024 What To Do With Your Cash

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. In this episode, we're going to talk about what to do with your cash, how to spend it, how to invest it, and in what order. 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.

Hey there, Mel Abraham here and welcome to this episode of the Affluent Entrepreneur Show. In this episode, we're going to talk about what do you do with your cash? How do you, what order do we spend it? Where do we put it? What do we, we got money coming in. What do we do with it? I'm going to introduce you to something called the wealth priority ladder. This is what, what I work with all of my clients in the affluence blueprint and my one on ones. It's how we do things. It's what do we do first? It's like a recipe, if you will. And when we talk about a recipe, if I want to go bake a cake, it's not only just the ingredients that matter, but it's the amount of the ingredients and the order in which we put the ingredients together so the cake comes out good. All right. This is your recipe for wealth building called the wealth priority ladder. And so that's what we're going to talk about. Here's the deal. The challenge is that if we don't get this right, if we don't get this right, you're going to find that investing isn't easy. It's going to be challenging. You're going to find it difficult. You're Also going to find that because it's difficult, you stop investing consistently. And I think that if you've listened to me for any amount of time, you realize the importance of getting in the game of wealth building. In other words, two things. One, developing the muscle, the habits to create the investment. Because as I said, most money issues are simply symptoms of behavior issues. And so if we can fix the behavior, we'll fix the symptoms. And so instead of us focusing on the money issues, let's look at what is causing the money issues to do that. And this will help you understand that. And if we stop investing consistently, then what ends up happening is we don't get the value of the compounded growth, we don't get the value of the time leverage on our money and our wealth building. And now we're struggling more. And so this is where we start to play. Now if we stop investing, then also you fall behind on your plan. You're saying, I want to have a million dollar net worth, I want to be worth 10 million, I want to do all these different things. But the fact of the matter is that if we don't stay in the game, if we don't get in the game and stay in the game consistently with discipline, we're never going to get to our plan. Okay? So we fall behind on the plan. In the end, if that's the case, the ultimate result is struggling. You have no nest egg. You can't do things that you wanted to do. You're looking at a less than good lifestyle. When you start to get older, you're not at the that same level of lifestyle because you don't have the nest egg. You don't have machine as we call it, that's going to take care of you. The idea here is this, is that if we do this right, we can build a money machine. So here's the thing, if we get it wrong, that's what's going to happen. Well, let's look at what happens when we get this right. When we turn around and start to walk this path towards financial liberation, towards an affluent life, then what ends up happening is investing is easy without thinking because there's a system, there's a process. You're sitting back and saying, where am I? Phase one, phase two, phase three, phase four, where am I in the, in the ladder? Okay, this is what I should be doing right now. And you make that happen. Number two is that investing is automatic and consistent. So instead of inconsistent investing, it becomes automatic. It's just regular for me. For instance, every time we have money comes in, there's an allocation every week, every month that goes to specific investment accounts. And it's automatic. It's out of sight, out of mind, and it's done. And at that point, looking at it and saying, okay, I'm hitting my plan, I'm hitting my vision, we're moving towards that. There's progress in the making here. And so when we do it this way, when we start to follow a strategy, we start to follow a plan, when we start to follow a syntax, a recipe, if you will, it makes it much easier for you to make the decisions that you need to make around your money that'll make the difference in your world. And then ultimately what ends up happening is you're building, like I said, a money machine. When we get a chance to start to put money away and invest it in a way that creates a portfolio that you can live off of. Not the portfolio itself, but the earnings from the portfolio, you created yourself an atm. Now, not saying it's easy, not saying it's going to be fast, but. But I am saying it's going to be good. All right, so this is the thing that we're looking for. So if that's the case, what do you need to know before we get into the process? What are the principles that you need to know that are going to make a difference with what you're doing? And so the first principle is this. No more thinking about it. Just automate it. In other words, just turn around and automate it in a way that it takes the thinking out of it. The money that goes into our retirement accounts, the money that goes into our investment accounts, the money, it's just automatic. We don't think about it. Out of sight, out of mind. It gets done. So what we want to look at is where can we automate our investing? Where can we automate our wealth building, our wealth creation so it goes on autopilot and we don't have to think about it. In the last episode, we talked about how when emotions get involved in our financial decisions, then our financial intellect goes down. When we automate things, we take the emotions out of it. We move the emotions away. So we can't make emotional decisions because they're just automatic, they're systematic, they're robotic to make that happen. The second principle, the second thing that you need to understand is it's done before you ever see it. Think about this. If you've ever been an employee for another company where you're getting a paycheck, you're getting A paycheck. When you get that paycheck, you say, well, I'm supposed to make $2,000 a month, and they give you a check and it's for $1200. And you go, wait a second, I only got 1200. I'm supposed to get paid $2000. The difference of the $800 is all the taxes going to the government. See, the government takes their cut before you get your cut. It's done. Out of sight, out of mind, that that happens. Now, I want to do the same thing for your investing. I'm going to do the same thing for your wealth building and your wealth creation. So the government will take their piece. But then your financial future, your financial destiny is going to take its piece automatically, and it's out of sight, out of mind. You're going to move the money away from your operating account, the checking account that you pay your bills out of. That's not where we save. It automatically moves to a high yield cash account or some other broker account or some other account where it doesn't tempt you. It doesn't tempt you. My wife, she bakes a lot. An amazing, amazing cook, baker, everything. And she's learned how to create things because since the cancer, since 2019, I have no sugar, no grains, no dairy. She's figured out how to make cookies. Blondies, brownies, cupcakes, all these desserts with no sugar, no dairy, and no grains. And we have this little, like, cake holder, glass display in the kitchen. And so when she makes something, she usually does her baking on Sundays. And when she makes it, she puts some of them in there and display. And it looks beautiful in the sense, which is phenomenal, phenomenal. Here's the problem. I walk by it every day and it's calling out to me and it's going, hey, Mel, how's your sweet tooth? Hey, Mel, you want a cupcake? You want a cookie? And so inevitably, I pick up that glass top and I grab one. This is the same thing that can happen with your cash, with your money, with your wealth, if you leave your invested funds in your operating account. Because you see it, there's every time you go to log in the ATM and it shows you the balance, you go, wait a second, I got more money than I thought. Or you look at your checking out, you see more money. So what I want to do is I want to take that little cake display and move it so it's out of sight, out of mind. I want to take your money and move it so it's out of sight, out of mind. Okay, then that leads to the next principle. The next principle is all about leapfrog with split lump sums. Let me tell you what I mean by this is that sometimes you get a lump sum. It could be a bonus, like my wife gets quarterly bonuses and it could be 10, 20, $25,000. Whatever it is, you know, it doesn't matter. But when you get a lump sum, what we want to do is take a little slice of it so you can celebrate it, so you enjoy it. But then if we don't need it to pay bills and we shouldn't, if we've operated things properly, then the majority of that goes into your wealth building account to leapfrog your wealth. Okay, this is something that I did for years. Most of my business in the past, as I was doing my consulting work, I would get projects. And these projects could be anywhere from $5,000 to 100,500 and more. Okay, well, if I got a check for 40 or $50,000 for my fees and I don't need that, I would take 30,000 of it and put it into my investment account. But all of a sudden what that allowed me to do is leapfrog my wealth creation versus spending on today's stuff and just spending it all spent a little bit. So I still got the good feelings and the celebration, but I wanted to leapfrog it. So anytime we get lump sums, you know, tax refunds, those kinds of things, I'm going to use it to leapfrog my wealth forward in the process. And that leads us to the last principle. And that's this. Direct your money before it directs you, Direct your money before it directs you. And that's where the wealth priority ladder comes in place. In other words, if you don't tell your money what it is to do, then it's going to decide for you. Here's the challenge. Your money are like little foot soldiers. They're little employees that you've got and they're better than the employees that are out there. They're better than you or I as employees. Because you or I as employees, we can only work so many hours in a day. We still need to sleep, we still need to be fed. We still need to take some time to recuperate. But your dollar employees, they don't. They're little foot soldiers and they'll work seven days a week, 365 days a year, 24 hours a day for you. But let me ask you something. If you are going to hire a bunch of employees and I'm going to buy. Let's say you, you hire 10 employees, you bring them into the room and you say you're all now hired. Here's your salaries and everything else. I am not going to give you a job description. I'm not going to give you goals. I'm not going to tell you what to do. I'm not even going to tell you what the destination is or the target is. And I'm going to set you free and let you go. Do you think for a moment that those employees would help you accomplish the goals that you actually have in your mind? Absolutely not. So why would we do that with the money? They're our employees. We need to tell them what to do. Now, some people will call it a budget. I call it a cash resource plan. Whatever it is, the bottom line is we need to tell our dollars what we want it to do for us so it'll accomplish the goals we want. We don't just throw it around and expect it to do the things we want it to do and think that's going to happen. I got a brand new puppy dog, Little Buddha. He's amazing, okay? Getting big really quick. He's 11 weeks old and already like 17 and a half pounds or 18 pounds. So he's going to be a big boy. But if I just let him run crazy in the house first, my wife would shoot me. Okay, but it would just be a nightmare. So we give him boundaries, we give him lessons, we train him, we work with him, we spend time with him. You're going to have to do the same thing with your money, all right? Going to have to do your same thing with your money. So those are the four key principles that you need to have in place, which leads me to the wealth priority ladder. This is the process, this is the way that I want you to start to allocate your cash as it's coming in to help you build your wealth. Now, there are other people out there, other commentators out there that have something similar, whether it's the baby steps or operations, any of that type of stuff. This is the way I look at it. And this has been worked on. This is the way I've done it, and I found it to be successful. So let's look at the wealth priority ladder. This wealth priority ladder is in a couple of different phases. And the very first phase is that we need to look at this. What I want people to do is the very first thing I want you to do is, is to get what I call a comfort fund in Place, okay? Because if we don't have the right comfort fund in place, you're going to find yourself really anxious. In other words, this is an amount of money that you're going to have in place. So if something happens, you don't have to go into debt. If something happens, the transmission goes out, the water heater goes out, you go, we're good, we're good. Okay. And so you can be much more relaxed with the whole thing. So this is to keep you from getting into trouble. What I want here is either $1,500 or one month's expenses, okay? Either $1,500 or one month'S expenses, whichever is greater. So if your one month's expenses is 2,000, I want it to be $2,000. I want you to have at least one month'S worth of cushion available for you so you can have be a bit more relaxed and you don't need to go into debt to work from there. Now, that is, this is effectively phase one, okay? Phase one is really about just getting this comfort fund in place. And once we have that comfort fund in place, then we can shift to phase two. In phase two, the first step in phase two, and we actually do both of these steps at the same time, which is different than most people, is that I want to deal with this consumer debt. Now in another session, we can talk more and deeper around debt and how we do debt. And in fact, I go deeper in this in my Money Plan Challenge, my seven day Money Plan Challenge. It's a free challenge. If you want to join the Money Plan Challenge or get access to that free training, just go to the moneyplan challenge.com and we'll get you access to it. All right? The money plan challenge.com and you'll get access to it. So when I talk about consumer debt, this is stuff that's for consumables, this is stuff that's for lifestyle, this is not investments, and this is not your residence. Okay? So this would be for the big screen TVs or clothes and luxury items, those kinds of things that were running up on credit cards. This would also be student loan debt. All of that type of stuff is consumer debt. What I want to do is help is get you out of debt, the consumer debt, because the consumer debt is for consumables. But the consumer debt also consumes you. It consumes your wealth. When you make investments, you make interest on the money. You make a return on the money called interest or dividends. When you borrow money, they charge you a penalty and that penalty is called interest. And when you pay interest to credit cards at 16, 18, 29%, it's a hefty penalty. And so unless we're making more money off of that debt, then we shouldn't have it. So I want consumer debt paid off. That means your credit cards that aren't business related, that aren't producing more cash flow, and your student loans. We want to get that dialed in. We've got a dear friend and a client of mine, when we had this conversation, she was over $100,000 in debt within 10 months. She got that debt paid off. She's building wealth. She's building her, her dream home now and doing it so it can be done. You just got to work it. Now here's the thing. We'll talk in another session or in the money plan. I actually talk about it. Go through the money plan challenge and you'll understand how to do it. How do you get yourself out of debt? There's, there's destructive debt and productive debt. I'm talking about the destructive debt, the consumables that are attached to it and how you can, you can pay that off. The second piece of this phase, phase two is a peace of mind fund. Some people will call this an emergency fund. This is phase two, is that the consumer getting the consumer debt paid off and your peace of mind fund in place. The peace of mind fund. I'd rather call it a piece of mind fund because that's truly what it does. Most people, when you talk to them, will say that you want to have three to six months in an emergency fund. I for years have said that's too, too small, too short, you need more. And so I work with my clients. I want them to have nine to 18 months in a peace of mind fund. And they go nine to 18 months. But think about what happened in the pandemic that didn't prove out that we needed nine to 18 months. I'm not sure what did. Okay, now here's the thing. There are those out there that say until you have all your consumer debt paid off, you don't worry about the peace of mind fund. I don't agree with that. I think that we need to get in the investing game. If we put everything at the debt, yeah, we're paying down our debt. We still don't feel like we're, we're still in a hole and we don't feel like we're making progress. So what I do is, is with my clients is we will split it if they want to we will split it. And so if I have $500 in excess cash, then 250 will go to consumer pay off the consumer debt and 250 will go to building that peace of mind fund. Yet it's going to slow down your pay down of your debt, but it's also going to get you in the investing game and the investing habit early and keep you in the game. So I will split this 50% and 50%, okay, but I want nine to 18 months of expenses minimum. Especially if you are an entrepreneur and especially if you're up in years. In other words, let's say you're getting towards retirement and you're not going to be working or you're not going to be making money and the only money you're making is from pension plans or investments, we might need a longer peace of mind fund because we can't, we don't have the income to rebuild it as easily as we might. So we want to be smart about it, but I want to be conservative. So we give you. We don't feel like there's a disaster coming if God forbid, something happens and that it becomes only an inconvenience. So that leads us to phase three of the wealth priority ladder. And phase three is where we start to look at the building our freedom to turn around and say I want to start building my wealth. This is where we start to look at this freedom fund. So we've got the peace of mind fund, we've got the consumer debt paid off, we've got our comfort fund in place. Now my freedom fund I want to look at here. This is where we're starting to invest in our 401ks in our retirement, in our investments. I want a minimum of 15 to 20% of your income going here, 15 to 20% of your income going there. If you're older, we'll push it to 25 to 30% so we can start to get money in there front loaded enough because we don't have as long of a Runway. So but at the minimum, what I want you to start doing is that for every dollar that comes in, once you have consumer debt paid off and you have your peace of mind in place, for every dollar that comes in to 15 to 20%, 15 to 20% needs to go into an investment account, whether it's a 401k or a Roth or an IRA or just a brokerage account, it needs to be stripped off there. That's going to start to build your freedom over time. So this is the beginning of Phase three, this is what's going to build your future possibility and build it up. Once you know that you're funding a full 20%, then we can start looking at the next steps. And in this phase, and the next step in this phase is really something that we can look at is your property. Okay? This is your home. This is your home. We can start making additional payments to pay down the debt on the mortgage. Now, I know some of you might go, but wait a second. If I pay down the mortgage early, I'm not going to get the tax deduction? Forget the tax deduction. The tax deduction is going to pale in comparison to the investment returns. You're going to get that when you don't have debt, you don't have the stress of debt, and you don't have the debt, you can take all that excess cash and invest it. So I'm not worried about the tax deduction. We don't allow the taxes to drive the financial choices that we're making. Okay, so at this stage, once we know that we're funding the 20% fully, then I'll start putting money towards paying down my property sooner. Okay. Get my residence paid down. And then that leaves us the last piece of phase three, and that is college. All right, so I'm going to get on a soapbox here for a moment. And you notice that college is a little different color. And so this is phase three, and so a little different color. And here's why. I believe in college, but I do not believe in going in debt for college. I will tell people you can get some debt in college, but I don't. The key question here is that the maximum amount of debt that I want anyone to take on for college has to be less than. Less than the expected starting salary when you're out of college. Here's the thing. For you as a parent, as someone that wants to fund college for your children, there's a couple things. I want you to fund your retirement first, not the college. Because one thing we know for certain is your retirement is coming. It's assured, it's going to happen. We don't know if your kid's going to go to college. We don't know if they're going to graduate college. We don't know if they're going to finish college. And even if they do, maybe they need to participate in getting into college. There's scholarships, there's grants, there's all kinds of things they could do. They can go to a junior college first and then move in and and lower the expenses. But they don't need to go into the kind of debt that I see. We've got $1.7 trillion in student loan debt in our country right now. It's a travesty. And these kids are coming out, they're signing on the dotted line at 18 years old without a knowledge of what they're signing in for and what it means. You can't bankrupt the debt. You can't get out of it. And the reality is, is that when they're graduating college and they're supposed to soar, they turn around and they walk. They walk down, get their diploma and they say, go sore. Oh, by the way, before you go sore, let's strap this ball and chain on your ankle. It's called student loan debt. Now try and go fly. It's horrible. And so what I want you to do is to be smart about it. I don't want you as a parent going into debt for your children's college. I'd rather you find another way to do it. I'd rather the child look for scholarships, grants, maybe a loan for at less than the first year salary if they get out, but they got to finish the school if they don't. There was a guy that I talked to $300,000 in student loan debt. He went $300,000 into debt for his college and for his med school, and he got out of med school and he did not pass the boards. So not only did he have a $300,000 debt, he didn't have the ability to pay it because he never got his license as a doctor. So he could make the income that he expected to get it paid. These are the things that I don't want to have happen. And so this is why I say that funding college is actually optional. And I know that that may burn some people, but if you truly want to fund college, you're going to cash flow it or they're going to work or they're going to do some things to help it make happen. But we're not going to go into debt, at least not under this program. We're not going to go into debt to make it happen. We want you free and clear. We want them free and clear. If you do a parent plus loan, you're on the hook for your children and they can walk away from the loan, they can walk away from college. And now you're stuck paying the bill and now what do you do? This is a challenge, and that's what I don't want to have happen and so that leads us to phase four, which is the beautiful phase. Phase four is affluence. Affluence. You're at this stage of the game. You've got your comfort fund, that's all in place. You've got no consumer debt, you've got no student loans. You've got your peace of mind fund in place, nine, 18 months of it in a high yield cash account that's there liquid secure. You're not putting it in the stock market. Your comfort fund and your peace of mind fund is in a high yield cash account. You're not going to earn much on it, but it needs to be liquid, it needs to be safe, so it is accessible to you if you need it for any reason. Okay? And you have the peace of mind fund. Now you're fully funding your freedom fund in the sense of at least 20% going into investments, retirement and your financial future. You're paid down your property, so you have no debt on your mortgage, on your, on your residence. If there's college, it is funded, okay? And now all the money that's coming in is for you to enjoy, to be generous, to make a difference and live life your way. That's the wealth priority ladder in a nutshell. This is the way that we work with our clients. This is the game that, that we want to play. I want you to find liberation through the wealth priority ladder. That's the key. There's the four phases to it and you've got the seven steps to it. So let's make it happen. If you have any questions, hopefully this helps. But every dollar that comes in now has an assignment. Depending on where you are in the ladder, you now know exactly what that dollar should be doing. Every dollar that comes in has an assignment and use it that way. Every dollar that comes in into our household has an assignment, no different. It doesn't matter Whether you're making 20,000 or 220,000 or 2,200,000, every dollar has an assignment, all right? And when you live it this way, when you put it in this way and you automate it so it's automatic and systematic, then it makes it easy. This is the path to wealth. This is the path to financial liberation. This is the path to your affluent life, all right? I hope that you found this of value. Do me a favor. If you have questions on this, if you have comments on, just let me know. Send me a dm, send me a note, post it into the affluent entrepreneur Facebook group. We'll give you the link in the show notes for that. And also do me a favor. If you have not followed the show or subscribe to the show, follow it. Subscribe. Hit the buttons. Leave me a review. I go through the reviews. We read them on the air. When I read a review on the air, you get selected to have a one on one laser coaching session with me so we get a chance to talk your money. Talk about wealth, wealth creation, business, entrepreneurship, whatever it is to help you out. You and I can do it one on one. So do me that favor and let's keep this thing rocking and rolling until I see you or talk to you in the next episode. Remember this to always, always live a life that outlives you. 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 an affluent lifestyle, join me in the Affluent Entrepreneur Facebook group now by going to melabraham.com group and I'll see you.

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And that's it for this episode of Building your 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.