financial decisions in that. The thirties
decade can be a tough place. But when we do it right and we understand the power of it, we don't allow peer pressure, temptation, and trying to keep up with the Joneses to expand our lifestyle at a time. We're trying to grow our career, grow our bank accounts, grow our wealth, and give ourselves a stable footing and an unshakable foundation to grow from. Here's where I would invite you to put your focus. One, increasing your savings rate and investing rate, your retirement savings.
I want to boost it as much as possible. And you want to look at a target from a savings perspective. The target at this age is to have in your retirement account anywhere from two to three times your salary. Okay. So if it was $100,000, you're looking at. Get it. Some people are way behind. Look at these. But what can drive it is our savings rate and investing rate. Now, where should you focus in on to accelerate your investing, your income
growth and your wealth growth. I think the first place is to invest in your career. Increasing your earnings potential through skilling up, education, certifications, those kinds of things will help you get paid more. If you have a bigger shovel. We have more to put towards the goal. We have more to put towards the financial future. So skill up and invest in your career, your professional path, your
business and your growth. Okay, I want to then at this stage, especially if you're starting to get, you get married and you're starting a family, you start to think about financial, family financial planning. Start thinking about things like what happens if we have a child? How are we going to pay for it? What happens to, you know, if we're a two income family, do we go to a one income family? What do we need to, to have in place to make that happen?
In other words, I want you to look forward and start to plan for it because we always work from a plan and we want to put that in that place. The third thing you will typically do in this stage is possibly look at home ownership. Now I get it. I get it. Owning a home is the american dream. I'm going to ask you a question. I had someone that said, I dont know that im ever going to be able to own a home. I said, why do you say that? He says, look at the interest rates, look at the
price of homes today. I just dont see it as possible. I said, well, why do you want to own the home? He said, its the american dream. I said, I get it. Its the american dream. The question is, is it your dream? He down the answer. So I get that homeownership seems to be the american dream. The question is it part of your dream? If it's not part of your dream, don't be pressured into living someone else's dream. It's okay not to own a home.
Did it do well for me? Certainly it did, but I was in a different place. Maybe you're not sure you want to live where you want to. Home ownership is a long term decision. If you're going at home, I have a whole episode just on that and, and things that you can do to analyze. I have tools that will help you analyze whether you should buy or
rent. Bottom line is you can consider a homeownership here, but I wouldn't put it at the top of the list if it's not something that is part of the vision and the plan for your life, or you're not sure that this is where you're going to land as a family that doesn't mean you're going to buy your forever home, but at least to know that, hey, we intend to be in this community or in this place for minimum five years, likely seven years or more, because the friction cost to get
in a home, the cost to do it, the selling costs to get out, are just too much to do it in short term. And when you run the numbers, it doesn't make sense. So those are the things that I would look at now at this stage and this age. Now let's move to the next decade. All right? Which is 35 to 44. And at 35 to 44, where. Where is the average? Where are the average balances? So they go up, and they go up a fair amount, comparatively. You know, the average is $91,281. Okay, $91,281. The median is
35,005. Three, seven. Now, what you're seeing is this disparity with the income rise that is going on during this time of the career. Because the biggest earning years are in our forties, because we've established ourselves in a career, we've established momentum in a career. And doing it from that perspective now, that also means, though, we should be able to contribute more. The challenges during this time is the time that a lot of us, we'll start to expand our lifestyle along with our
income. And what ends up happening is that we spend as much as we're making and we're not growing our wealth. And I think that it shows, because the average contribution right here is gone up, but it hasn't gone up a lot. It's. It's eight. It's eight to 9%. So. So we're not taking and putting as a percentage of our income enough out there to really start to make sense or build enough to carry how much
we're spending on a regular basis. Remember, the idea behind building a money machine is for that money machine to generate enough cash flow to support the lifestyle you want so you don't have to work, that you get to work optionally. I have the blessing, the privilege. You know, I feel blessed that I've been able to build a money machine that allows me to do work optional. I do this because I want to. I do this by choice. When I got diagnosed with a cancer, I
shut my business down. I stopped speaking. I stopped doing things and solely focused on healing. But we didn't reduce our lifestyle. Our net worth didn't go down. We didn't drain a bank account. We had a machine that generated cash. That's what I'm trying to get you to do. That's what I'm trying to get you to build. So you have the blessing and the privilege and the ability to live a life
by choice, and this is a time to do it. And what that might mean is that you need to be smart about your spending and intentional about your investing, especially during these years, because now you're starting to get into the decade where you have that retirement or those golden years in sight of. Okay, so this is a time for you to start maximizing your retirement contributions. Okay? I, like I said, the wealth priority ladder. I want you at 20 to 2020, 5% of your income going away
and building it from. From that perspective. Okay? Now, what fidelity says is that your. Your retirement savings at this stage could be three to four x your salary. So if it's 100,000, you're looking at three to $400,000 at this stage. What should your focus be? Your focus during this time is to relook at your investment portfolio, to look at it and say, does it align with my current risk profile, my current age, stage of my life, and my
circumstances? Have I looked at the risk triad, which is risk capacity, risk tolerance, and risk need. Have I looked at that? Do I have. At the same time, it's important to consider additional expenses that might be coming in. Do I have young kids that are going into college that I need to think about? Do I need to think about long term care insurance because I have to take care of an aging parent that maybe didn't get their finances right?
What are the things that I should be doing to create a foundation and safety around what I have built so far, so I don't get it lost or eroded. And that may require you spending a little time with a mentor, a coach, an advisor, to be that perspective of wisdom. Over the years, you are sitting here living your financial journey as an individual, as a couple. Once I have been living financial journeys, not
only mine, but my clients. So I've been through many of them, and I have a chance to give you a perspective of what can happen, what does happen, how to avoid it, and all that, and so do other good advisors that aren't driven by commissions, aren't driven by a transaction, aren't driven by selling you something. There's a very big reason that I do not sell investments and I do not sell insurance. I do not do anything but consult, advise,
and advocate for your dreams and for your future. That's why I do that. I don't want the bias. I don't want transactional costs that could bias my judgment. I want to be on your side, aligned with you. And so this is the time to start looking at that in this decade of life, because now, when you go to the next decade at 45 to 54. At 45 to 54, things are starting to heat up, because you are now moving into a territory of, wow.
I need to make sure that I've got things dialed in, because my golden years or the possibility of retiring is right around the corner. Okay. The average balance based on the study at this stage was up, but not a whole lot. $168,000. And then the median was 60,000. 60,763. It's pretty good. But when you consider that the fidelity. Fidelity's recommendations are saying that you should have seven to eight times your salary. If your salary is still $100,000, it's a far cry
from $800,000. And we need to start focusing on things. The average contribution rate for this age range, based on the study, was nine to 10%. So we went up a little bit, but I don't think we've gone up enough. If we went up enough, we would see the average balances at a lot higher rate than they are now. At this stage, you may have an opportunity
to do what's called catch up contributions. If you're over age 50, there are provisions in the law that allow you to put more money into retirement accounts than you would when you're under age 50. For instance, a 401K. Currently, you can put in 23,500, but if you are over age 50, you can put in 30,000. So you have the ability to do some catch up here in what you're doing. And if you feel like you're behind, this is the time to start
utilizing that. Okay. The other things I want you to focus in on here is this is time to start really making sure that you're on a debt payment plan, that you're eliminating debts, because at some point in this journey, in the next decade or so, I want you completely debt free, or the ability to be completely debt free, because I don't want that burden on you. So this is a time to start looking at it and
say, do I have control of my debt? And, you know, whether it's mortgages, student loans, credit cards, we should not be carrying balances on credit cards at all. And we want to start looking at things and saying, am I on track? An assessment, to say, am I on track to hit my plan, to hit my retirement goals, to be able to make that happen? This is also a time to start thinking about some other things that maybe aren't so much fun to think about,
but they're really important. And that is, what are you going to do about health care costs? How are we going to cover those? Do I need a long term care policy? At some point in time? Right now, maybe you're getting your health insurance from a company you're working with. And when you come away from that, what may be available at the same time, in all likelihood at this stage, you have a family, you may have kids, you might even
have grandkids. You might, I don't know. But this is a time for you to make sure that you have your estate stuff in place if you haven't got it already. So updating your wills, your trust, making sure you have the right power of attorneys, making sure your values, your wishes are known, this is a time to really start, to dig in and start looking forward and say, this is the way I
want this to play out. You have the opportunity to orchestrate your life, not just financially, but from values standpoint to make that happen. All right, that leads me to the next decade. 55 to 64. Okay, 55 to 64. Now the balance is, they go up again. So now we've crossed the $200,000 mark. We're at 200,044, 750, and the median. Now you're starting to see a spread here because it's now
only at 87,571. And I think what's happening here is that the incomes, this is where we start to get that disparity of income coming in. And the contribution rate here hasn't really changed. It's still at nine to 10%. So we're not putting, now, we may be putting away more from a, a dollar standpoint because our income is up, but we have limitations in there to do that. But this is the time where you really, I mean, because now we're coming up against the wall.
We don't have, we have a couple decades left of earnings and building, and we want to be very, very vigilant about that. So because you're going to start talking about retirement transition, does Social Security apply? Is it there? How much to take if I delay Social Security? Because I can take Social Security at 62, but I could delay it to 67 or 70 and get more out of it, but do I have enough assets to carry
me to do that? This is why planning becomes important, because it's during this decade that this is all going to come home to roost. This is when, if you have not eliminated debt, it is really important that this become a priority because that burden of the debt service, whether it's mortgage, credit card, student loan, personal loans, any of that stuff will, can bury you because it's a burden that
doesn't go away. And if we are slowly slowing down, our income might go down if we don't have the money machine built properly yet. We have to get in the game and we have to do it right. This is a time to also look at lifestyle. Is it something that you are living your current lifestyle and that's where you want to be? Is there something that you want to simplify? Do you want to change it? Are there expenses I can reduce
and do those things? And what is going to change around my lifestyle in which typically it has to do with healthcare and costs and all of that stuff. So at this stage, Fidelity says that you really need to, you want to have put away for savings at least ten x your salary. So. And I think that this is low because if you think about the Northern Trust study that said $1.46 million is what people think they need to retire. Ten x on 100,000 is only a million. So you're, you're
not, not there. So it's important to really dial it in. And that leads to this, this last category, which is what happens after age 65. And so here we've got the balances go up slightly to 272,588. And the median, the median here is only 88,488. And this is a time where, look, you are in these, these stages of, of retirement and slowing down and deciding where you
want to go and what that life looks like. This is where you start to get a chance to reap the benefits of the work, the discipline, the behaviors, the thinking and all the stuff that I'm trying to teach you in these decades and before, if you do it right, so you're going to, our focus here then is really managing the plan, managing withdrawals, minimizing the taxes on those withdrawals, optimizing what we do with it. And like it or not, this is an important
time for you to sit back and say, what about retirement? What about these years will bring me the greatest joy because I've watched so many people that spend so much time saving, saving, saving, put away building, and then they never enjoyed it because they didn't understand how. It's why in our plan, I sit back and say, when you build a plan, you make sure that you have two to four joy points in the plan, the sustainable joys,
not the momentary pleasures, the sustainable joys. Because I know this, if you don't enjoy the path to financial freedom. If you don't find joy on the path to financial freedom, you will not find joy in the destination of it. And so we need to make sure that we have joy points that are really meaningful to you along the journey. And it's different for everyone. In my case, with my wife and I, a lot of it is travel, creating memories, doing those things.
And for you, it may be something else, I don't know. But whatever it is, we want to build it into the plan so we understand and we learn how to enjoy life on the journey so we can enjoy life at the destination at the same time. All right? And this is the time to really get deep into legacy planning. You know, what. What do you want to create? What do you want to leave behind? What do you want to leave within people? What are the. What are the things that you want to do? Okay. This is. This is
the thing that we need to do. So this was kind of my breakdown, and my perspective of this. This study that's done is, like I said, the 23rd edition of the study from Vanguard, how America saves. But I think it's telling, and hopefully giving you some additional perspective and some things that you need to focus on. What your targets would be, helps you start to put your arms around where you are, where you need to be,
what you might need to do. And if you need more details or more specifics about what do you do tactically, then stay on this channel. Subscribe to this channel. If you haven't done so already, keep going through my content, go through, grab my book, building your money machine, and make sure that you're following the process in there. It's the recipe, it's the prescription to get you set up properly, to live a life that outlives you. That's the key. So, here's my
deal. I am on a crusade to light the path to financial freedom for a million families. And I want one of those families to be you. I truly believe that financial freedom is your birthright. Now, granted, most of us grew up in a household in a world where we weren't supposed to talk about money because it was demonized or it was impolite or whatever it is that they told us. But I think that by talking about it in the right way, we take the mystique away, we
take the emotions away. And now, instead of us becoming the slave to the money, we become the master of the money. And now we get a chance to use it for good. Now we get to use it for a tool, to create a life that's meaningful, a life that's fruitful, a life that's impactful. That's what I want for you. A life built on choice. All right. I hope that you found this valuable, and I hope that it spurs you to keep on the journey to financial freedom.
I get it. It is not, it may not be easy because you might have a steep hill to climb or a big boulder to push, but easy doesn't mean that it's impossible. It's simple when you understand the recipe and you follow the recipe. All right. All right. Until I see you on the road, on another episode, or as I'm out speaking, they always say, always, always strive to live a life that outlives you. 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.