A question that gets asked all the time is what it takes to become wealthy from a money standpoint. So today, we discuss what it really takes to build wealth. First, understand that the concept of wealth building is less about the money and more about the discipline that you have in the process.

We also should take a look at how the wealthy deal with their money versus others. Most people spend their income on items that they want and they invest the remainder. The wealthy first invest and the remaining is what they use on their living. So, prioritize investments.

Understand that wealth creation is not something that happens overnight. It takes a lot of work and discipline. Here is the 5 step framework to become wealthy:

Wealth Creation Funnel

1. Comfort: At first, create a comfort fund of around 2000 dollars. It will be your cushion. Get it right and you’ll have a little more relaxation but if you don’t get it right, you will live in anxiety.
2. Consumer Debt: Get rid of the drains that are sucking out your financials such as credit card payments, car loans etc. Do not spend tomorrow’s dollars for today’s benefits. Start paying down your debt. Use the Debt Breakthrough Calculator which allows you to prioritize your debts. You won’t have to deal with high interest if you get it right.
3. Peace of Mind Fund: Beyond the comfort fund, now you build a peace of mind fund which is 2 years of your expense. Prioritize it, and make it happen with the help of your discipline and integrity. If you don’t get this fund right, you won’t see a vision. If you do, then a lot of possibility opens.
4. Property Debt: Next, handle your real estate debt and start paying it down. You will effectively be debt free in the process. There is no appreciation or increase in your property without it but if you get it right, it builds your equity over time.
5. Freedom: Finally, continue to accumulate enough wealth so that your lifestyle can be maintained even after retirement. Your freedom fund is the cash flow machine that generates earnings from the wealth that you created. With freedom fund you’ve got life your way otherwise you’re shackled to a job for the rest of your life.

— Begin Transcript —

Hey there, I’m Mel Abraham, the author of the #1 best-selling book, The Entrepreneur’s 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 peace of mind.

And welcome back to this episode of The Entrepreneur’s Solution show and in this one get a chance to deal with a question that I get asked all the time. As I travel the globe talking about entrepreneurship and business and business growth and wealth and success; constantly getting a question about

• What does it take to become wealthy?
• What does it take from a money standpoint to become wealthy?

And I think you’re going to be surprised at the answer because it has a lot less to do with “How much you make?” and we’ll get to that right after this brief introduction.

And just like every other episode, this one comes with a downloadable tool. You can get my Debt Breakthrough Calculator. It is going to help you create your budget and just obliterate your debt and we’ll talk about that in the upcoming episode. So, you can get that from MelAbraham.com/session044 or just text me, MYLEGACY one-word to 38470. That way I can send you the download link for the Debt Breakthrough Calculator.

And I will see you back here right after this brief introduction.

Hey there, welcome back. I’m Mel Abraham the author of the #1 best-selling book, The Entrepreneur’s Solution and the founder of Business Breakthrough Academy and welcome back to this episode of The Entrepreneur’s Solution show. And I told you that I was going to deal with a question about money, about wealth.

What does it really take to build wealth in that process?

Let’s just step back for a moment because I think that it’s important to deal with this concept of money and many people give money a bad name. They think it’s evil. They think that it’s the root of all evil. Well greed is the bad thing. Money isn’t the bad thing. Money is just a scorecard. There’s nothing bad or good about it. It’s how you use it. It’s what you do to generate it.

If it’s your driving force, yes it can become a bad thing because you’re driven by a greed perspective. But if you’re driven by the impact you’re making, by the difference you’re making, you’re driven by the ability to grow something that’s meaningful to provide for you, for people’s lives; to transform people’s lives—it’s a different ball game. Money is the fuel to allow that to happen.

So, it’s not some bad thing but we all grew up, many of us grew up in a household where they said, “Well there’s three things we don’t talk about.”

• We don’t talk about money.
• We don’t talk about sex.
• And we certainly don’t talk about politics.

And I just wonder, what would happen. I think that we’re doing a disservice to our society, to our youth to focus when we don’t have meaningful conversations about the things that will matter. I believe I’m coming from a financial background so I may have a bit of a bias and dog in this fight but I believe:

• Just like Math,
• Just like English,
• Just like History,
• Just like the Foreign Languages,

Just like the Core Competencies that they make us take in school which I think are great. I think we need to put financial literacy in there as one of those core competencies.

We need to teach our youth, we need to teach society about money.

• What drives money?
• What creates money?
• What are the investment principles?
• How do you make it work for you?

> Because the concept of wealth building is less about the money and more about the discipline. The reality is that wealth is built through discipline, priorities and time. The money is just the one ingredient you put in there. But you can have a ton of money coming in.

If you have no discipline, no priorities, and you haven’t used your time effectively; you’re not going to be wealthy.

• You’re going to be a shot in the dark.
• You’re going to lose it all.
• Or you’re going to squander it all

> Because you’re spending and living at the edges of your check on an ongoing basis.

And that’s unfortunately the norm in society today. We did a lot after 2008 to decrease our debt, decrease our debt, decrease our debt, and now we’re seeing it balloon again. We’re seeing it grow again. People are living, they’re spending tomorrow’s dollars for today’s desires and what happens when you do that is that at some point you’ve got to pay the piper down the road.

It’s not a free ride, and so what I’m going to invite you to do, I’m going to ask you, I’m going to urge you to do, I’m going to implore you to do is to start to understand that we need to live within the boundaries of our means and if we cannot afford something, we don’t put it on a credit card, and then keep that pattern going. Maybe we put it on a credit card but we pay it off.

And we’ll talk more in detail about that but the concept of wealth building is less about the money and more about the discipline you bring to the money and to the process of building it. So, it doesn’t really matter what age you’re at. Great, it happens to be better if you start earlier.

In fact, I started; my son started investing at 16 years old; when he started his business 16 years old. And the principles of investment are universal. The principles of wealth are universal and getting him to start; him and his current fiancé. I say current fiancé as if he’s had multiple. His fiancé which they happen to be fiancés now and they’re getting married in a year which is really kind of cool, totally a different issue.

But here’s two young kids. They’re in their 20s now but they’re young kids that had the ability to use these very same principles to put money away so they could buy their own house before they got married. They bought their own house before they got married. They took care of the down payment. Not only did they take care of the down payment, they still have money in the bank to survive a year if things went to hell in a hand basket.

So, they did things right. They understood the principles of money, the principles of wealth and used those at a young age to do that and now they’re going to continue through that process. And the younger we can start, the easier it is because time is on our side. Time will work for us to allow the dollars to continue to grow. It’s the beauty of compounding. It’s what Albert Einstein says, “One of the wonders of the world is compounded interest.”

And there’s something called the rule of 72s. And I know I’m going to do a little bit of math here which may freak some of the creatives out, the right-brainers out but if we’re going to talk about money, we’re going to have to talk about math. We’re going to have to deal with this.

And this rule of 72s says this:

If I invest a dollar at 10% it will double in 7 years.

So, why is that important?

– Just to understand that the time will allow it to grow. Now, the rule of 72s also says,

If I invest at 7% in 10 years it will double in there.

That’s what the rule of 72s is. 7% 10 years, 10 years, I mean 10% 7 years; you’ll double your money.

Well think about this. If I start, if I start them young; like I started Jeremy at 16 years old and he is investing. So, the money he invests at 16 years old doubles by the time he is 26, and then doubles again by the time he is 36 if invested at 7%; which you can get 7% in the market with these days. So, it doubled twice.

What does that mean?

By the time he is 36, he’s got four times, four times the money that he started with at 36 years old. Do it again from 36 to 46, another ten years, it doubles again.

Guess what? That’s not a doubling, that’s 8 times the money at 46 years old.

• That’s the beauty of compounding.
• That’s the beauty of the discipline.
• That’s the beauty of having time on your side.

But maybe you’re not 16. Maybe you’re not 26. Maybe you’re not 36. But think about this. Maybe you’re in your forties. And you start today, and it doubles by the time you’re 50, in your fifties. And it doubles again which is really a quadruple by the time you hit your 60s.

It doesn’t matter where you are, what age. The key is to get in the game, to get started in the process of:

• Putting money away and building it,
• Being disciplined,
• Making investing a priority, not a leftover.

And that’s one of the first concepts that I want to, kind of walk you through. I’m going to give you the framework that builds wealth—my framework. But I want to touch on this first and that is the difference between how most people deal with their money, and how the wealthy deal with their money.

So, most people when they earn money, they go out and they work. They either work a job or they’re working for themselves, and they’re getting money in. And what they do is they get income in and then they pay all the expenses and then they, this is business expenses obviously but they pay their personal expenses, and they get their glorious cars, and all their clothes and their, maybe their big homes and all of that stuff, and they pay all those expenses and then they see what they have left and they invest what’s left.

So, that’s the way most people live. Get the income, spend what we need to spend or what we want to spend in that process: my lavish trips, all the kinds of things that I want to make me feel good in the moment, and whatever I have left over I’ll put in a savings account or I’ll invest.

The difference between that and the wealthy is how they prioritize investing. So, the wealthy will look at it differently. They will get their income but what they’ll do is—they’ll get their income, they’ll pay their business expenses first. So they make sure that all their business stuff is taken care of. They’ll figure out what they need to invest to build wealth and they’ll invest seconds.

And then they’ll build their life on what’s left over. See that, what happens is that society has this reversed. They’ve made investment the lower priority. The wealthy make investment the higher priority. And that’s what I think that we need to do is start to move it up the priority ladder to get them to, to make investment part of our life.

Too many times we’re living beyond our checks and we look at things and we say, “Oh well, retirement’s years away. That gate’s away, I don’t need to worry about retirement.” And that’s our first problem. We need to think about things not in the context of retirement because it’s easy to say, “Retirement? I’m going to put it off. Retirement? I don’t need to worry about it. It’s years away.”

Here’s the way I look at it. What I do today will give me peace of mind tomorrow. It’ll allow me the ability to know that things happen.

For instance: When I had my bike accident in 2009, I knew financially, I had the peace of mind financially that everything was taken care of. That Jeremy was taken care of. The family, I wasn’t married at the time so, it was primarily Jeremy but Jeremy and the family were taken care of. And today, I have the peace of mind knowing that if god forbids something happened to me, financially, my beautiful bride Stephanie, and Jeremy and the family are taken care of.

It’s about peace of mind. It’s not about retirement because retirement we can put off. Peace of mind, there’s some immediacy, there’s some urgency. I believe that’s the highest desire of many of us: is to get that piece of mind, to get that comfort.

So, how do we do it? How do we get ourselves there?

And it’s a step-by-step approach. It’s not something that happens overnight. It’s something that we’re going to need to work through. So, the process that I work through is what I call the Wealth Creation Funnel. This is my framework. This is the way I look at things and I think that it will serve you. Actually, I don’t think that it will, I know it will.

• It served me.
• It served my clients.
• It has served my friends.
• When they did it with discipline.
• When they created it and made it a priority.

So, here’s how I look at money and what we need to do first, and in the order of priority to really get ourselves our path to freedom and it’s what I call the Wealth Creation Funnel.

And the first thing is to create a Comfort fund. This is …

• Many people have no savings.
• They have no backup.
• They have no emergency fund.

I want you to have something that you can feel comfortable. If something happens, you are somewhat taken care of. At least, you have a cushion. It’s a comfort fund.

Now, you’re going to find that many of the positions I take, the philosophy that I have is very, very conservative. The worse thing that happens if you’re conservative is that you have more. There’s nothing wrong with having more.

So, I come from a very ultra-conservative perspective but I believe you can live a great life even with a conservative bend—building wealth and doing some of the things that I’m going to suggest to you here. So, the first is this comfort level. I’m going to say about 2000 bucks.

Now, if you have a lavish lifestyle, there’s some things we might need, you might need to think about with your lifestyle but 2000 may not be enough. But let’s just start with something that’s achievable. Let’s just start by building what I call a comfort fund, 2000 dollars. So, one of the first things I need to do is start, get my debt start to pay down in a way that I can start putting money away and get myself to a comfort fund of at least 2000 dollars.

Then from there, this is the evil devil, the drain that is sucking the financial life out of most of us and that is our Consumer debt. We need to get rid of your consumer debt and when I say consumer debt, this is about credit cards, car loans; things that you’re consuming

• That aren’t investments,
• That aren’t going to provide you cash flow, or
• Provide you appreciation or growth.

So, it’s things that you’re consuming. It’s the stuff that may be you’re using, credit cards to live beyond your means. To spend today’s dollars, I mean tomorrow’s dollars for today’s benefits. So, I don’t want you to spend tomorrow’s dollars for today’s benefits. If you cannot make that happen then don’t buy it today on tomorrow’s dollars unless you know that you’re going to pay it off in 30, 60, 90 days.

I use credit cards, I use credit cards a lot but I use them as cash advance cards. I don’t carry balances. We pay them off every month so we live only to the extent that we can and not continually borrow, and that’s the challenge that most consumers, most people are dealing with in society today. Is that they live beyond their means, and they use credit cards to do it and what happens with these credit cards is they get jacked up interest rates to 19, 20, 25, 30 percent I’ve seen at times, and yet can’t get out from under that. And so we need to get out from under our consumer debt. So, once we have the comfort fund we need to start paying down our debt.

And there’s a process in which to get your debt paid down quickly, and you need to follow a process in a system. Now that’s what the tool is that the Debt Breakthrough Calculator is going to allow you to work through the process.

Now, there’s two primary ways. You’ll hear people say, “Oh pay the smallest balance first.” You’ll hear people say, “Pay the highest interest rate first.”

And so, what happens is that your ability to pay down your debt sometimes rests on mini successes. In other words, let’s get something paid off first.

• Now, one is called The Snowball Effect.
• The other is called The Avalanche Effect.

So, The Snowball Effect is paying the smallest balance first.
The Avalanche Effect is paying the highest interest rate first.

Which one will pay your debts off the quickest?

I don’t know because it depends on what the relationships are but the tool will tell you which one to pay off first. And what happens is that we start to pay down your consumer debt. We start paying down those credit cards. We get one paid off and then we take that payment that we’re paying there and pay it on the next one also. So, we keep stair stepping the payments until you eliminate your debt.

The key is to be disciplined in doing this. And when you do this, you’ll find yourself, potentially depending on the level of debt, potentially out of debt that within a year, a year or two’s time. And now you find yourself in a place where you’re not sucking wind, you’re not sitting back having to pay 19, 20, 25, 30 percent interest in an environment, in an economy where the interest rates are down at 4 percent.

And it’s just … it’s mind boggling and we shouldn’t be doing it. So, get your 2000 dollar comfort fund in place. Let’s get the consumer debt paid off, get it completely.

Now, I’m not talking about business debt. There’s investment debt and there’s business debt that is good debt because it’s earning you money, it’s working money. I’m talking about stuff you consume that’s not business and investment related in this section.

Then we step up and say, “Great, now we can start to build a peace of mind fund.” Now what we want to do is say, “Beyond the comfort fund, I want to build a peace of mind fund.” Now my, again I say, I’m very conservative. I believe that the peace of mind fund should be 24 months, 2 years; 2 solid years of your expenses in a bank account that you can have.

Now, why do I say it?

Now some people will say 6 months. Some people will say 12 months. Some will say 18. I’m conservative. I say 24. I’d rather be that way than not have enough.

And here’s why:

Let’s assume that you have a job. You get your inner workspace and you are working for a company and all of a sudden, the company is having problems and they fire you. So, the first 6 months you’re in shock. The second 6 months, you’re trying to get your ducks in a row. The third 6 months, you’re finally getting on your feet. And the last 6 months, is that last piece of cushion.

That’s how I get to it. It is conservative, but what I want you to do is build some 12 to 24 months of cushion for you over time. It’s not going to happen overnight. None of this happens overnight. Time is your friend. But do it disciplined. Make it a priority. Make it happen. That’s the key. 12 to 24 months in a peace of mind fund.

Then you can start for your college for your kids. Now, this is going to rub some people the wrong way. You, your children have the opportunity to get an education and they have the opportunity to go to college but that does not mean that you need to go into two hundred thousand dollars of debt for them to go to college. They have the ability to do that.

What they need to do is; this is all about having a conversation with them to say, “You want to go to college? There’s some things that you need to do to make that happen.”

And what we need to do is:

1. You need to get good grades.
2. We need look at grants and some of the other ways to pay for college.

Because for you guys to go into debt, for someone to go into debt; and I’ve watched quarter million dollars or more in debt. To come out with student loan debt or personal debt at that level is really hard to come out from under.

So, what I’m going to tell you do is have those hard conversations early on and say, “If you want to go to one of the big schools and we’re going to have to finance it with debt, you need to do your part and that means that you got to get good grades, get scholarships, get grants to mitigate and reduce the cost” so you don’t go into debt because I am suggesting that you do not go into debt for their college education to any grand magnitude.

It’s a mistake. It’s a mistake and you can’t get out from under it very easily. Especially, if it is student loan debt because it’s student loan debt is there. You cannot bankrupt it and I don’t believe using bankruptcy rules to deal with financial responsibility. And so, that can’t be the intent.

So, have those conversations around the college education. Realize that there is all kinds of schools, all kinds of ways to pay for it. Do it upfront. Get it set up. Before they ever get there and realize that they have some responsibility in the process too.

Then from there, once we have the peace of mind fund, now I want to pay down my real estate. I’m going to take all my property debt. I’m going to start paying it down so I can get my real estate pretty and clear, and build that so I can now get myself affectively debt free in the process. Because once I’m debt free, now it’s about freedom. Now it’s about, “Let’s just continue to accumulate enough.”

Now this is the thing that I also differ with society. Accumulate enough wealth that I can make, I can have my living, my lifestyle not based on the wealth created but based upon the earnings that can be generated from the wealth created.

Here’s what I mean by that:

In America, especially, what we do is we say, “You go to work and you put stuff into a retirement”, and you accumulate, accumulate, accumulate in that retirement account. And when you retire, they tell you, that when you typically retire, you don’t get the same level of income that you did when you were earning, when you were working.

So they say, “Alright, reduce your life and live at this reduced life level. And I say, “Wait a second. If I’ve turned around and worked 40 – 50 years of my life to get here, why should I reduce my lifestyle?”

And then, here’s even the worst part of it. You now take money out of it and keep taking money out of it and out of it, out of it and it keeps decreasing, decreasing, decreasing, decreasing. And what you’re doing is you’re gambling with the fact that the money outlasts your life. And I think it’s a mistake.

So, the question is, build, build, build, build, build enough that you create a machine that you can turn the faucet on that it will then generate income and that income is high enough to give you the lifestyle of that you have been accustomed to. So, you’re not spending it down. You created a machine that creates cash flow.

Now, that is challenging. That takes a lot of discipline to do it but when you do it again it’s about freedom. Don’t have to worry about it. Just turn the faucet on and the income comes out, and you got a machine that’s generating it.

So, that’s the kind of thing that I look at in the context of, in the grander scheme of building wealth. And some of you may not be in this position. Maybe just sitting there and saying, “I’m just struggling to get the comfort fund in place.”

That’s fine. Start there and slowly you get those mini successes and you keep building. We all got to start somewhere. Remember, I had one-third of my whole, everything I owned wiped out in a bad investment, in a Ponzi scheme. And I used these same principles to rebuild and to rebuild within 18 months. Think about this. When you do this, when you don’t get it right and when you do get it right, it’s a different game.

At the comfort level, if you don’t get it right, you’re going to be living in anxiety and anxiousness. But if you do get it right, you’ll have a little more relaxation because you know if something goes wrong you got a little bit of money on the side to take care of it.

When you’re dealing with the consumer debt if you don’t get it right, you’re dealing with high interest rate loans from the credit card companies that are robbing you blind from your hard earned cash. You get it right, you’ve got no interest. You’re not paying the sharks at the credit card companies, their high interest rates.

On the peace of mind fund, you can’t see. If you don’t get it right, you don’t see that there’s possibility. You don’t see a vision for a greater future—the ability to do things differently and to live a life. But when you get that piece of mind fund in place and you get it right, man there’s a whole lot of possibility out there, and you’re seeing things differently.

And then with the property piece, if you’re not paying down your property, and you’re buying real estate and you’re not paying it down, or you’re not buying real estate, there’s no appreciation. Those assets appreciate and build equity over time that you’ve leveraged, and so if you get it, when you get it right you’ve got this asset that’s creating equity for you that you can use as a rental, that you can use to sell and cash out if you need to but it builds wealth.

And then, the last piece is the freedom. If you don’t build that freedom fund, you’re shackled to that job for the rest of your life. You’re shackled to that earnings for the rest of your life. You’re shackled to it because you don’t have the level of earnings or you’re shackled to a lower lifestyle when you get through it. When you get this piece right, you’ve got life you’re way. That’s the key to it all.

Now, I know that I’m making it sound easy, making it sound simple, and I get that it’s not, it’s not. I’m not going to sugarcoat it. But it is something that when you started and you continually do it, you will be amazed when you look 10 years backwards and say, “Wow, what happened? I’m out of debt. I’ve got money in the bank. My real estate’s getting paid down.”

• The key is to start.
• The key is to be disciplined.
• The key is to make investing a priority and not expensing a priority.
• And to use time on your side.

So, I hope that serves you. I hope that helps you. I hope that gives you some food for thought

• To really start to think about your wealth.
• To take control of your money matters.
• To take control of building wealth in a great way.

And as I said, you’ve got my Debt Breakthrough Calculator. Just download it. It’ll help you get out of debt. It’ll walk you through the whole process of what you need to pay first to get you out of debt, and start you on that journey to wealth building.

So, hope you found this of value and do me a favor. Again, just share this with a friend. Share it with a bunch of friends. Get this out there. I think that our society needs it. I think our people need this

• To be able to be financially free,
• To be able to be financially responsible,
• To be able to have the financial acumen to do it their way.

To have life their way and not dependent on handouts, not dependent on social security, and if it happens, it happens … great. But let it be the icing on the cake and not the cake itself as we go through it. So, make sure you share it.

If you have not subscribed, do me a favor. Subscribe. Stay with me on this journey. I want to stay with you on this journey. Stay in touch with me because I want to answer your questions. I want to support you as you grow, as you do the things that you’re doing, and help you out along the way.

And remember, to get that Debt Breakthrough Calculator. Just go to MelAbraham.com/session044 or just text me MYLEGACY one-word no-spaces, MYLEGACY to 38470.

And if you have any questions about business, about entrepreneurship, about success, about money, just go to AskMelNow.com. Leave me a message. I’ll make sure that we get it on one of the upcoming episodes of The Entrepreneur’s Solution show.

I hope you enjoyed this show. It’s my honor, my blessing to be with you here every week, and I look forward to it next time. Until we get a chance to see each other again,

May your vision be grand, your journey epic, and your legacy significant!

See you soon. Cheers!!

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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
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