019 Creating Your Money Machine

Hey there, real quick before we jump into the episode, listen, if your earnings treadmill hasn't set you free yet, running faster won't either. Listen, hustle without principles just going to burn you out. So here's what I want for you. I want you to join me for my money machine experience live. It is three free trainings. Deep dive into how to escape the treadmill and build a money machine that actually works for you. All right, grab your spot here by going to moneymachinelive.com and I'll see you in the free training. Hey there. Welcome to this episode of the Affluent Entrepreneur show. And in this episode we're going to talk about the life's blood of your business, your wealth and your affluence. So stay tuned.

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 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.

All right, welcome back to this episode of the Affluent Entrepreneur Show. This one's going to be fun. We're going to be talking about the life's blood of your business, your wealth, your affluence, your life. This is how it all starts to work together. The kind of the core model of things. But before we get started, I want to recognize one of our community. You know, I'm going to read another one of our reviews. Now those of you that know that if your review gets picked, you get the opportunity to do a one on one session with me. We get to do a laser coaching session about money, about business, about wealth, about whatever it is. So this episode's review of the of the week, of the month, of whatever it is is from Lindsay Barnes. Lindsey Barnes. Thank you, Lindsay for your review. And here's what Lindsay says. She said, amazing insight. Mel is just so amazing to listen to and I love the tactical pieces of advice he gives in these. While I love the inspiring podcasts, these just level you up in tiny bite sized action steps and it truly moves me a little bit more forward each and every day. Well, Lindsay, that's what we're here for. That's what I'm here for. And I'm here for that. For all of you. The idea here is this. If I can give you just some little things to do each and every day, the little things piled and stacked on top of each other to make big, big differences. That's what we're trying to do. So if you have not done so already, do me a favor, subscribe, review, leave a review, send me a screenshot, and maybe we get a chance to read your review on an upcoming episode. And when we do, you get a chance to do a laser coaching session with me. So, Lindsay, if you're listening to this, do me a favor, reach out to my team@successlabraham.com and we'll get something set up so we can chat and see what we can do to make you sore. All right, so onto the episode. So here's the thing. One of the things that I want to talk about, really in this episode is this idea of what does it take to be successful in business? But understanding that, remember I say that the show is the intersection of your business and your money. And so we can't just be successful in business if we're not successful with money. Because what ends up happening is we become what I call that treadmill entrepreneur. Because the only time that their success is if I'm running on the treadmill. And the fact of the matter is that I can't run on the treadmill for the rest of my life. And if I want to scale my business, the only way to scale it is to run on the treadmill faster, harder, longer. And that's impossible, too. So the question is, how do we do some things to start to shift it? And there's this thing that I call the affluence cash flow paradigm. It's a framework that I'm going to walk you through that is how does everything work together? How does everything integrate? How does everything create in and of itself in such a way that you start to build a business, build wealth, build freedom and affluence into your life? And so this paradigm is how we look at things. And it's how you should start to look at your business and say to yourself, hey, am I doing this because there are eroders in our wealth and business and there are producers in our wealth and business. And we understand those, we can manage those. So hopefully that makes sense. So there's two things that you need to manage. The first is your is and the second is your bs. That's not what you think it is. All right, so we're going to talk about each of those, but I'm going to jump to my iPad. For those of you that are watching on video, you'll get a chance to see that. For those of you that are listening, not to worry. I'll make sure that the graphics are in the show notes so you'll get a chance to get a copy of the affluence cash flow matrix. So, so here's the thing. When we start to look at this, like I said, it's about your is and your bs. And now is.

Stands for your income statement. All right, now we're going to go to some fundamental accounting, fundamental financial principles here to help you understand what we need to look at. Here's the way we look at this. The first thing is that your income statement is made up of two primary factors. Your income, the money that's coming in, the sales you make, the cash you collect from your customers, the money that's coming in, that's the income and your expenses, the money that's going out. And so what we're really looking at is trying to figure out how do we manage the income and expenses. And when we look at it this way, income minus your expenses equals what we call profits or cash flow. Okay? Income minus your expenses equals profits or cash flow. Now, expenses could be your cost of sales. You know, if you're producing products, it's that it could be your office expense, it could be rent, it could be Internet, could be ad costs, it could be labor costs, it could be what are the expenses to run your business. Now, we've talked on other shows and we'll talk on other, other episodes about what should your expense categories be, what should your percentages be, what are appropriate percentage. And it depends on, on the business. But the fact is that once we understand that I have income coming in, expenses going out. So the thing we're trying to figure out is, is that how do I increase the income and how do I decrease the expenses? Because in the process of doing that, we increase our profits and cash flow. Okay? Now it sounds simple, but this is one of the biggest challenges that businesses have is that what happens is that, and I see this a lot is that businesses get, when they start to have a little bit of success, they get fat and happy. Happy. But they get fat and happy. And what happens is they get lazy and they're not managing the expenses. And then when things start to shift, they don't have the margins that they should have. If you're in the online space, for instance, you should have high margin business anywhere from 50 to 80% depending on your team structure, your Overhead structure and that type of thing. If you're in a product based business, it's going to be lower. It could be down at 10 to 20% in margin or profits. But still, what we need to do is manage the top line, the income and manage the bottom line, the expenses, so we can maximize the profits and cash flow. Now that's the income statement side. That's the business side of things. The business is the machine that's generating the income. That's going to build the wealth that's going to generate your freedom. Okay, so we have a business machine that creates income. We have a financial machine that creates freedom. Okay? Too often we think that we're coming to the business and building a business for freedom, but we're not. We're building the business for cash flow so we can use the cash flow to create the freedom that we want in our life. Hopefully that makes sense. All right, that leads me to the next piece of this. And that is this is. If we're going to manage the is, we got to manage the bs, okay, Sometimes we got to manage the BS in our head. But that's not what we're talking about here. We've talked about the money mindset stuff and we've got a few more episodes. We're going to keep talking about it because listen, our thinking generates our actions and our actions and will generate our results. The fact of the matter is, like I said, most people don't have money problems. Money problems are simply a symptom of other problems. And those other problems are behavior problems, which really are a result of thinking problems. But we'll deal with that on another episode. So BS stands for balance sheet. Okay? So there's this other thing called the balance sheet, and this is made up of two things also. Just like the income statement, it's made up of assets. Now the assets are the things that you own. The things that they're assets that. And now I define assets a little differently in. So an asset in my world, an asset in your world is something that actually can generate cash flow for you or increase your net worth in a way that you have access to it. So let me give you an example here, is that that an asset could be an investment. It could be a rental property. When I rent a house, I buy a house that's an asset and I rent it out. I get cash flow, so I'm getting cash flow. Now the beauty behind a rental property is I get cash flow and I probably get appreciation also. So it increases in value while producing cash Flow, that's an asset. Here's what's not an asset. Something that doesn't create cash flow. Something that doesn't have the ability to increase my net worth where I have access to it. Now, this doesn't throw my wife when I say this, but it's in my definition of an asset. I want investable assets, those things that are going to allow me to live without having to do a lot of effort. Our house, we live in a beautiful home right on the water in Laguna Beach. And it's an expensive home, but it's not an asset. I mean, it is an asset, but I don't have the value of the asset. I don't have access to the value asset. The only way I have access to the value asset is either I rent the home, which means that I'm not living in it, okay, and so I'm not enjoying it, or I sell the home, which, again, means I'm not living in it. The house isn't producing cash flow for me. It's not producing anything for me that I can turn into an income stream that I can use to pay for my freedom, to give me options, if you will. And so hopefully that makes sense to you. So it doesn't mean that it isn't valuable. I'm just looking at some very specific assets in this equation. When we talk about the affluence cash flow model is I'm looking at some very specific assets that allow you to pay for your lifestyle, that allow you to do the things that you want to do and in the way that you want to do them. That's the key behind it. Now, when we talk about assets, there's also, along with those assets, there's also below the line liabilities. In other words, you might owe money on things, debts, because you borrowed money. So you have assets at the top, you have liabilities at the bottom. And when you take those two, you have something called assets minus liabilities equals something called net worth. Now, like I said, your net worth. And you may not have ever calculated your net worth, but I'm gonna tell you, I want you to track your net worth because it's important for you to understand what are your investable assets. So every month, every week, I look at my assets, my investment portfolio, my rental properties, the cash flow from them. We look at them on a regular basis. Because this is the second machine. The income statement is your business machine. The balance sheet is your financial machine, okay? So the income statement is producing cash flow, and the balance sheet is producing assets that's going to create additional cash flow. Okay. In other words, you get to live off of what it's producing. So if I have a bunch of rental properties, I got a dear friend who's got a bunch of Airbnbs he's producing, gonna be producing half a million dollars a year in cash flow from those Airbnbs. He's gonna pay the expenses and then he's gonna have money coming to him. He doesn't have to do a lot of work in the Airbnbs cause he's got a manager. So now what that does is it buys him his time back. He has the ability, has the freedom to work or not work because he has a cash flow stream from the assets that are coming in. Hopefully that's making sense to you. That's the key in the game. So if we look at this again, the idea is now, again, just like increasing our income, I want to increase our assets, decrease liabilities. In other words, at some point I want to be out of debt. So I have income streams that are coming in and I have assets that are producing more income streams. Here's how this all works together and why. This is a cash flow matrix is the business side of this equation the income statement, the business machine part of this is going to produce profits and cash flow like I said. And now those profits and cash flow are going to allow you to grow your assets. Because as I scale my income and I scale my assets, those are the producers of my wealth, those are the producers of my income, those are the producers of my affluence. Those are the producers of my freedom. We have below the line the expenses and the liabilities. Those are the eroders. Now remember I said earlier that there's producers and eroders. So what I need to do is increase the producers and decrease the eroders over time. You're not going to do it overnight. That's okay. It doesn't need to be overnight. It just needs to be done over time. This is the idea, this is the paradigm, this is the mindset, this is the way of entrepreneurs. Affluent entrepreneurs look at their business. They see their business as a vehicle to create cash flow, to create assets, reduce the expenses, reduce the liabilities. And now we have a machine. We have two machines, the business machine and the money machine. Okay, here's how they work together. Okay, so the business creates income, pays the expenses, ends up with cash flow. That cash flow then is taken and used to buy assets. In other words, you take profits out of the business, you take profits out of your business done properly. And we have certain allocations that we use with my clients in the affluence, blueprint and, and that type of thing. But you take the profits out of the business to purchase assets. Now hear what I'm saying here? I'm not saying that you're going out and purchasing. I was just having a conversation around cars. Now, my dream car is, is an Aston Martin, okay? Hands down, Aston Martin all the way. Now, by the same token, I can go spend $200,000 on a car, but it's not an asset, okay? It's not an asset because it's not going to, it'll produce enjoyment for me, but it's not going to produce cash flow for me. It's not going to increase my net worth for me. So the question is that what we're going to do is take the profits out of the business. We're going to buy assets that produce more cash flow. In other words, we're going to buy investments, rental properties. We're going to create, we're going to buy self storage units, bonds, whatever it is, trust deeds. We'll go through investments in another session. But the idea is that we're going to create, we're going to buy investable assets. Those are assets that produce cash flow and increase your net worth. And we're not going to take that profit and just go spend it because, you know, we can go spend it on toys and technology and, and all that stuff. And that's fine. We allocate portions of our income to do that. But by and large, our primary priority is to build the financial machine. So we create, take the profits, we buy assets, and it's through those assets that we start to produce more income. And that income then generates more assets. In other words, we can go buy more. So this whole thing, this whole thing is a cycle that our business produces income and then we take that, we buy assets, it produces more income. And we continue to do this cycle. And what ends up happening is over time, we actually build the business machine, producing income which is funding the money machine, which is producing more income, which is refunding machines. So hopefully you're following what's happening. Let me just break it down in simple steps. Again, going to make money in my business, I'm going to take money out of my business. I'm going to use that money that's coming out of my business one to live my life. But my priority will then be to then make investments with it, the proper investments to build an asset machine that produces Income. So income from the business profits come out to me. The profits are then used to buy assets. Those assets are cash flowing investments. There's a whole host of them that we can talk about. I just want you to get the principle down here. And those cash flowing investments are going to produce more income. Now, I'm not going to live off of those investments as yet. I'm going to allow the income from the investments to reinvest and buy more assets to create more income. And over time, that financial machine, the second machine, is going to grow large enough that the income ends up covering your lifestyle. Let me bring this home to you. 2019, I got diagnosed with cancer. They found what they thought was a 5 centimeter tumor in my bladder. It was a 7.5 centimeter tumor in my bladder. Okay? I had a couple of businesses that were producing income, expenses and profits. I was taking those profits out. But over the years, over the years of running my businesses as an affluent entrepreneur based on the principles from the affluence blueprint, as I was taking those profits out of the business over the years, I took a large portion of those profits and I started buying assets, investments, creating a portfolio, creating the financial machine. So I had this financial machine of assets that could produce cash flow in the form of dividends, in the form of rents, in the form of distributions, all of those things coming out of that. But I took all of that also because I didn't need it to live, because I was living off of the business to buy more assets. So the machine kept growing and growing and growing. And so when I was diagnosed with cancer, I said, I need, I need to focus on my healing. And so I, I looked at it, I said, well, let's, let's now turn the financial machine on and let's turn the business machine off. Off. I no longer have the flexibility to dedicate a lot of time to the business. I need to dedicate a lot of time to my healing. And the only way I could do that and sustain my lifestyle is that I had a financial machine, a money machine that supported my lifestyle. So this, this affluence, cash flow paradigm, this affluence cash flow matrix is the key to do it. You all are in business, you all are producing income, you all are producing profits and cash flow. The question is, what are you doing with that cash flow? If you're spending 100% of it and you're not investing, you're not making investing a priority, then we're not building the financial machine. Which means that the freedom Remember, business gives you cash flow. Money machine gives you freedom. You're not getting your freedom. So I want you to think about this as you start to look at your business and say, how is it? How can I start to operate my business where I'm increasing my income, decreasing my expenses, looking at the profits that are coming from the business and saying, how can I allocate a larger portion of those profits to my future? By investing it in cash flowing, appreciating value driven assets, things like stocks, bonds. I know bonds aren't great right now, but stocks, bonds, real estate, investment trusts, rental properties, self storage properties, trust deeds, things that can produce cash flow and set it up in a way that it'll continue to reinvest. And we continue to build that machine. Because when your machine is big enough, when the machine is big enough, it will support your whole lifestyle. Literally. We shut everything down. Our lifestyle did not change. Now granted, I was going to a lot of doctors, so my lifestyle did change. But financially, our lifestyle didn't change. And now with me on the other side of the cancer, we turned the business back on and we allowed the machine to now reinvest again. Okay, so hopefully this makes sense to you. What I would love for you to do is just let me know your thoughts. I know that some of it you start to look at and go, wait a second, I'm barely making my bills. Well, there's where we need to start working on. How do we increase your income, decrease the expenses so you have more left over at the end of the day. We need to go through a wants and needs analysis. We need to go through all of that so we can start to maximize the profits. Prioritize your investment, create a money machine along with the business machine so you can create freedom in your life. Okay? Business doesn't give you freedom, it gives you cash flow. The cash flow, what you do with the cash flow to build the money machine. The money machine is what gives you freedom. I hope this makes sense to you. I hope you found this of value. Do me a favor. If you have not watched the video, you can go to the video on my show page and see it there. And you can also download the graphic that shows this whole paradigm and the flow of it in the show notes. All right, so until we get a chance to chat in another episode of the Affluent Entrepreneur show, just remember this to always live a life that outlives you. Look forward to seeing you soon. And do me a favor, if you haven't, as I said earlier, if you have not subscribed or left a review. Do me a favor, hit that subscribe button, leave a review for me and send me a screenshot. Tag me with a review and let's make sure that we can get you maybe read your review. Read on an upcoming episode so you and I can do a laser coaching session to help you figure out how do we get your business machine running, your money machine running, and move you closer towards financial liberation. I look forward to hearing from you. I look forward to chatting with you. I look forward to living a financial world, a financial free life with you. Talk to you soon. Cheers.

Thank you for listening to the Affluent Entrepreneur show with me, your host, Mel Abraham. If you want to achieve financial liberation to create 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.

And that's it for this episode of Building youg Money Machine, where we help you learn how to master your money, eliminate financial stress, and live a life of choice. If you found this valuable or helpful to you, here's what I'd love for you to do. If you do me a favor, go to Apple, Apple Podcast or wherever you're listening to this podcast and rate and review the show. It helps us tremendously to keep us at the top of the list so we can continue to get this information and this message out to people. Because I truly believe that financial freedom is your birthright and I want to help each and every one of you claim it. Thanks so much.