— Summary —
This episode I want to talk about something that comes up many times when I’m talking to entrepreneurs and traveling and speaking and working with folks, and that’s what does it take to build wealth? What are my philosophies about investing and savings and money management?
Become Aware of Your Emotional Attachments to Money
Sometimes we make money a poison; money a negative; money something that we ought not to talk about. Is it something that’s emotionally charged, emotionally negative? That’s something that we need to deal with because money has no emotion; it’s simply money. It’s a piece of paper; it’s a coin. It’s a representation of value and there’s no energy to it.
Wealth is Not About Money
A lot of people think to be wealthy you need to have money. I got to tell you I don’t think that’s the case, actually. Wealth isn’t about money. It’s more about discipline than it is money.
It’s Never Too Late to Start
When it comes to wealth, we can start at any age. It doesn’t matter. It’s never too late to take responsibility for your future, to take responsibility for the things that you have or don’t have and what you want to do with it.
Have a Debt Elimination Strategy
Use either a “snowball” (paying off your lowest balance first) or “avalanche” (paying you’re your highest interest rate first) strategy to systematically get out of debt.
Make Investing a Priority Over Spending
Most people live their lives where they spend what they are making on the things that they want to have and they invest what’s left over. The wealthy and the successful do it the other way around. They invest what they need to and then they create a life on what’s left.
Wealth Creation Priority Ladder
The key is to create a system of building wealth by allocating your income in a priority ladder to bring you financial freedom. I created and have used a 6-stage framework to accomplish this.
The first element is I want to start to build what I call a Comfort Cushion to give you some cushion should you have an income hiccup. I think that the base Comfort Cushion I would say is about $2,000. $2,000 can give you a little bit of wiggle room.
The next piece of the process is to rid yourself of consumer debt. Consumer debt is your credit cards, your student loans, and personal loans.
There’s two primary ways that you get it paid off. You can use a “Snowball” approach by paying your lowest balance first or an “Avalanche” approach to pay your highest interest rates first. Most importantly, get a system be disciplined and stay on it.
Peace of Mind
The next level is to build a Peace of Mind fund. I’m really conservative, like I said. I want you to have a 24-month … a 2-year cushion. It may take a little while but that’s the effort you’re trying to get to; a two-year cushion of your monthly expenses that will give you … God forbid something happens.
Real Estate Payoff
The next stage is to start thinking about paying your real estate off. If you own a house, let’s start paying that loan down. Let’s get out of debt. What I’d love to see happen for you and where I find financial freedom is when I find myself debt free, cash flowing and able to do the things that I want to do, with whom I want to do it, when I want to do and where I want to do it.
Once all these levels are fully funded we can then look towards our Freedom Fund. That is what gives us the ability to build beyond, do beyond. That’s really what I look at as the five steps of what I call the Wealth Creation Priority Ladder.
Be smart about it because the sooner you do this, the more disciplined and systematic about it … You will open up your eyes, I promise you. You will open up your eyes 10 years, 20 years down the road and go, “Oh, my God. I had no idea that I had this.”
— Begin Transcript —
Hey there I’m Mel Abraham, the author of the brand new number 1 best selling book, The Entrepreneur Solution and the founder of Business Breakthrough Academy, where we teach you how to design a business and create a life. A life of financial freedom and piece of mind. Welcome back to this episode of the Entrepreneur Solution Show. This episode is going to be really cool. I want to talk about something that comes up many times when I’m talking to entrepreneurs and traveling and speaking and working with folks, and that’s what does it take to build wealth? What are my philosophies about investing and savings and money management?
Those kinds of considerations. When we get back after this brief introduction, I want to talk about that, I want to give you the framework of how I see money, where I allocate money, and how to start to get yourself to financial freedom. If you’re out there on the road, and you’re not in a place where you can write this down go ahead and text MyLegacy … One word … MyLegacy to 38470, no spaces. I’ve got a special treat for you, a special worksheet for you that’s going to help you try to eliminate your debt. We’ll talk more about that in the session.
Again text MyLegacy to 38470 to get the worksheet and get the guidebook and I will be back soon. See you on the other side.
Welcome back to this episode of the Entrepreneur Solution. I’m Mel Abraham, the author of the brand new, number 1 best selling book, the Entrepreneur Solution. It’s been an incredible journey, and I’m sorry for maybe the space between my last couple of episodes. With the book release and the book launch the last 6 weeks, last 60 days have been a tremendously crazy whirlwind but in a good way. It’s been incredible within a couple of weeks we’ve been able to get this book out to over 16,000 people in 120-plus countries. The impact, the feedback, the things that I’m hearing is just … It’s really heart warming. It’s really been a surreal experience and I know that many of you are a part of that. I feel blessed. Thank you, thank you, thank you. Let’s talk about this episode. In this episode I want to talk about wealth.
I want to talk about money and I know that’s a tough subject sometimes. People, when they hear about money … Because it brings up emotions. It brings up thoughts of inadequacy, lack, “I can never never get there.” All kinds of things. Sometimes we take and make money a poison; money a negative; money something that we ought not to talk about. They say parents never really talked about money, talked about sex or talked about politics. The reality is that I think that we’re doing a disservice to our youth, to our society and to the world to not have conversations around money. Not about greed; that’s a different ballgame. About money. How does it work? How do you invest it? How do you create wealth? How do you do those things? There’s a guidebook that goes along with this episode, just like every other episode.
You can get to that guidebook by going to MelAbraham.com/session017 or you can just text me at 38470, MyLegacy. One word, no spaces. It’ll give you a download link and we can get you all the tools and everything that you need. In fact, for any of the episodes we can get you all that. We’ve got a tremendous amount of resources for you. The idea here is to give you the tools to create a life, to create a business, to build something that’s meaningful, profitable and purposeful and to give you the tools that I’ve used with my clients and with myself to build the things that I built. Let’s talk about this concept of money and wealth. A lot of people think to be wealthy you need to have money. I got to tell you I don’t think that’s the case, actually. Wealth isn’t about money. It’s more about discipline than it is money.
Wealth is About Discpline
We tend to think about things and not take the time to be disciplined about what we do with the money we are generating and use it in a way that makes sense, that builds in where it goes to work for us, so over time we actually do build wealth. We don’t need to make a boatload, a shitload-pardon the expression-to become wealthy. We just need to be disciplined with what we take in and how we use it. The earlier that we learn these habits, the earlier that we start to focus and change the way we do things the easier it’s going to be as we get later in life. We live in a society that, unfortunately, the majority of our society between the ages of 55 and 65 have less than $60,000 saved for retirement. I think that’s a travesty.
That’s an absolute disaster to have that kind of a situation come up because we really need to think about how to … Just like we educate people with language, with mathematics, with history, with sciences, I think we need to educate them with respect to financial responsibility and do that because when they have the tools … When you have the tools, the knowledge and the skills that are used by the wealthy, by the successful, building wealth doesn’t seem so phantom, so mysterious or so difficult in doing that. One of the things that we need to get over is the emotional attachments that many of us put towards that money. We use money as a scorecard, if you will, and good and bad and whether it exists or doesn’t exist.
Be Aware of Your Emotional Attachments to Money
Whether you grew up with money or didn’t grow up with money, it shifts and changes your emotional makeup as it relates to how you view it. If you look at money in a negative way because maybe you grew up without it … I mean I grew up in basically a white collar home. My dad was an aerospace engineer. He had got his paycheck, he built his retirement. We didn’t lack for anything. I mean we had a tremendous amount of abundance and love in the household. We had a great family. We weren’t living in some huge mansion but at the same time we weren’t living in poverty. It wasn’t like we were driving really expensive cars and expensive vacations. We learned about that but never talked about money.
We never talked about the concepts of investing and what it takes and the principles of compound interest and the principles of time value and the principles of those things that really are meaningful when it comes to thinking about how do you create wealth. We can end up with these emotional attachments and you need to reflect on yourself and say when someone starts talking about money what comes up for you? Is it something that’s emotionally charged, emotionally negative and everything? That’s something that we need to deal with because money has no emotion; it’s simply money. It’s a piece of paper; it’s a coin. It’s a representation of value and there’s no energy to it. There’s nothing to it. It is a measurement tool that allows us to transact and create and do things from a business standpoint, from a personal standpoint. It is us who attach that emotion to it.
The question then is if I were in a relationship and I was attaching constant negative emotions to that relationship how far do you think that relationship’s going to go? How meaningful, how fulfilling is it going to be? If I come to that relationship and I’m attaching positive feelings, positive emotions and those types of elements and infusing that into that relationship what’s going to happen to that relationship? I think with money it’s the same thing and it’s about taking those baby steps and understanding that. Becoming aware of it to move through that. Because when it comes to wealth, we can start at any age. It doesn’t matter. It’s certainly easier when you start in your 20s than when you start in your 40s. The things that you do in your 20s will impact what you have in your 40s, your 50s and 60s. The fact is it’s never a time for you to throw your hands up and go, “Oh! It’s too late for me,” because it’s never too late.
It’s never too late to take responsibility for your future, to take responsibility for the things that you have or don’t have and what you want to do with it. In my book, The Entrepreneur Solution, I talk about this concept of responsibility and I put a hyphen in between “response” and “ability” because what it really is about … Responsibility gets a bad rap. Some people equate it to blame and it’s not. It’s about your ability to respond to what is going on. Unless you’re willing to take responsibility you feel crippled; you feel paralyzed. You don’t feel you have the ability to do anything about what it is you’re trying to solve. To do anything, to shift and change your circumstances. As soon as I say, “I’m responsible,” that’s a place of power. That’s a place of strength where you can move from there.
No matter what age you’re at, no matter where you’re at in your life, it’s time to take responsibility. It’s time to grab ahold of the handles on your wealth and let’s more forward. Let’s understand some of the principles and where you want to go. Some of you may look at it and go, “I got so much debt there’s nothing … I have no idea how to deal with this.” I’m going to give you a tool, a downloadable tool, that’s going to help you use either what’s called a snowball method or an avalanche method to try to reduce your debt. You need to be disciplined. If you’re disciplined and you use the system you’ll find yourself out of debt in-depending on how much debt-in a year or two years, three years. Just in a couple of years. You got to be disciplined. Once we get you out of debt then we can start to build the wealth.
Make Money Work For You
Here’s a couple of things that I think are general thoughts and general principles to think about. There’s this thing called the Rule of 72s. Now, we’re talking about money so I’m going to talk a little bit about math. I’m going to try to keep it easy for you because I know it can freak people out. The Rule of 72 says I can invest a dollar at 7 percent and in 10 years it will double. Or, I can invest a dollar at 10 percent, in 7 years it’ll double. What’s the importance of that? The point is this: If I can invest my money at a seven percent rate of return, which is not high and you can get seven percent rate of returns in a lot of different investments without a lot of risk. If I can invest money at a seven percent rate of return guess what? In 10 years it doubles. Well, what does that mean for you? If I had 50,000 today, in 10 years it becomes 100.
In the next 10 years that 100 becomes 200. In 20 years I’ve quadrupled my money. The point is that you get the money to work for you and that’s the whole idea behind it. It’s about discipline. It’s about what are you doing with the money that’s coming in? There’s a difference between those that are successful and wealthy and those that are not. The difference is how they deal with things. Most people live their lives where they spend what they are making on the things that they want to have and they invest what’s left over. In effect, what happens is what they invest is the afterthought. It’s the secondary piece; it’s the last piece. It gets what’s left over. It gets the scraps; it gets the crumbs. It gets what’s ever left over. That’s the way the majority of society live their life.
Make Investing Your Priority
That’s what I’m saying that we need discipline. The wealthy and the successful do it the other way around. They just flip it so what happens is the money comes in. They invest what they need to and then they create a life on what’s left. See the difference? Instead of going out and spending the money and then seeing what you have left to invest, you invest first, spend after. Now, what happens is that your life gets designed based upon an investment goal and the leftover money that you have. The cool thing is being an entrepreneur is we actually have a tremendous amount of control and ability to influence, if you will, the kind of money that’s coming in. If I need to make more money I need to go out and hustle more. I need to go out and work more.
I need to go out and create more. I need to build more value for my community and for my customers, for my team and for everyone around me. Because when I build value and create value that value comes back to me. That’s the cool thing if you’re an entrepreneur is because you have a lot more control than if you’re just in a job collecting a wage. It doesn’t mean you can’t do it. I’ve got plenty of clients and friends that were in a job collecting wages and they lived by this rule of invest first, create the life on what’s left and then move on and have made themselves millions over a period of time. Couple things to take away just in this segment. That is to one, get rid of the … Well, become aware of, first. Become aware of the emotional attachments that you may have to money.
Two, if they’re negative emotional attachments, understand where they’re coming from and understand that money isn’t an emotional thing; it’s something that you’re putting on it. Create that positive relationship with your thought process behind money. Understand that it doesn’t matter what age or where you are in life that this is the time that you can move forward and start anew and create a disciplined approach to investing and putting money away to build your wealth. Understand that it doesn’t matter when it is and that you’ve got to focus on discipline versus how much you make. How much you make has an impact but the discipline has a much greater impact than how much you make. I know a lot of people that make a boatload of cash but they got so much lack of discipline that they got nothing at the end of the day.
I want you to have a lot at the end of the day. I want you to have the peace of mind and the freedom that comes from having enough money to know that everything is taken care of. Then remember the Rule of 72s or the time/value of money. That money will earn for itself; the sooner you get it in, the more you get it in. Even at a 7 percent rate of return we can double it in 10 years. We can quadruple it in 20 years. You want to get in the game and get in the game and stay in the game in a disciplined way and build that life based upon not the expenses in but your wealth out. In other words, invest first, spend second. Not the other way around. Most people will spend first and invest second. Flip it out. Make sure you invest first and then turn around and spend second. All right? Now, let’s look at some things of how I look at money and how I look at allocating my cash that’s coming in.
How do I build that wealth? This is a framework that I use; is what I call the “Wealth Creation Priority Ladder.” You may have seen it in a lot of different forms. There’s a lot of people that have version of this, dealing with this because I don’t believe that you can build wealth without consciously and intentionally coming up with some way that allocates and says, “Here’s where the funds go first.” This is my philosophy and it works for me and it’s worked for my clients. It’s worked really well for me and it’ll work for you. Now, you may have other things that you want to add in, and that’s fine, but start with something that is proven. Start with something that works. Some of the things that I do here are ultra conservative and you may say, “Well, that’s a little much.”
I get it but I’d rather be conservative and have too much than not be conservative and not have enough. That’s the way I looked at things and this is the way I’ve managed things for the decades that I’ve been building wealth and working with other people. The first element is I want to start to build what I call a comfort cushion. That is something where I can say, “I’m not living check-to-check.” If something happens for some reason I at least have a little money to carry me for a couple weeks until I can figure some things out. The first thing that I do is that as I’m earning money I’m putting money away to get to my comfort cushion. My comfort cushion … I think that the base comfort cushion I would say is about $2,000. $2,000 can give you a little bit of wiggle room.
Now, if you have a lifestyle that is crazy expensive $2,000 is not going to give you much but it’s a start. Let’s make sure that you have a comfortable level to start. Your comfort cushion and I’m saying that $2,000 is the base.
Eliminate Debt With a System
Then, this next piece of the process, and this is where people get eaten up, is that we have what’s called “consumer debt.” Let’s just talk about debt for a moment. Consumer debt is your credit cards, your student loans, personal loans. Things that are used for things that you consume, not things that you invest so I’m not talking about real estate and I’m not talking about business loans-proper business loans-because we may use that in business. I’m talking about your credit cards and your car loans-non-business car loans-students loans. Those types of things. That’s what’s eating up society.
We’ve got a … As much as we’ve stopped borrowing, we’ve now started to increase our borrowing again and our credit cards are going up and we’ve got high rates of interest on those cards. People get behind in their payments and they cannot move forward because they become crippled because they’re attached, they’re shackled to the minimum payments on those credit cards. One of the biggest things we need to do to get financial freedom and peace of mind is get out from that consumer debt. We’ve got to get these things paid off. I use credit cards but I use credit cards as a cash advance card. Every credit card gets paid off at the end of the month. Now, you may say, “I don’t have the ability to do that,” and I get it. Let’s get you the ability to do that by getting these … Giving you a system to pay the credit cards down and then do not use them.
Cut them up or use them simply as a cash advance. Do not pay for what you want today with tomorrow’s dollars. That’s living beyond your means and that’s what society has done. We need to live within our means. We need to live below what we create just in case we have a hiccup. We want to get this paid off. There’s a couple of ways to do this and you can find a lot of information on it. I’m going to give you a tool that’s going to allow you to look at this. When you take on consumer debt we need to pay it off. There’s two primary ways that you get it paid off. Now, some people will say, “Oh, pay the highest interest first.” Some will say, “Pay the biggest balance first.” The key is that there is a system that will give you the shortest time to pay off. One is what they call paying based on a snowball process.
The snowball process works off of getting mini successes. What we do is we pay the smallest balances first to get those paid off. Can you imagine what it feels like to get one credit card paid off? You celebrate those micro successes and it accelerates you into the next one. What happens is we need to allocate and rank our credit cards in a snowball process based on the balances. We pay the minimum payments on everything else but the lowest balance we pay as much as we can until that’s paid off. Then, we take the amount that we were paying to that and we put it to the next one and we keep going and we keep going. That’s called the snowball basis of paying debt off. Here is the real cool thing, is if you go to MelAbraham.com/session017 you’re going to be able to download an Excel worksheet that actually does all the calculations for you.
It will compare the different methods and you can literally see how long it’ll take to get this paid off. It give you a system; it gives you a record keep. It give you the ability to do it. The second way that you’ll see people do it is what’s called an avalanche. An avalanche process. What they do with that is they’ll rank them by the interest rate and they’ll pay the highest interest rate the most first to get that paid off and then the next highest and then the next highest. The key here is this: let’s figure out what your consumer debt is. Let’s understand where it is. I know that sometimes, in some cases it may not be a pretty picture but let’s get it figured out. Let’s get out arms around it. Let’s rank them by either balance or interest rate.
Let’s figure out what the payments are. Let’s figure out what the cash is that you have coming in and let’s allocate it and let’s start paying it down. Because once we start getting that consumer debt paid off, now we can start working on peace of mind. Now, we can start working on peace of mind. This is the place where it starts to really get meaningful. What we’re doing now, at this stage, is now I’ve got my Comfort Cushion, I’ve got my consumer debt paid off. That means I’ve got cash flow coming in.
Get Peace of Mind
Now, what I want to do is I want to start building up a cash store. When I talk about this, because a lot of people will talk about retirement, they’ll talk about a lot of things, but I like talking about peace of mind because it’s meaningful.
You think about what your life would be like if you sat back and said, “I have peace of mind. I don’t have to worry about things. I’m okay. We’ve got it dialed it.” That’s what I want for you. Now, what I want you do is take the excess cash and start building a fund. Now, that fund people will say 6 months, some people will say 12. I’m really conservative, like I said. I want you to have a 24-month … a 2-year cushion. It may take a little while but that’s the effort you’re trying to get to; a two-year cushion of your monthly expenses that will give you … God forbid something happens. We lose our job or business goes south on us or we get hurt. My bike accident took me out of commission for nine-and-a-half months.
Understanding that peace of mind becomes important. I’m trying to give you as much room as possible. 12 to 24 months. I like the number at 24 months. Once you have that, now you can turn around and start investing or building up the college fund for your kids. I know that this may get parents to not feel well when I say this but you don’t have a responsibility to pay for college for your kids. Hear what I’m saying before you start sending me nasty messages and everything. Your kids have an opportunity to go to college. There are vehicles in which it can get paid. There are grants. There are things. There are scholarships. They need to do well to earn it but for you to go into 200 … I’ve watched parents go $200-, $250,000 into debt for kids that are going to get a college degree in a degree program that really isn’t going to give them the ability to get anything paid back.
All I’m saying is that this needs to be a conversation between you and the kids about them being responsible for their future. Give them an education. I believe in education but that doesn’t mean that you have to put yourself on the verge of bankruptcy because you’ve gone so far in debt to make it happen. There’s plenty of institutions, there’s plenty of programs and aid that can help you through it. Invest it early and build on it. Once you’ve had that peace of mind fun in place, the 12 to 24 months, now start putting money away and start building towards the kid’s college fund and being able to do that and build from there. The third piece is now I’ve got my peace of mind fund, I’ve got the college expenses taken care of.
Get Real Estate Free and Clear
Now, I want you to start thinking about paying your real estate off. If you own a house, let’s start paying that loan down. Let’s get out of debt. What I’d love to see happen for you and where I find financial freedom is when I find myself debt free, cash flowing and able to do the things that I want to do, with whom I want to do it, when I want to do and where I want to do it. Once I’ve built that … So, we’ve got our comfort cushion. We’ve stripped down our consumer debt.
We’ve got our peace of mind fund. We’ve got the college fund in place and now we’re getting the real estate paid off.
Get a Freedom Fund
Once we got the real estate paid off then all that money beyond that becomes our freedom fund. That is what gives us the ability to build beyond, do beyond. That’s really what I look at as the five steps of what I call the Wealth Creation Priority Ladder.
It’s how I prioritize things when I was growing, when I was building. Got that cushion, paid off my credit cards. I don’t run credit card balances. Built that peace of mind fund. Thank God for that because I’ve had a couple of accidents that have taken me out. We’re paying down the real estate and built that freedom fund. That’s the way I would invite you to think about wealth. Think about how you’re doing things. The key is this: it’s not about the money. It’s about the discipline. You can see that this system, this five-ladder priority system, is going to require discipline. It’s going to require you to say, “No. I can’t do that. I got to do something else,” and do it properly.
Be smart about it because the sooner you do this, the more disciplined and systematic about it … You will open up your eyes, I promise you. You will open up your eyes 10 years, 20 years down the road and go, “Oh, my God. I had no idea that I had this.” Use the tools. Go to MelAbraham.com/session017. Download the debt breakthrough calculator and figure it out. If you’ve got debt, figure out what it’s going to take to get you out of debt and get on that system. That is going to help you tremendously to move forward. I hope this helps. I get this question all the time so I thought I would just do a quick session of my thinking on wealth and wealth management and money and give you my thoughts on it. I hope you found this of value.
Again, you can get the tools and the guidebook from MelAbraham.com/session017 and if you haven’t already, go ahead and subscribe to this so you can get more tools, more things and resources to help you build a business, build a life, build financial freedom and do the things that you want to do. While you’re at it, share this with a friend. Let’s give them the gift of bringing their dreams alive to give them the tools to live differently; to create legacy today. If you have a question that came up from this or any of the other episodes or anything in respect to business, success, wealth or money, go ahead and send me a question. Go to AskMelNow.com. You can leave me a voice mail there. All the questions I go through, many of them answer directly on an episode to make sure that you get the information. In fact, this information is because people have asked me questions. Be part of it.
If you’re not sitting by a computer and you’re listening to this as you’re running or you’re driving or doing something and you can’t write this down just text. Don’t text while you’re driving. Text MyLegacy, no spaces, to 38470. You’ll get the download link and everything else. Again, I hope that you found this valuable. I hope that you’ll look at money differently and I invite you to look at it differently and look at your wealth and your future differently and realize that no matter where you are it’s time to start. No matter where you start you’ve got the discipline to build and continue to build. You’ve got the time/value of money on your side when you do it smartly. Get out of consumer debt and build from there. Thank you for being with me. Look forward to seeing you on the next episode.
Until then, may your vision be grand, your journey epic and your legacy significant. See you soon.
— End Transcript —
Like this? Please share it and help a few more people bring their dreams out of the darkness and give life to them again. Cheers, Mel