009 Why Assets are Vital for Financial Liberation

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This is the Affluent Entrepreneur show for entrepreneurs that want to operate at a high level and achieve financial liberation. I'm your host, Mel Abraham, and I'll be sharing with you what it takes to create success beyond wealth so you can have a richer, more fulfilling lifestyle. In this show, you'll learn how business and money intersect so you can scale your business, scale your money, and scale your life while creating a deeper impact and living with complete freedom because that's what it really means to be an affluent entrepreneur.

Hey there, Mel Abraham here, and welcome to this episode of the Affluent Entrepreneur show. And in this episode, we're going to talk about why assets are the key and vital for your financial liberation. Here's the thing. Too often we think that income is the key to our wealth, key to our financial independence, and key to the things that we're trying to accomplish in life. And that's not necessarily the case because there's a lot of people that make a lot of money. Income in problem is that income is going out. So they're making a lot of money. I mean, let's just look at, I mean, how many athletes and actors and actresses. I mean, you know, the big one that just jumps to mind is someone like Michael Tyson made hundreds of millions of dollars as a boxer, and he frivolously spent his money and fell from favor, did some, made some bad decisions and he ended up broke. And how many times we've heard that happen. And so the income isn't really the driving force per se to your wealth. Remember in the last episode I said it's one of the elements. But income alone isn't the thing. The key is not just the income, but it is what we do with it. It's how much we keep. It's how we use it, it those things. The problem is that we got raised in what I call a save, spend and pray society. What do I mean by that? The reality is that, that we've been told save while you're during your working save, save, save, save, save, save. And we continue to save as much as we possibly can and we put it away. And remember, if you don't have that lifestyle number in mind, you don't know what you're saving for, okay? And you're just told the same. And so we'll put away, we'll max our 401k, we'll max our IRA, we'll do all kinds of things. But. But is it enough? And then what happens is that when you get to the point where you decide that you're going to retire, they say, great, now you can spend. And so you start spending, but they don't tell us how to spend and we don't know how much to spend. And so if you don't have enough saved up and you're overspending, you're going to spend it away. And this is where the praying comes in. Because now all of a sudden, you save, you spend, and now you're praying that your life doesn't outlast your money. That's a huge mistake. But it's what we've been raised on. It's what we've been educated with. It's the old industrial age concept and construct of how people's lives were built. You just continue to work, then you saved, and hopefully by the end of the days, the money and the life matched up. I don't want that for you. And the way that we circumvent that, the way that we transcend that, is to make sure that we build a financial machine that we create assets with our income so the assets can produce income without our work. Here's the other side of this. So there's two sides of the coin. There's the saving side, but there's the effort side. Right now, most people, their ability to generate income is directly tied to the need to put effort in to generate the income. So let's look at my situation as a cpa. As a cpa, when I first started out, the fact of the matter is that I had an hour. I would go find a client, I would sell them the hour and they would pay me for the hour. And that was my business model. Now I learned really fast that it is the worst, one of the worst business models. If you are selling hours for dollars, I want you out of it. I want you to change it. I want you to start understanding that hours are commodities. Transformation creates value and transcends the hourly rate. It moves you from being seen as a commodity. And we'll talk more about that. In future episodes. But here's what I'm getting at is that when we look at it and say, if my only way to generate income is my direct input into the system, direct effort into the system, and what I get back is a direct reward. In other words, a relationship of one unit in equals one unit out, that's a very difficult thing to scale. That's a very difficult thing to build wealth from, because the only way to scale it is to start to run on that treadmill faster, longer, harder, and at some point, there's a breakdown. So what we need to do is we need to separate your input efforts from the reward outputs. Okay? From the reward outputs. And so what I want to do is I want to walk you through a framework that I call the five incomes. Because when you start to understand where your incomes come from, you'll start to look at it and say, ah. Because what I want you to do is look at where the most of your income's coming from. But what I want you to strive towards to get additional income streams in place so they're not tied to your input. Now, before we go there, I think it's really important for us to have this little conversation about this thing that I hear all the time. What I want, Mel, is passive income. I go, well, let me. Let me ask something for you. Why do you want passive income? And they literally will say, because then I don't have to do anything. I don't have to think about it, and I'm going to get income. That's it. I go, all right. And so I lean in and I get really close and I say, let's talk about this. Money.

Wealth, your financial future. There's a relationship there, okay? There's a relationship there. And so when we start to build wealth, when we start to use money, the key to building wealth is to change the relationship that you have with your money and, and your income and your wealth. But just like any other relationship, if. If we decide that we're going to neglect it, forget about it, I don't have to worry about it. I'm going to make it passive. What's going to happen in that relationship? Let me give you a for instance. Let me pull back out on this and look at it this way. If you're in a committed relationship, married or committed, it doesn't matter. One of the things to think about is if I took my relationship with my beautiful bride, you know, Stephanie, we'll be. We'll hit 10 years in June. Oh, my God. So 10amazing years. Okay. The first year was rocky for us. You know, you bring two. Two bullheaded, stubborn people. But we found our way. And I. I've got a richer life because of her. But I digress. So here's the thing. When we look at this. If. If I turned around and said, hey, she's good. She knows I'm here. Yeah. And I'm passive about our relationship. I don't spend the time with her. I don't create memories with her. I don't create experiences. She's good. What do you think's gonna happen in that relationship? Yeah, it's not gonna go well. It's probably gonna wither, and it's probably gonna distance, and at some point, it's gonna fall off the bind. It's just not gonna work. And it's the same thing with your money. So the concept. What I want to do is I want to wipe your mind clear of the concept of passive income. There's no such thing as passive income. Now, call it semantics, but there is something called leveraged income, and that's what the five incomes is built on, is for you to understand how we can leverage your time and leverage your income. But never, ever, ever do we let go and stop checking the pulse on the patient. Never, ever do we just walk away and forget about it. Never do we do that. Because when we forget about our income, when we forget about our money, when we forget about our wealth because we think it's safe and it's on the side, and I don't have to worry about it, I don't have to look at it, it will forget about you at some point. And that is the death knell for your wealth. So let's jump to the iPad. I'm going to do some drawing. I'm going to walk you through this. This framework called the five incomes. For those of you that are not watching but are listening, don't worry. We'll make sure that the drawings and the framework and everything is in the show notes. Go to the show notes page, and we'll make sure that we have a link for everything so you don't miss out. But I'm going to describe it enough that you'll get it just by listening. All right, so here's what we. What we're looking at. One of the things that I said is that instead of passive, I want to look at things in the construct of leverage. So we're going to go from no leverage, and I'm talking about your time, to high leverage. And so at the base level, at the very first level, income wise, there's five different types of income. At the very first level, what you're going to see is what we call active income. Now active income is the income that you generate, basically one on one. You know, people that start out solopreneurs, employees.

In that case, it's direct input and effort from you that generates the income. So the relationship between the input, the effort and the reward is close to a 1 to 1 or sometimes even less than 1 to 1. I put in a lot of effort and I get a little bit of income. Now a lot of people live their life here and so they're on this direct treadmill and they keep doing that, but it's not leveraging. And the only time we can create income is as long as I'm on that treadmill and running, if I can't show up at work, if I can't show up in the business, if I have to pull myself away from the business and this is the sole source of income for me, this becomes an area of failure, potential failure in your wealth building. And so what we want to understand is how do we look at some of these other elements. The second level of income is what we call business income. And when we, we look at business income, it's really about starting to scale. This is when you stop doing the one to one type of relationship work that you're doing, but it's one to many, you start to bring on team. This is where your work becomes less dependent upon you and more dependent upon the team. So what we've done is you'll see that we've leveraged your time back, we've gotten a little more time back. You're the level of effort and input into the system is different, is different than the rewards come back, the rewards that are coming back to you, the outputs that are coming back to you based upon your effort is a multiple of the effort put in. Unlike at the active level where it's really a one on one type of relationship. So both of these is really where most people will play a lot, is that this is where a lot of people that are getting into business, they spend a lot of their time and creating active related income that is more one on one and requires their input and their involvement. Especially if they're, you're a personal brand or they scale a little bit, they bring on a team, they've got an integrator, they've got a project manager, they're doing some things that gives them some of their time back, but they by and large are still tied to their effort to make that happen. This is where we start to transition to the, the higher leveraged levels of income. And so the third level of income as we start to move up is what we call asset based. This is when we, when we were able to buy assets. For instance, real estate is, is one that people are familiar with. Real estate, machinery and equipment, even software, things like that. Where I get a chance to create something and then let the asset do the earning for me. So I can rent the home out. I can do those kinds of things and I receive rent. I can rent a piece. I've got a client that he rents camera jibs, the big arms that hold the cameras for shows and movie and filming. And he rents those out. So he buys the asset. The asset is the thing that's earning for him. So his involvement with the generation of the income is far less. Okay, these are the things that we can do. We create asset based income streams to do that. Now let me be clear. I'm not telling you to create all of these. I just don't want you to understand the five incomes. And then we'll talk about how you create them or, or the different elements of them in other episodes and a little bit here too. So this is the first place where we start to really leverage some things up. Really start to leverage some things up. And then we move from here to the level four. This is residual income. Okay? Now residual income is really about creating something once and then getting paid for it over and over and over again. So for instance, I'll just. My book, the Entrepreneur's Solution. This was written a number of years ago. We hit number one on Barnes & Noble, USA Today. 16,000 copies sold within two weeks. I, I still make money on that book. Okay, I get residuals on that book. I'm speaking, I'm speaking in October or August, I don't remember when it is. But they're buying 500 books from us, from my publisher. I get paid on that. So residual income could be your intellectual property. So I have courses, you know, I have knowledge, wisdom, expertise and courses. The Affluence Blueprint, Top Runner Academy, all these courses that allow me to sell my knowledge and get paid. It's a residual type of income stream. It's more leveraged than active cause it's not one on one. And so what ends up happening is that do you have something that you can share with people that you can sell that you can license the other residual income that you might have in your world? Is if you're in the network marketing, multi level marketing type of space, when you have a downline, there's residual income. Now you spend a lot of time building that downline at the beginning, but once it's built and it's working, it's nurturing it, and you're getting residual income streams from it, you can see how that becomes much more leveraged in your time coming back to you than doing one on one or a solopreneur type of situation. To do that then the last and number five in the five incomes framework is what we call portfolio income. This is what most people think about when we start talking about investing. And, and all of that stuff is that this is paper assets. This is stuff like stocks, bonds, real estate, investment Trusts, it's annuities, ETFs, index funds, it's paper assets, it's securities, okay? And there isn't a lot of work involved with it. There'll be work with, you know, analyzing it, understanding it, getting in it, and then monitoring it. But it's not through your effort, it's not through a ton of effort. So this is the most highly leveraged time wise income stream that you can have. Now these are the five income streams. Active business, asset, residual portfolio. Any income streams will fall into one of those five categories or a combination of them, depending on how you do that. So here's the key. At any point in time, at any point in time, your sole existence, your lifestyle, if you will, because we're always working from a lifestyle standpoint, will be funded 100% by all of these incomes, by everything here. Okay? So the question is, how many of these incomes do you have and how many do you have in place now? Do you need all five? No. But I do think that you need at least two of the top three in place. Now let me walk you through why that's important. The majority of my income, the majority of my income when I got diagnosed with cancer was generated here. So my lifestyle and my wife's lifestyle, everything was paid for from my business income and my active income. I've got a couple of businesses and I've got other stuff that I do more one on one and more direct and, and everything. And, and so that's what was paying for my lifestyle. Now these items up here though, these items were generating income, but all the income was being reinvested. So the portfolio, the residual and the asset base, all the income it was generating was reinvested to continue to build the machine bigger and bigger and bigger. So we didn't use it. And that's what we want to do. This is where I said, said it's important to front load your investments so we can allow the time to do the work to build the machine. And that's what, what we're trying to do now. Once I got diagnosed with the cancer and I realized it was important for me to totally focus on my healing. What we did is I went back to my wealth guy and I looked at him, I said, I'm going to shut down my active and business income. I'm going to bring it down. So I'm only putting in about 10 to 20% time, which meant that I'm only going to get about 10 to 20% of our lifestyle paid for by that income. That means that I needed 80 to 90% income from somewhere else. Now what I could have done is started selling things, but that's not the game. We don't start to deplete assets to live a lifestyle. We need to create a machine that supports the lifestyle so we never deplete the machine. We don't take from the machine because then our ability to increase our income in the future goes away. So what I did is I said turn on, turn on the machine. I want to go back to the machine and I want you to then get me 80 to 90% of my lifestyle paid for by the machine. So what we did is we started to draw the rents out of the asset based investments. We increased our residual income streams and we took some of the portfolio dividends that were coming out. So asset based residual portfolio, a lot of that. So that was getting paid directly to us, not reinvested back in the machine. But our lifestyle didn't change. I could focus on healing and the lifestyle did not change. And so that's, that's the flexibility it gives you. Now once I got on the other side of the cancer, then it allowed me to go back to him and say, hey, shut the machine off, reinvested again. I'm cranking this puppy back up to 100%. So now I'm going back in my active and business income at 100% and my leveraged income sources of asset based residual and portfolio is gonna drop back to zero in the sense of what it is supporting. And now it's all reinvesting and growing again. So here's what I think you need to do. Here's where I think the important thing is, is that for you to find the kind of flexibility and financial liberation you want at some point. And this is why it's important to know what your lifestyle need is. The lifestyle plan is. So you know what, the numbers that we're going to do do that too. What I want to do is I get my clients to the point where we want to have between 80 and above. 80% and above of our lifestyle can be supported from the income only from our asset based portfolio, our residual portfolio and our portfolio portfolio. So the top three, the top three need to be able to fund our lifestyle. Now in our case, the top three can fund over 100% of our lifestyle. So we have supplemental income that we're not necessarily using, but we don't use it, at least not yet. But we have the option. I used it during the cancer, I could have used it during the pandemic, but we don't use it. That's the key to this, is that we have the five incomes. Too often we are focused on the bottom two, active and business income. What we need to do is use the active and business income to create the other ones, asset based, residual based and portfolio based. I know, I get, I get riled up for this because I know what it's going to do for you. I know how it's going to change your life. I know what it's going to do for you. In fact, let me introduce you to a friend of mine that you probably know, you may know James, James Wedmore. We had this conversation about a year ago. We had this conversation because he was extremely successful in the online space. He was doing seven, eight figure business, he was doing multi seven figure launches. He was doing extremely well. But his ability to generate income was solely tied to his effort to do the campaigns, to do the promotions, to do the launches and do them repeatedly over and over again. And, and he had to recreate the income over and over again. And then we sat down and I said, james, let me introduce you to something called the five incomes. And so once he understood that now he came from a real estate family. He came from a real estate family. He loves real estate. And so his perspective was to look at it and say, I want to do real estate. So he primarily focused in the real estate area and the portfolio area. And he doesn't do a lot of residual, although he does have programs. But what he did is he says, I love this Airbnb stuff. So over the last 12 months, he's acquired $2.9 million in real estate that he's turned into an Airbnb business that doesn't require his direct input. He's got a manager that's managing him and those properties can generate up to $40,000 a month. Look at about the flexibility there. Now he's not so reliant on a launch. Now he's not so reliant on constantly getting on the treadmill, running faster, running longer, running harder. It gives him the flexibility to do the things that he may want to do. And this is what I want for you. This is what I think we need to create. Now, I'm not saying that it's easy. It's simple. I'm not saying it's easy. It's going to take effort. It's going to take discipline. It's going to take dedication. But I promise you that the benefits on the other side of this are astronomical. The peace of mind, the liberation, the freedom will be yours because now you know you have a machine that takes care of you. That's why assets are so vital to your financial liberation. I hope this makes sense to you. I hope that you found this of value. Do me a favor. If you've got questions, if you have anything that's coming up for you with respect to money, wealth, richness, business, business growth, entrepreneurship, life, let me know. Do me a favor, Join. Make sure that you're part of our private Facebook group, the affluent entrepreneur Facebook group. That's where I'll go in. Live there. We'll answer questions. We're creating a community to have safe, healthy conversations around money, around wealth, around making a difference and having an impact and living a richer lifestyle, a place where you're not going to be judged for it. It's not about greed. It's about impact. It's about making a difference and doing things. It's about living an affluent life, which we said is a richer lifestyle. Three critical outcomes, richer lifestyle, deeper impact, and complete freedom. That's what I want for you, and so make sure that you're part of that group. And I look forward to seeing you or hearing from you, as well as seeing you in the next episode or are you listening in the next episode? So let's continue this journey to affluence because I think it's your birthright. All right, we'll talk soon and I'll see you in the next episode. Cheers. Bye.

Thank you for listening to the affluent entrepreneurship with me, your host, Mel Abraham. If you want to achieve financial liberation to create an affluent lifestyle, join me in the affluent entrepreneur Facebook group now by going to melabraham.com group and I'll see you there.

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