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humphreytalks, humphrey yang, personal finance, investing, budgeting, wealth, cryptocurrency, stocks
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00:00While $10,000 is the first milestone you should shoot for in your financial journey,
00:04I really think at $20,000, that's when your life really starts to change even more.
00:09This milestone is more about the acceleration of wealth, and you also benefit from the freedom
00:14to choose between staying at a toxic job or finding something better, becoming part of the
00:18investor class, and more. And if you stick around to the end of this video, I will share some
00:23actionable tips on how to save your first $20,000 if you aren't there quite yet.
00:27The first reason why 20K changes your life so much is that your wealth starts to accelerate
00:32at this mark. At the $10,000 level, you start to get a taste of compound interest, so earning
00:37an 8% return in the market meant that you were generating $800 per year. That's the equivalent
00:42of $66 per month, which can cover a utility bill or perhaps your monthly coffee habit.
00:47But at $20,000 with the same 8% return, we are now looking at $1,600 per year. And the
00:53really neat thing here is that your money is now making you more money without you having
00:57to work harder or save more. At $1,600 per year, that's more than $130 per month, which
01:02can really make a difference to your monthly budget. This also means that you're going to
01:06be compounding your wealth much faster. So when it came to making your first $20,000, if
01:11you were able to save and invest $500 a month from scratch at an 8% return, you would achieve
01:17$20,000 in about 35 months or two years and 11 months. And if you can save $1,000 per month
01:23through a combination of your regular income and maybe a side hustle or two, then you're
01:27only looking at 18 months to reach that milestone of $20,000. The beauty is that as your income
01:32grows, whether through raises, job changes, or additional income methods, you can accelerate
01:37this timeline even further. But let's take the first scenario of the $500 a month from scratch.
01:42It would take you 35 months, yes, for the first $20,000. But the second $20,000 only takes
01:47about 26 months. And that's just simply because your original $20,000 is also generating you
01:51returns and you're still continuing with your contributions. Now, fast forward to when your
01:56portfolio size might be $500,000. There's just not even a comparison anymore. You are now generating
02:01$20,000 every six months at an 8% return. And when you have a million dollar portfolio, you
02:07can generate $20,000 in just 90 days. That's simply just one quarter of a year. So that's
02:13really the power of compound interest. And really one of the best perks of hitting $20,000
02:17in your balance is basically benefiting from that. Another perk at the $20,000 level is much
02:22more psychological. And this is where you can have a huge shift in your mindset. Instead
02:26of thinking, oh, I'm really bad with money and I'm really struggling, your mindset at $20,000
02:30is more, well, I have a good amount of reserves. And even if I run into an emergency, I'm still
02:35over the five-figure mark. Before, if you only had $10,000 in your bank and you hit
02:39a setback, well, you would go backwards into the four-figure territory. And I think that's
02:44a little bit more difficult mentally. So having 20K can be really liberating and confidence
02:48boosting considering that the median savings account of an American is around $8,000. You
02:53are doing 2.5 times better than the median. Previously, you might've been in survival mode
02:58when you were at the $10,000 or under level. And now you can start to shift your mindset to
03:02more of an abundance mindset at the 20K level because each dollar is making you more independent
03:07than before. One of my favorite authors, Morgan Housel, was actually talking about this exact
03:11principle on the most recent Diary of a CEO podcast, which I was on, by the way. But let's
03:16listen in to what he had to say.
03:17Independence exists on a spectrum. And literally every dollar that you save is a little bit more
03:22independent than you were before. If you have $100 in the bank in savings, that can make it so that
03:28if you were to lose your job, you have a little bit more flexibility for rent or groceries or
03:32whatever it might be that you didn't before. If $1,000, $10,000, any amount that you have
03:37is a little bit more independent than you were before.
03:40So having more money, according to him, will give you more flexibility and independence. And I think
03:44that around $20,000 is when you are starting to optimize for this and your identity really changes
03:50around money. If you identify that you are good with money, you in turn will make these decisions
03:54that reflect that identity. And therefore, it becomes more of a self-fulfilling prophecy.
03:59The next reason why I think $20,000 is such a game changing number is that it kind of allows you
04:04to have this freedom when it comes to career options. This is one of the most underrated
04:08benefits, I think. So when you don't have any money saved, I think you're always going to be
04:11operating from a position of I need this job that I'm currently at, or else I might not be able to
04:16survive the next month. So at this level in Maslow's hierarchy of needs, you're actually moving on
04:20from the bottom of the pyramid. These are the physiological needs of food, water, shelter, and
04:25rest. And you're moving towards the safety step and beyond the basic needs level. Hypothetically
04:30speaking, if you were to work at a toxic job, perhaps it's physically laborious, or perhaps it's
04:35mentally taking a toll on you. They do say that you shouldn't quit without another job lined up.
04:39However, I think if it gets to a point where it's so bad that you need to quit your job, at least
04:43with $20,000, you have enough of a runway that it will give you some breathing room, even if you quit
04:48your job without another one lined up. If you're able to live on $2,000 to $3,000 a month, that could
04:53be anywhere from six to 10 months of runway to find a really great opportunity. Compare that to the
04:58$10,000 level. Sure, that gives you some time, but it might not be enough time to find a better
05:03opportunity. And you might be forced into the same situation you were before, which is that you need a
05:08job to survive. I also believe that $20,000 gives you enough time to completely pivot your career or even
05:13start a business if that's something you've been thinking about. If you've been wanting to switch
05:17industries, go back to school and get a certification or launch a new side hustle without
05:21savings, I think that's a really tough thing to do if you only had $10,000. So $20,000 in this case
05:26gives you a few more options. And I think that that freedom is worth it because you could parlay that
05:31into a better job that pays you more of an income and therefore your net worth can grow even faster at
05:36this point too. Now, speaking of other options that 20K gives you, I think one thing that's often not
05:41talked about is that when you're poor, everything costs more as a percentage basis and $20,000 lets you
05:47kind of break free from that. Take banking, for example, service fees and overdraft fees can eat
05:51into your net worth when you are struggling to get by. And a $35 overdraft fee when you are living
05:57paycheck to paycheck is just another obstacle that you have to think about. This can make you really
06:01feel like the deck is stacked against you because you now have to take into consideration an extra
06:05variable in your everyday life that adds stress. Whereas someone with $20,000 in their account might not
06:11even think about this issue. In 2022, banks made $9.9 billion off of overdraft fees alone and
06:17with some customers, they even got hit over 30 plus times. Now, while that fee number is down
06:22from pre-pandemic levels of $15.5 billion, I feel like it's still way too much in my opinion.
06:27There are also service fees like at a big bank like Chase, it could be $12 a month just to have
06:32your account open. Unless you have a balance larger than $5,000 or $1,500, you'll be hit with a service
06:39fee. Now, banking fees are just one example of this kind of idea. There are other hidden costs of being poor,
06:45which include not being able to buy things in bulk because perhaps you don't have enough money
06:50to go to Costco and buy all these things in bulk. And buying things in bulk can actually save you 20
06:54to 30% on your groceries. You might also have to buy cheap shoes or clothes that fall apart in months
06:59rather than investing in quality items. Or perhaps you have to pay home or car insurance bills monthly
07:04instead of annually, which might not be able to qualify you for, let's say, an annual discount.
07:09So if we were putting this in gaming terms, which I love doing that, I like using gaming analogies,
07:14I would say that this is a really good defensive perk of having 20K in your account. But I think
07:19that 20K will also give you some offensive abilities as well. And one primary one is that
07:24now you are in squarely what I like to call the investor class. The investor class is my next
07:30reason for why 20K is so important. And that's where your options for building wealth go beyond
07:34just saving. At 20K, you can start to max out your Roth IRA. So the 2025 limit is $7,000 per year.
07:40And if you allocate the full 7K to it, you still have $13,000 after that. Imagine you
07:45were trying to do that with just $10,000. You'd have to put up 70% of your $10,000 balance to do
07:51that, which means that you might have to sacrifice some financial security and perhaps your emergency
07:56fund in order to do that. It's at this level, you can also start to build a properly diversified
08:01portfolio, whereas before you might've just gotten started with investing with one or two holdings.
08:05Now you could explore different types of investment options like REITs, bonds, other specific types of
08:11ETFs, and you have more skin in the game. Not to mention, there are sometimes index funds that have
08:16minimum investments of $3,000 required, and those usually come at brokerages like Vanguard. So I
08:22think having more money to invest is always a good thing. It's just going to give you way more options.
08:26So visually speaking, I think a $20,000 breakdown could look like the following. Once you hit that
08:30mark, perhaps you have $7,000 in your Roth IRA invested in index funds and ETFs. You have $8,000
08:37in an emergency fund. You have $2,000 in checking or spending money. And then perhaps you have $3,000
08:42in taxable brokerage accounts, so individual stocks or other ETFs as well. Another benefit of being now
08:48a true investor, in my opinion, is that you should be able to ride dips out a little bit more. When you
08:53have a solid fundamental emergency fund and foundation of personal finance, you now understand that you're in
08:59this investing thing for a really long period of time. Even if you do see a 15 or 20% dip in the
09:04market, first, you won't be panicked. And second, you might actually have some extra capital to buy
09:08the dip and average into the market even more. I have so many friends who, when they got started
09:13with investing with $1,000, they invested all of it into the market, so the full $1,000. And I remember
09:18in my early 20s, a couple of my friends experiencing some volatility in the market, seeing their accounts
09:24go down by $150 and just ended up selling everything. So when you have $20,000, maybe you can
09:29set aside $1,000, $2,000, maybe $3,000 and just not even touch it at all. That's the whole goal
09:34with long-term investing. And I think it really benefits you that way. The next reason why I think
09:38$20,000 is so powerful is that it now gives you the ability to think more long-term instead of
09:44thinking short-term. If you're able to practice delayed gratification, you will usually benefit
09:48more financially in the long-term. There was a famous Stanford psychology experiment called the
09:53Marshmallow Test that illustrated the brilliance of delayed gratification. So in the 1970s,
09:58I had children put into a very unique situation. They were all put into a room and they were offered
10:02a choice between one marshmallow immediately, or they got to wait 15 minutes to get two marshmallows
10:07instead. The experimenter would leave the room and come back in 15 minutes to see what these kids
10:12chose. Many of the children immediately went with the one marshmallow option. I mean, they wanted it
10:17really quickly. They wanted instant gratification, but the ones with the highest amount of self-control
10:23were able to resist their temptations and earn themselves two marshmallows just 15 minutes later.
10:28The researchers then tracked how these children did throughout the rest of their lives in different
10:32scenarios and areas. And according to the results of the study, those that were able to delay
10:36gratification had several advantages, including the fact that those who waited were able to perform
10:41better academically later on. They had much higher SAT scores and fewer behavioral problems.
10:47The successful late CEO of YouTube, Susan Wojcicki was also famously in this study. And her mom
10:52recounts that quote, she showed greater self-restraint than any other pupil. This was perhaps a signal of
10:58success in business to come later on in her life. But I think it really just illustrates to you how
11:02important delayed gratification is. The lesson here is that if you can delay gratification, you're
11:07probably going to be more successful. And far too often people just want that instant dopamine hit.
11:12And those are the same types of people with the behaviors where they might, perhaps they might
11:16forgo investing in retirement, or they might prematurely hop jobs, or perhaps they just want
11:21to go for the YOLO stock that tries to get them a 50X, but then they end up losing everything instead.
11:26That's why the $20,000 level is so psychologically important. It kind of shows you that you've built
11:30this discipline, you've built this consistency, you've gotten from 10 to $20,000, and perhaps you
11:36can exercise more delayed gratification. Now, if you want to get to the 20K mark as quickly as
11:40possible, here are three fast actionable tips that I have for you. First, you want to know where you are
11:45in your journey. So just like if you were starting a new fitness journey or starting a new hobby,
11:50you need to figure out what your baseline is. Knowing where you are financially means that
11:53you know what your net worth is, and you know roughly how much you're spending and making on
11:57a monthly basis. Now, once you know where you stand, you can take steps to growing that money.
12:03Second, we want to play good defense. That means tracking everything for at least 30 days. So in an app
12:08or a spreadsheet, you can see exactly where your money is going. And if you can track your expenses
12:12this way, most people will probably find $200 to $500 a month in leaks that they didn't realize
12:17they existed. For example, I did this exercise with a friend of mine on this YouTube channel as
12:22one of my first videos. And we found out that by analyzing his bank statements and his credit card
12:26statements that he was spending over $800 a month on Uber alone. Once we figured that out,
12:31that gave him the freedom to justify buying a different type of transportation. So whether that
12:35was an electric bike for him, or perhaps a really used car, in order to bring down his Uber cost,
12:41$500 to $600 a month. I think you would be surprised at how much you were spending through
12:45consistent small purchases. And sometimes it really adds up to more than what you might think.
12:50The third tip I have for you is, well, play good offense. I mean, so that could look like
12:54asking for a raise if you haven't gotten one in a while. So if you've been performing really well,
12:58then perhaps a 5% to 10% raise is in order. That could add quite a bit of buffer and allow you to
13:03save more money to hit that $20k as quickly as possible. Of course, you want to make sure you research
13:07the salary data for your role first before you do this and make sure it's quite reasonable.
13:11You could also take on a side hustle or sell stuff that you don't use. The idea is that every dollar
13:16matters a lot more on your way to $20,000. So anything that you can scrounge up will help.
13:21I hope that this video helps. And if you are able to hit that $20,000 mark, I do think life gets a lot
13:25better than just at the $10,000 level. I'd love to hear in the comments if you've noticed the same
13:30shifts. Now, if you're interested in my previous video on why the first 10k changes things,
13:34I will leave it up right here so that you can watch it. And I'll see you guys in that video
13:38or a future video on the channel. Thank you for being here. Peace.
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