Financial strategies by income: plans for 35k, 75k, 100k+
Felix Nikolas Prehn sets out tailored wealth plans for three income tiers, from emergency funds to compound interest optimisation.
Felix Nikolas Prehn, economist and former investment banker
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Financial strategies differ sharply depending on income level, and applying the wrong plan can hold back wealth accumulation for years. In this episode Felix Nikolas Prehn walks through a step by step approach for three income brackets. At 35,000 dollars a year the priority is building a three to six month emergency fund, eliminating debt above 5 per cent interest, automating investments and, above all, raising income. At 75,000 dollars the focus shifts to capturing employer 401k matching, opening a Roth IRA for tax free growth and using low cost ETFs such as VOO. For those earning above 100,000 dollars, Felix illustrates how even a modest improvement in annual returns, from 10 to 15 per cent, can more than double a portfolio over twenty years thanks to compounding. The core message throughout is that automation, debt elimination and fee awareness matter at every level.
In this episode
- Why most wealth strategies are mismatched to income
- Building a three to six month emergency fund on 35k
- Paying off debt above 5 per cent interest
- Automating investments from every paycheck
- Raising income through remote work and freelancing
- Maxing out 401k employer match at 75k income
- Using a Roth IRA and low cost ETFs like VOO
- How compound interest transforms a 100k portfolio over 20 years
Transcript
If you make $35,000, $75,000, or over $100,000, I guarantee your wealth strategy looks wrong. Let me fix it for you. My name is Felix Prehn. I've helped thousands of people at every income level. And today I'll show you the exact plan for 35K income, 75K income, and for $100,000 plus, so you know exactly what to do. Let's start with an income of $35,000 a year.
What's your step one? Your first step is definitely 100% not what you think. It is not to run out and buy the latest tech fund. It is to get your emergency fund together. Generally speaking, I would make that 3 to 6 months of just essential expenses because you can stop eating ice cream, but you can't stop paying the mortgage.
Now, why 3 to 6 months? Well, say there is someone else in your household who also has an income, maybe it could be 3 months, but if you really are the only wage earner there, then definitely make it 6 months. The second step is that's what I see a lot with people who are on the lower end of the income scale is they have debt. They have credit card debt. They have car payment debt. Maybe they still have college debt or wherever else it's coming from.
We want to address debt with a higher than 5% interest because that is just holding you back. That is just making you poorer and you definitely don't want to have any of that stuff. So we actually want to focus on paying that off. And you start with the highest interest debt first. Credit cards are not there to be a long-term access to credit. Credit cards are there to make the credit card companies rich and make you poor, which is why they charge like 30% interest rates.
So if you do want to use a credit card, you have to pay it off every month. I pay mine off every Monday. Yeah, that's how much I hate debt. Debt is a terrible place and when bad things happen to you, the debt is what drags you down. So we want to make sure you're in a place where you can fly and soar.
And then number 3, you want to start investing in an automated way. So you want to put that on autopilot. Why? Because it should be the first thing that comes out of your paycheck when you get paid. There is an amount that has to go into your investing. Now I don't know exactly your expenses, so I can't really tell you what that amount exactly is, but that is the key. And you want to make that as big as humanly possible.
And then what you want to do is you want to motivate yourself by looking at something like a compound interest calculator. I've got one on my website. Just type Go Academy compound interest into Google and you'll find it. And you can see that even a small increase in the monthly amount will really add up over 10 years and 20 years.
And I know that isn't sexy, but if you want sexy, there's really only one thing you can do. And that is the number 4 that nobody wants to hear about. And that is get more income. Why? Because your income level is below what most people have and what most people consider to be what you need to have a beautiful, happy life. You deserve a beautiful, happy life.
So how do you get more income? Well, there's a few things you could do. You could get a better job. And you can get a job online for a company that is used to paying much, much higher salaries and will therefore pay you much, much higher salaries. And you can do that from the comfort of your home.
Where would I start with that? Don't quit your job. What I would do is, and this isn't a sponsored mention, but go to websites like Upwork. Upwork.com. I spent millions of dollars on Upwork and I pay some people like $400, $500 an hour on that, others actually less depending on your skill set.
That's what I would do because if you focus on income, you can invest more, which means a lot more money comes in here and everything else doesn't matter. The debt goes away. Your emergency fund is easy. Everything gets easier from that. So that's maybe not what you wanted to hear, but that's the truth, right? Focus on income, my friend, but do invest everything on automation as much as possible.
If you make $75,000 a year, your plan looks different. Very different. The first thing you want to focus on is you want to max out some of that free money. You want to collect some free money. Who doesn't like free money? You're leaving it on the table if you don't collect it.
So the first thing you want to do is you want to max out your 401k. I'm assuming you're employed. Up to the point your employer stops matching. What does an employer match? Well, you put $1,000 in, they put $1,000 in. You go to $3,000.
And don't get me wrong, 401ks are terrible. They usually put their money into very high fee mutual funds and so on. It's beautiful for the financial industry. It isn't actually beautiful for us. But if you get free money, literally free money, then you want to collect the free money even if the terms aren't brilliant. Because even if that investment underperforms, it's still free money.
So the second thing you want to do is much more fun and it is invest monthly. And again the same rule applies as to the lower income tier which you have to do some sort of automated investing into a Roth IRA. Why a Roth IRA? Because Roth IRAs means that you don't pay tax on any of the gains. And if you start to understand the power of compound interest, if you pay capital gains and dividend taxes and so on and all the gains in your investment portfolio, you are kneecapping the performance of that portfolio.
Now the easiest place to start would literally be something like a low-cost ETF. Something like VOO. VOO tracks the S&P 500. The fees on that thing are 0.03%, which is amazing. For you, they still make enough money with a 0.03% because they have billions and billions of dollars, but it means you're handing over very, very little. Whereas up here, you're probably handing over like a per cent. And that makes a huge difference on your outcomes.
You could also take some of that money and you could invest in certain sectors or specific stocks, but that's a little bit more high level with the kind of money that you have. The right framework does actually matter even more. And that's why I'm actually going to teach the full system that I use and that I learned from my Wall Street mentors live and for free. If you want to sign up for that, grab yourself a free seat. You can do that at felix.org/training.
There's a link down below in the description as well. And there we're going to go a lot deeper into not just buying ETFs, but also looking at individual stocks. And to be able to do that, we need to understand sectors. We need to understand industries. And most of all, we need to understand how money moves from one place to the other.
If you're making over $100,000 a month, congratulations. First of all, yes, we're still going to max out the 401k up to, and this is important, up to the employer match point because that is just free money and no matter how much you're earning, you never turn free money away, right? So take the free money. Second step, we're going to max out our Roth IRA or close to it. That's certainly the goal.
Here is how I balance safety with potentially higher returns. And the why will literally blow your mind. Say you're starting out with a $100,000 portfolio, not income. Okay, so that's your portfolio, $100,000, and you are adding $1,000 per month. And we're assuming you're making a 10% return on that.
What happens after 20 years? Well, put it in the chat down below if you're quick. I'm going to tell you though. It is $1.5 million, which is pretty good, right? It's pretty good. It's better than what most people achieve and it's certainly a decent place to start your retirement.
Now let me tell you the shocking truth and that is, say, and I'm not promising you this, but say as a hypothetical you could improve the 10% to be 15%. So you got a higher return, right? Not a promise, just saying, run through the numbers. You still have a $100,000 portfolio. You're still adding $1,000 a month to it. The only thing that changes is that the return on that portfolio got elevated. It got lifted up.
What happens in 20 years? What do you think happens in 20 years? It's no longer $1.5 million. No, it is now $3.5 million. I'm not promising a 50% return or any specific return because if I did it'd be illegal. But most people have low returns on their investment portfolios because they do dumb stuff. They FOMO buy the latest stock and then they hold it until it goes down 60, 70, 80%.
And there are some really, really simple steps we can take that are fully automated that take zero time that will eliminate that and it'll likely improve your outcome and therefore.
Potentially give you a heck of a lot more money. So if this doesn't motivate you, I don't know what will. If you want me to map out that exact framework to your own numbers, join me live for about an hour and a half at felix.org/training.
Fully live, fully free. And if you got some value out of this video, watch my latest breakdown of where the market is going next. We also cover more market news and give you some nuggets on where the market is shifting and where the big opportunities lie. I thank you for watching and if you got some value out of it, you know what to do. See you on the live training.