Financial influencer and expert Ramit Sethi has helped many people increase their wealth, along with their knowledge of money and how to manage it.
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On a recent episode of his YouTube series “I Will Teach You to be Rich”, Sethi noted it’s not at $1 million (or even $100,000) that people start to feel like they have a solid financial foundation — it’s actually just $10,000. This is the number, Sethi described, “where people go from reactive to calm, confident and in control.”
Here’s why the biggest money transformation happens when you hit this amount, per Sethi:
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First Mental Breakthrough
There’s a difference between theoretically understanding the concept of having $10,000, and then actually seeing it in your bank account. Sethi explained that once you understand it can happen once, you start to realize that you are capable of generating that same amount or more in the future. At this figure, you understand you are in control, which brings you the confidence you need to take charge of your financial freedom going forward.
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Tipping Point for Emergency Peace of Mind
Sethi pointed out that saving up 12 months worth of expenses in an emergency fund is not always feasible. What you really need, in his words, is “breathing room,” which $10,000 affords you, a figure much higher than the $1,000 Rachel Cruze suggested having in savings for unexpected and expensive bills.
Instead of panicking when an unplanned major expense pops up, you simply tap into your savings and pay it immediately. Sethi went on to say this opens up mental bandwidth to start negotiating your salary, start a side business or consistently investing.
Habits That Earned You $10K Will Only Take You Further
To reach the goal of $10,000 in your bank account, you need to plan, have discipline and realize it’s OK to say “no” occasionally. According to Sethi, that initial savings is proof that your system works, which means you should do more of it with additional intensity and patience.
Shift From Survival to Strategy
Before you reach $10,000, there is typically financial stress every single day as guilt racks up over every expense you make. Past that amount, you start to go from surviving to thriving and figuring out how you want to invest in yourself going forward. Using your money strategically involves “spending [it] on things that matter to you,” commented Sethi.
Compound Interest Starts To Matter
Assuming there is a 7% return on interest, you can invest $10,000 and, in one year’s time, see a return of about $700. At $10,000, Sethi highlighted that “…compound interest really starts to kick in,” and it only grows bigger and faster from that point.
Stop Falling for Financial Myths
By saving $10,000, you start to realize that maybe all the financial advice you’ve been listening to was not so solid after all. You don’t worry about spending four dollars on a coffee or analyzing budget spreadsheets because you now know they do not work. Sethi mentioned that “you start thinking bigger” in ways such as increasing your income and automating your investments.
Realization That Earning More Is the Real Game
“You will not get rich by budgeting your way to wealth,” proclaimed Sethi. The real way to get wealth, in Sethi’s professional opinion, is to make your money work for you by investing, growing your skills and increasing your income. At $10,000, you understand that earning is what gets you more money, not endlessly budgeting yourself.
Does $10K In Savings Really Change Everything?
For some people, $10,000 in the bank means life can change for the better. For others, however — including Jesse Frimpong, the founder and CEO of Prestige Knowledge LLC — having that amount saved up actually caused anxiety and stress.
Frimpong understood Ramit’s point, but did not fully agree. “I used to work at Taco Bell for $8.25 an hour, and I remember grinding just to save a few hundred bucks at a time,” Frimpong recalled. “When I finally saved $10,000, I expected to feel this wave of calm or confidence… but it didn’t happen. If anything, I felt more pressure, like now I had something to lose, and I didn’t want to mess it up.”
What actually changed things for Frimpong wasn’t the number in his bank account, it was learning how to make money consistently, take calculated risks and not panic when investing in himself or his business. “$10,000 is a great milestone, but it’s not some magic unlock,” concluded Frimpong. “Plenty of people hit that mark and still feel stuck because mindset and money habits matter more than the dollar amount.”
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This article originally appeared on GOBankingRates.com: Why Ramit Sethi Says Biggest Money Transformation Happens Upon Saving This Amount
