Episode 64: Forget passive! Here’s why leveraged income is the real deal

Get ready, because everything is about to change. There's a new way of living life and doing business that will blow your mind. This is a podcast all about the timing of life and the timing of success. It's what we call the Right on Time life. And you are listening to the Right on Time podcast with Amber McHugh. Hello. Hello. Welcome to the Right on Time podcast. Boy, are we in for a treat. Today we're going to talk about that thing that most people don't like talking about. Actually, people would rather talk about poop, diarrhea, politics, religion than they would talk about this based on the research. Guess what it is. Guess what it is. We are talking about money today. Our guest today, Mel Abraham, is gonna shake things up. A lot of people go into business to get freedom, flexibility. Mel's got some contrarian viewpoints today and he's gonna help us think about our businesses in a different way to create long term freedom, growth and give you support and cushion for when things come up unexpectedly. It's a good episode. I cannot wait to hear what you think. Without further ado, here is my friend, Mel Abraham. Mel Abraham, welcome to the Right on Time podcast. I am so thrilled to be chatting with you again. Always.

Oh, my God, Amber, it's so cool to be here and get a chance to chat too. Yeah.

Oh, unreal. You have such. I mean, as I think about you, the first time I met you, I don't know if I've ever told you this, but there's a story that my business partner in my photography business and one of my best friends tells about me. We worked in corporate together and she said to me, and she tells this story on all of our onboarding calls when we're bringing on new team members. She said I was suspicious about Amber because she was just so nice. And I quickly learned that, no, this is really Amber. This is who she is. And Mel, the first time I met you, I was like, this Mel guy, he's really friendly. Is this real? Like, he's so open, he's so caring. I don't know about this Mel guy. And. And every time I see you show up, every time we talk, every time we're in the room together. It's been a while since we've been in the physical room together. I'm like, I love this guy.

You're so kind. You're so kind. That means a lot. Because, you know, it's funny, I've had some people say that they thought I was unapproachable and I'm Going, really? Oh, no.

I had the exact opposite effect. I was like, I was like, wait a second, second. So maybe people are projecting there. There you go.

I mean, my gosh. Yeah.

Oh my gosh. It's so great to be here with you. We're both pretty close right now. I'm sitting in Phoenix today and are you, you're. It looks like you're in your home office.

I am at Laguna Beach.

Oh, I wish I was there with you. Good weather.

We just went down on the beach, Budo. My, my, my, my brand new puppy and I, and we do it every morning. One, to tucker him out so I have some free time. But two, to get out in nature.

Your story, that just reminded me you're such a well rounded human being. You have such incredible experiences, such incredible stories. And today I'm so excited. We're going to dive into one element of this around how we take care of our businesses, create cash flow, but also longevity and set ourselves up for retirement. Set ourselves up for real freedom. But how did this come about for you before we dive into that piece of things? How did you get here?

Gosh. So for me, what I'm doing today, I'm a CPA by education. So I started down that traditional path and really quickly figured out that I had, I did not belong in corporate America. I didn't belong with a bunch of rules. I didn't belong with all a bunch of expectations unless they were my own expectations. And so I left. But really how I ended up on this journey was I realized that entrepreneurship was the place that I wanted to be and it was also serving entrepreneurs in that process. But along the journey, I became a single full time dad. And my son came to live with me at five and a half years old. And here I was just starting out a business with no cash flow, nothing to start. But I was 300,000 in debt because I just bought a house and I'm trying to figure out how do we make this work? And so I did what most entrepreneurs do. I got on the treadmill, I started running, I put my head down, I started getting clients, I started getting cash in. I started to build a business. And, and then Jeremy comes running in one day from school. He's excited and he goes, daddy, daddy, Daddy. I drew a picture of you at school today. And so like, I'm excited, he's excited. I kneel down, I grab this picture, I look at it. It's in blue felt tip pen and it's me standing in front of two computer screens and a Phone in each ear and I go, oh man, am I screwing this up? And so in that moment, at the hands of a six year old boy, I got one of the most powerful business life lessons that I could have ever gotten. Because it was from that that I could have made excuses. I could have said, hey, dude, we need the profits. We need the profits so I can keep the roof overhead so we can do these things, so we can go to Disneyland, so we can have fun. But we weren't having fun. We weren't doing the things. And it wasn't the profits he needed, it was the presence he needed. And that was the thing that got me to start looking at it and say, oof, how can I do business differently and money differently so I can serve the greatest gift that I was given and that was to be a dad. And that's how I started to shift into this different journey of saying, how do you do business where it serves light and it doesn't just serve a living? And that's the thing that kind of came about. This came full circle. Those lessons came full circle. In 2019, 2019, I got diagnosed with. I heard the three words you never want to hear, and that is you have cancer. They found a 5 centimeter tumor in my bladder. I was getting ready to go into surgery and they looked at me and said, hey, it is on top of the prostate. We might have to remove the prostate. We can't see the ureter on the right side. We might have to put a tube in a bag in for the kidney. And if it's bad, you actually are going to lose your bladder. And I'm like, gone. Okay. Life got completely turned on its head and so I knew that the only way to do this battle was to basically shut everything down, focus on healing, focus on what was important at the time, that priority. And, and the only beautiful thing about it was I had to fight the cancer emotionally, physically, medically, psychologically, energetically, spiritually. However, I didn't fight it financially. I didn't fight it financially because of the lessons I got from Jeremy when he was six years old.

Tell us more about that. You didn't fight it financially because of those lessons. What were some of those lessons and how did those dots come together in this incredibly. I can't even imagine. Mel.

Yeah, I think the thing that came out of the work for after Jeremy and trying to figure this out is I realized too often as entrepreneurs, I left this big consulting firm downtown LA and I left with this idealistic kind of view that I'm going to take control of my life. I'm going to have control. I'm going to have freedom. I'm going to be able to do whatever I want to do. And it was the furthest from that. I didn't have control. I didn't have time. I didn't have freedom. I got on the treadmill, what I call a treadmill entrepreneur. And I was just running. And we come to one of the biggest lessons was that too often an entrepreneur comes to business with the expectation of I'll have full control, I'll have full freedom. But the fact of the matter is, and once I realized this, this is where you start to do business differently, is that a business was never meant to give you freedom. A business was never meant to give you control. A business was meant to have an impact, to create a solution, to serve people and to create cash flow.

And to create cash flow.

Yeah. Huh.

Wasn't meant to give you freedom. It's there to serve a purpose, have impact and create cash. Fl that's different.

Yeah. Well, and now you realize as an entrepreneur, you actually have to build two businesses, or two machines, if you will. And the first is the business machine, which we all get into and we start doing and we start running. The second is the thing that most entrepreneurs miss, and that's the money machine. The business feeds the money machine. The money machine feeds your freedom.

Business feeds the money machine. Money machine feeds the freedom. Mel, this is good. So one of the things, I was recently in clubhouse and I don't spend a ton of time there, but I happened to be there one morning and I raised my hand and I never. I've raised my hand in a couple of other clubhouse rooms. And it was bottom of the list. Okay, we're wrapping up. See you later. I'm like, what am I spending all my time on? But I happened to get picked this time and I was asking a about building our business for sale. Right. And my photography business specifically. How. How should I think about that? Not that we are ready to sell. Not that that's like our forefront strategy, but I wanted to just, you know, learn and open up that conversation. And the person said that that was answering this question. Very successful Buy sells businesses and said, no photography. You don't want to build that first sale because photography people aren't buying those businesses. Okay, well, that's debatable. And we could talk about that. But what he said was, you want to pull as much money from that business as you can and put it into other investments. And that is does that align with like, okay, cash flow. Create cash flow to put it into another machine. Break those down for us. What, what does it mean to create cash flow and then put it in this other machine?

Oh, and then. That's exactly the thing. Here's what we deal with. There's something that I teach called the five incomes. And what happens is there's no. This is the other kind of a pet peeve of mine. When I hear people say I want passive income. Okay, first off, the truth is there's no such thing as passive income. It just can't have it. You just can't. It doesn't exist. And the problem is that, that if we look at our relationship with money is. It's exactly that. It's a relationship. If we took any relationship, I mean, you've been married and I've been married. If we took our relationships, any relationship, and took a passive approach to it, what would happen to the relationship?

Not good.

Not good. No. So why would we think for a moment that if we take a passive perspective to our wealth, to our money, to our finances, a set it and forget it approach, that it's going to give us any good results? And so what we really need to strive for is not passivity, but leveraged, where we say the inputs, the level of inputs are no longer a one for one input. In other words, we want to get our money to work harder for us than we worked for it. And the way we do that is to understand that there's five levels, five types of income that we can create at the base, which is what most of us start out as, whether we're employees or entrepreneurs, is active income. It's, it's one on one. I put one, you know, one unit of effort in, I get one unit of reward back. It's swapping hours for dollars. And some people never get out of that. They stay in that because that's, you know, I come from the accounting profession and most of them are about swapping hours for dollars. It's the worst business model you can create from a lifestyle standpoint. From a scale standpoint. Mm. One step above that is business income. This is where we start to leverage, bring in team. The business is less, less requiring us, it's less dependent on us, but it still has our input. So it's a little more leveraged. It takes us out of the business for a little while. We can take a few weeks out. We can do, do a month off maybe, because we have team and we have systems and we have processes and we have things in place, but it's these next three levels that create the money machine. And so the next level up is asset based income, where we get a chance to start acquiring assets like real estate, like equipment that I can create, rents, and different things that require far less of my time than the active and the business income, which buys me my time. We don't need the wealth. I say that for the affluent entrepreneur, there's three critical outcomes. They want a richer lifestyle, which is about the feeling and not the metrics. It's about the feeling and the experiences and that type of thing. They want a deeper impact. They want an impact on the people they serve, but they want an impact to the people they love and themselves. And they want complete freedom. Financial freedom is the, the most rudimentary freedom we can strive for. It's the base. But we don't really want the financial freedom. We want what it gives us. And what it gives us is time freedom and mind freedom. And so at the asset level, we start to be able to rent and get money back without putting as much effort in. Then one step above that is residual income. So things like I take my book, okay, every time it's, I created it once, every time it sells, it pays me a royalty. Not only does it pay me a royalty, they get put into a course program and then they get into a funnel and that generates income. Or you could be in a network marketing and have a downline that creates residual income. You could license your content, license your knowledge, license your information and create. So you create it once, get paid often. And then the step above that is portfolio income. This is stocks, this is bonds, this is ETFs, index funds. This is the typical investment things that we think about and that's the highest leverage because it takes the least amount of constant input. But it always still takes input, it always takes your attention.

So good. All right, Mel, I got a couple questions.

Yeah.

All right. Like these are just real, real top of mind. Just I'm going to ask them in case they are on top of mind of anyone who's listening. On the money front, residual income, books, royalties, licensing, how like I've heard oftentimes, right, Books, it's your business card. It's not going to make you a ton, but it's a business card and it's going to move people into your world. So how much, how much is there to be made on that, on that front, on the residual income front?

I was just having a conversation with one of my one on one clients yesterday about this because she's releasing a book in May. And I asked the question, what do you expect to make out of it? And she had this vision. Now, mind you, my book, the Entrepreneur Solution was released. We moved 16,000 books within two weeks. We hit number one on Barnes & Noble. We hit number one on USA Today, Denver Post, we missed the New York Times. You know what? They weren't knocking down my doors.

Yeah.

But that year we probably made. It's going back to 2015, we probably made a half a million dollars.

Okay.

But it wasn't from the book. The book positioned me, gave me access and, and was the introduction to the business model beyond the book. So they came in for the book, they got a free course with the book, they got into a promotion sequence, which then sold them into a higher level product and program which brought them into a live event with me.

Yeah.

So when it comes to like a book, the question is, what's the business model now? This is all automated. It was built once and it's all automated. It's still running today. Wow.

It's still running today.

Still running today, yeah. Six years later, people buy the book, it still puts them into that sequence. So you look at it and say, it's not the book, it's the business model around the book. In fact, I have another book that we're working on, will come out in 2022. So. So that's the thing that, that started to create that residual income. So can we create something that doesn't require. Require us to run on the treadmill to generate the income? And. And that's what we're looking for.

And is that sort of the definition of leverage?

Yes.

Yeah.

So the relationship, as we go up the leverage scale, the relationship of your input to what comes back to you goes up.

So good. Okay. This is awesome. So as we think about moving up those stages, we've got the business going. How do you focus? How do you prioritize these things?

So let me fast forward and tell you why it's so important and then we'll come back to that. Is that okay? Yeah, because here's what happened. I got diagnosed with the cancer in 2019, shut everything down. At the moment of my diagnosis, 100% of my lifestyle was being funded by my active income down at the bottom and my business income. So the bottom two.

Okay.

When I got diagnosed and I said, I gotta focus solely on healing, I gotta focus on fighting this battle, we're gonna shut everything down. So I went with my wealth guy and I said, here's the deal, I'm shutting the active income down, I'm shutting the business income down. That's probably gonna go from 100% of paying my lifestyle to 10 or 20% max. That means that all the money in the money machine, the three up, the asset, the residual and the portfolio, I said, I need you to flip the switch. And instead of that machine continuing to build, I want the cash flow from that machine, my atm, if you will, to pay for our lifestyle. So we were paying for our lifestyle without eroding the machine. This is the mistake that again, that I think a lot of people make in the sense of, oh, and I believe in emergency funds for peace of mind. But what happens is you build an emergency fund and if that you think is your safety, what happens is that you drain it out. Now you got to rebuild it again. Versus saying, I want to build a machine that's going to kick out the cash. We didn't change our lives, we did change our lifestyle, diet and everything, but we didn't reduce our lifestyle. We didn't drain our accounts, we didn't drain an emergency fund. We didn't sell anything. I didn't sell my wife's shoes. That would have been a fate worse than the cancer. So what we had was a financial machine that was now paying for a lifestyle. And then when I got out of the cancer and started back in the game, I tell them, shut it down now, keep building the machine again, even bigger. And I'm starting the active in the business again. And so it gives us the options to make that happen. But the only way that happens is this. As an entrepreneur, we make investing a priority. See, most people make money, they spend money and they see what's left and they take what's left and start to try and build something for their future. That's like living off the scraps. The wealthy, they sit back and they say, I make money, I invest for the future, I see what's left and I build my lifestyle based on what's left. And if you don't like what's left, because we're entrepreneurs, we go back to the beginning and say, let me increase my income so I can fund the lifestyle but not jeopardize the investing priority.

This is good. Okay, so I am, I've got two businesses running, We've got cash flow coming through. We've got our savings plus some. We've got like, you know, three to six months savings. Like, I like, I like having cash, Mel. Like, I have some money mindset. Growing up, things I'm sure. I'm like, I just want, I just.

Like the cash there.

My husband's like, no, we have to invest this. And I'm coming around right now. It's been a lot. But we're looking at, we're looking at land, we're looking at building on that land. Eventually. We're looking at. We have no, no debt. I have a very tiny amount of debt. Student loans, because we just sold a house and got rid of that debt. My credit crashed. So I'm like, we're going to leave the student loans. I don't my credit to crash anymore. So we, we've got a couple of things in the mix, but how do you know. And we're looking at, you know, other investments that we're going to start. Exactly what you said, like this is our budget. We want to make these investments. This is what we have left to live on. Do I like that? No. Okay, I'll go back out and get more. But how do you know the right amount to invest?

So this is a great question. This is the mistake that a lot of now, I'm not a financial advisor in the traditional sense. You know, I don't sell investments. Okay. The only thing I sell is your belief in the possibility of your future. That's. That's pretty much it. And so I will say things that some financial planners, financial advisors go get pissed off, but it's because it's the best for you. And so most financial advisors, their primary focus is to do income based planning. In other words, you're sitting down, Amber, with them, and they turn around and they say, well, how much are you making? They say all 60,000. And they go, great. So they focus on replacing the 60,000 and. But that's not the game we should be playing. We shouldn't be doing income based planning. We should be doing lifestyle based planning.

Okay.

Lifestyle based planning. Because one of the first things that I do with people in the affluence blueprint is say, let's understand your affluence vision. Let's understand what the ultimate lifestyle is that you want. This vision for you. We now know where we want to go. We now just put a price tag on it. So we have a destination and we know where we are. And there's this gap. Now we know the gap that we need to fill to fund the lifestyle, not an income stream. Now the income will drive the lifestyle, but if we don't do the lifestyle first. No. In 2009, I got in a bike accident, a mountain bike accident. I was Angry. I was. I was. And I got on the bike to bike to the gym. I was running, riding down a hill as fast as I could because it was an uphill and I wanted to coast, and my shoelace got caught. And so the bike. My bike ride turned into a flight, which was kind of fun for a moment, but the landing. I stuck the landing on my head.

Oh, my gosh.

With a great, poor concussion. I was stuttering. I had no feeling on the right side. And I had a dear, dear friend who had retired at 36 years old, called me up. He says, I'm taking you to lunch. So here I am in a neck brace. He's taken me to a pastrami shop when I used to eat pastrami. And he looks at me and he says, how much is enough? I go, what are you talking about? And he says, how much is enough? He says, you were riding distracted. You were riding angry. You were running like you were on a treadmill. And he says. He says, and if you don't know how much is enough, you don't know where your finish line is. And you will continue to run this way, distressed, distracted, and continue going until there's another breakdown, another burnout, or another accident.

Wow.

And I thought, oh, my God, you're right. I have no clue what my finish line is. I have no clue even if I got there already. And so often we get in a race and we're just accumulating, acquiring, achieving, and we're forsaking the living, the richness of life in the process, because we never took the time with ourselves, with our spouses, with our significant others, our partners, to have the conversation and say, what's really the vision? What's the finish line for us?

Oh, that's so good. That got me. I had a moment. I was sitting in Addis Ababa, Ethiopia, must have been January 2019. And I was doing my planning for the year, and I was setting revenue goals, like, wait a second. And profit, like, doing all my numbers. And I had a moment when I realized, wait, your goal, like, you've already covered your salary that you wanted to cover coming out of corporate, and your goal beyond that, like, cover salary and have freedom. I'm like, I can live anywhere we go, anywhere my husband's job takes us. And I was like, you got it. You hit that goal. And it was such a shift in a reset for me. And hearing you say that, what's your finish line? Brought me to that moment in January 2019, when I was sitting in Ethiopia living my Dream life. And then the dreams change, and then the finish line moves, and I have not redefined the next level goal. That was so. That statement that you made, what's your finish line? Was so powerful for me, Mel. And I want people to recognize that. Like, and this is where you hop on that treadmill, you're running that race, and you're like, wait, when do I stop?

Yeah. Or. Or you get somewhere and it's not what you thought. I have another friend and client, Allison J. Prince. She does E. Commerce stuff, and she does some amazing stuff. And she called me up one day and she goes, you're the only one I can have this conversation. I said, what's up? And she said, I hit all my numbers. And I go, that's great. You hit all your numbers. I mean, she's doing amazing. And she just sits there quietly. I go, why do I get the feeling that you're not happy, though? And she goes, I'm confused. And I said, about what? He says, well, what do I do now? What do I do now? Do I just increase the numbers? I said, oh, so this is one of the key principles that I teach. I said, it's important to understand your why before, how and how much. We try to figure out, how do I make money? How much do I make? But why? If someone wants a million dollars, why does it really matter? Is this just an ego number? Is it a social media number? What is it? And. And so in the process, she came up with this realization that what drives her is wanting to give women the possibility of an independent life. So we restructured her business. So every sale she makes, she makes a microloan to a woman in a third world country.

I love it.

And she does it in the customer's name. She sent me a note earlier in this year saying, mel, we just finished a launch. We crushed it. We had, I think it was 1100 people come in. She goes, do you know what that means? $104,000 going to charity. That is over 4,000. 4,000 microloans made. My heart is happy. She's now over 8,000 microloans made. She's driven by something else than the money.

Now, I've got to say, sitting in Addis Ababa, Ethiopia, which is very much still a developing, building, growing country, those loan, it goes a long way. It has big impact. A small amount, and that's a big amount has big impact. That's really cool to hear, Mel. Oh, my gosh, I will keep you here forever and ever and ever, because I am rolling with more questions. And I. So I know those of you who are listening, your ears may be perked. You may be questioning things. You may not have all the answers yet. And that's okay. Having questions, even if it's the possibility of having a question like something has been sparked in you, something struck you. Mel is your, is your person. Mel, where do people find you to learn more about creating this machine?

Yeah, so I guess a couple places. One is my own show, the affluent entrepreneur show that I do weekly where I will. So it's solo shows, it's interviews, but I also take questions. So I help. And then I want to start bringing some of the audience members on to coach them, to work with them. So that's one place. Instagram's DM me. And then on my website, melabraham.com there's free training, there's a seven day free money workshop. So I'm all over the Internet and back in the game trying to serve and support. So anything I can do for people to realize. Here's the thing. Building wealth is actually not complicated. Building wealth is something that we have the blessing to do if we just understand some principles, some rules and know that your wealth creation is less about money and more about behaviors. Which means that I just got to know the right behaviors and the rest will take care of itself.

Oh, that's good. Mel Abraham, thank you so much for being here. We're going to link all of those resources up below this episode in the notes and go get yourself some Mel, dive into his resources. You will not be disappointed. Every time I introduce you to someone, feedback comes back and it is good. So follow Mel. Find Mel. Whether it's debt, whether it's planning for your future, wherever you are starting, you are so right on time. We'll catch you in the next episode.