029 The Best Investment Accounts to Get

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 I'm excited about this episode. Actually, I'm excited about all of them. But in this episode we're going to talk about the different accounts you need to have in place or you should have in place or you could have in place. I'm going to walk through the six types of accounts that you may have on your wealth path and I'm going to give you kind of a four step hierarchy of what to do first. So, you know, you know, do I put it in a 401k? Do I put it in a brokerage account? Where does it go? So stay tuned for this episode and I'll see you in a bit.

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. If you're here, I already know that you're one of the people that really want to get this money thing situated. You want to understand what it is to try and change your financial destiny and build financial independence in your life. You, you want to be an affluent entrepreneur. I get it. So here's the deal. I want to go deeper with some of my audience and my community and spend a little more time with you. So I have a free three part live training event that I am doing starting October 28th. I want you to mark that on the calendar October 28th. We're going to do three different sessions, about 90 minutes each. We're going to go through a number of different things because I'm going to set you on a different trajectory financially, wealth wise, Business wise and life wise. And so to save your spot or to be on the VIP list to make sure you're there, go to affluence live.com affluencelive.com and make sure you grab the spot. We're going to have limited spots, but I want to help you. The first session really going to focus on this idea of what is the affluence journey? What does it take? What are the four stages of the affluence journey and what are the barriers, the things that are getting in the way of building the wealth at the level that we want to have the freedom that we want so we can break those barriers down. In the second session, we're going to talk about the core affluent entrepreneur principles and drivers that drive wealth and start to give you the breakdown of the pillars, the three pillars that all affluent entrepreneurs need to have in place to make it happen. And then we're going to bring it home in our third session. In the third session, I'm going to talk about the nine accelerators to being an affluent entrepreneur to live a richer lifestyle, to have a deeper impact and to have complete freedom. So October 28th is the date. Go to affluencelive.com grab your spot, set yourself up on the VIP list. I'll see you there. Let's change your financial destiny together. Hey there and welcome to this episode of the Affluent Entrepreneur show. And this episode we're going to go deeper into this whole idea. I get this question all the time. What accounts do I need? Do I, do I need a bunch of accounts? Do I need just one account? Should I put everything through a checking account? And I know it can get kind of confusing and there's a lot of different ways to kind of skin this cat. There's a lot of different ways to figure it out. So hopefully I'll give you a recipe and a way to look at this and understand it and all that. So in episode 24, we talked about the wealth priority ladder and, and this was kind of the way to allocate your cash. But you know, it was the priorities in which to put your cash in. If you haven't gone to that episode, do me a favor, make sure that you go back and watch that episode or listen to that episode. Because it's the fundamental process that I have all my clients in the affluence blueprint or when I'm working with them one on one do to start to move themselves to a level of affluence. Here's the thing. Affluence and wealth and richness. They don't happen just by happenstance, they don't happen by coincidence. And if they do, they don't sustain themselves. So the key is to have a process, a system, a way to know that when money comes in, where does it go? How does it go? To know that that's moving you down this financial destiny line to living an affluent life. Now remember, the affluent life isn't what I mean. I'm not meaning opulent, I mean affluent, you know, rich. Rich full of experiences, rich full of feelings, rich full of memories. Something that you're creating that's meaningful, that's fruitful, that's peaceful. And so that's the thing that I want us to really start to look at now. The wealth priority ladder is the process. Now let's dig in one more layer deep and say, well, what kind of accounts am I going to need? How many accounts do I need to look at? What do I need to think about? And so if you haven't seen it, the wealth priority ladder, we go into detail on it in episode, as I said, episode 24, but remember, we start off with trying to make sure that we have a comfort fund in place. This is the thing that keeps us at peace and keeps some of those gremlins of disaster at bay when something happens that's unplanned, like I said in that episode, most people do not have access and do not have cash on hand to sustain themselves for a thousand dollar emergency, unplanned emergency. And so we want to start to work through that. And then from there we focus on getting out of consumer debt, the destructive debt that we're dealing with, and working with building what I call a peace of mind fund, which in my case I look at much more conservatively than the rest. And I've done this for years. And I want you to be able to have nine to 18 months in expenses in a high yield cash account. Now if you're just listening and you haven't listened to episode 24, go back to episode 24. But I'm also going to put the graphics for the wealth priority ladder in the show notes for this episode too. Or you can watch the whole session where you can see it on the page or on YouTube. So let's make that happen so you can understand that. But wealth priority letter goes from Peace of Mind. When to start building your freedom, which is your 401ks, your investment accounts and that type of thing. Then we start paying down your property. Then we might be funding college, although I have a very specific perspective on college and I talked about it in episode 24 and then we're at the affluence point. So that's a quick synopsis. There's a lot more detail in episode 24. Go to episode 24 and listen to that if you haven't already. So now what I want to do is start to look at this and say, all right, so if I'm going to do that, if I'm going to walk through the wealth priority ladder, what accounts do I need to have? Do I need to go into a bank? Do I need to go into a financial institution, start opening a bunch of accounts? Here's what I know. When we start to separate things, there's certain things that we must have separated. We'll talk about that. But when we start to separate things, it makes things a little bit easier because you're not enticed. Like, like I, you know, my wife has this little, and I think I use this metaphor before, but my wife has this little cake dish and it sits out on the counter. She's an amazing chef and baking and all that. And she's figured out how to do all that stuff without the grains, without the dairy, without the sugars. It's just amazing. So she makes these cakes and she sets them out in this little glass dish so I can see it. And every time I walk by it, it's like I'm like drawn to it, like, like a moth to a flame. And so I find myself lifting up the little glass cover, taking. Oh, it's just a little bite. But by the time I'm done, at the end of the day, all those little bites start to add up. This is the same thing with your cash. This is the same thing with your money. If everything goes into one account, there is a tendency and there is a likelihood that you're going to get enticed. I got the money in there and you go and spend it on something that it wasn't earmarked for. Remember, we want to give every dollar bill an assignment. And that assignment is going to tell it specifically what to do. So we don't want to derail it. And so we end up opening up a number of different accounts. Now, the accounts can be at any institution, financial institution. I happen to like credit unions for a lot of my accounts because when credit unions are low fee, two, they're community based and three, they seem to be much more flexible. You can go. If you've got different relationships with different banks, you can, I want to minimize Fees, I don't want to pay fees for them to have my money that they're going to make money on, and then they're going to charge me fees because I want to use my money. So I don't want to do that. And so we're going to look at the accounts under three different criteria. And so when we do that, I'm going to talk about this, you know, this whole thing about, I call it the account jumble, because we don't know it, but we're going to look at the accounts in different ways because I want to understand one, is it accessible? Because we want to talk about some accounts that you're going to put money in that you can't get the money out, which is totally fine. I've got plenty of those accounts too. So doesn't have liquid access. In other words, can I take the money out without penalty, without fees, without any problems? So that's the first thing that I want us to understand about each account. The second is some accounts have tax benefits. In other words, we get a tax deduction for it, or we can get money down the road with no tax on it. Those kinds of things. I want to understand what are the tax benefits of each type of account. And then number three is really, what's the risk? What's the level of risk that I'm taking when I go into these different accounts? And so we're going to look at all the accounts under those three criteria and understand them so you'll know which one to go to. And then at the end, I'm going to give you the four kind of the four steps, the order, the criteria, the order that I want you to start to fund those accounts. Okay, so as we move through this, we need to understand what these are. And there's another graphic that I'm going to bring up on the screen. And those of you, again, this will be in the show notes for you. And it's all about the account jumbled. So we're going to talk about the type of account. We're going to talk about where the level of access, liquid access is. We're going to talk about the tax benefits for each account and the level of risk. So the first is the accounts that you're used to. It's a checking account. Your regular checking account is the stuff you're paying your bills out of on a regular basis. Most of that it's completely liquid, completely liquid access. So you can take the money out, put the money in, take the money out as much as you Want. Typically on a tax benefit standpoint, there's no tax benefits to it, so you don't get a deduction for it. If you earn interest on your checking account, you're going to pay tax on that interest. At least in the US you are. And there's very little risk to it. There's inflationary risk, but because you're not investing it in the stock market, it's just cash. In a savings account or a checking account, there's very little risk of loss. You're not taking a risk that the market's going to go down. If the market goes down 20%, the money in your checking account doesn't go anywhere. It's still there. Okay, so that's the first account, and this is the one that most people already have and have access to. Now, let me just really quickly mention something I think it's important to understand. If you're a business, if you're an entrepreneur and you have a business, and in another episode, I'm going to talk about the structures of businesses, the different kinds of structures. But if you have a business, you must, must, must, must separate out the money going in and out of the business from the money going in and out of your life. They're not the same. This is a quick way to get yourself in trouble with the taxing authorities, because if you co mingle, then it's as if the business doesn't exist. So we want to be careful about that. So when we're talking about these accounts, I'm talking to these accounts in general. But you're going to have a checking and savings account for yourself. But you can also have a checking and savings account for your business, which I do for the different businesses I have. They have separate accounts where they pay their bills out of and all the deposits go into. And then I take money out of that as a salary or a distribution, and I use that through my checking account to pay my personal bills. So I have a flowchart that I'm going to show you that that kind of demonstrates this. But I think it's really important. This is where someone can get yourself. You can get yourself in a whole lot of trouble in hot water is when you believe that your business account, even though you own 100% of the business, I get it. When you believe that your business account is the same as your personal account, they're not. So let's make sure that we keep those completely separate. The second level of account is what I call CDs or money market accounts. These are higher Rate, not very high, but higher rate. Savings accounts, but they typically lock your money in for a period of time. So can you get the money out? Yes, but there's probably penalties or there's limitations. So, for instance, I have a money market savings account where I have a fair amount of money in and I get a bit of a higher rate on it. It's my high yield cash account type of thing. But I can only take six withdrawals out of it. So I need to be smart about it. Now, most of my money stays in there and I just make deposits to it. I can make as many deposits as I want. But if I need to take money out, for instance, now when I we're in the middle of this remodel on the house and I got to start paying contractors, well, some of the money's going to come out of there. And if I'm not careful and I draw out more than six times, there's a fee associated with it. Now, my relationship with the credit union allows me to waive the fees anyways. But just make sure that you understand that there may be some limitations associated with having money in a CD or money market. Typically, a CD is based on time. You can get access to the money in three months, six months, a year, two years. However long of a CD you put in there now, could you get it earlier? Yes, but they're going to take away some of your earnings. They're going to charge you a fee for it. Is there tax benefits to a CD or money market? Nope, there isn't. You're going to pay tax on all the interest and all their earnings on that at what we call ordinary tax rates. And look at it that way. Is there risk associated with it? And there's very little risk because it's. In a cd, you're getting a guaranteed rate of return. In a money market, you're getting a guaranteed rate of return. It's not that much. I mean, I think mine is about 0.6%, but I need the liquidity and it's where we put it. Now you sit back and say, well, Mel, you're losing money to inflation. I understand that, but I'm willing to take that cost because I'm not willing to take the risk with that portion of my wealth to a market downturn of 20 or 30%. There's other portions that are doing that. So understand that CDs lock you in. There are some limits in there. There are no tax benefits and there's typically low risk. That leads me to the third type of account. And the third type of account is a high yield cash account. I think all of us need to have a high yield cash account. I use this account as the vehicle for accumulating cash that I'm not going to invest yet, or accumulating cash that I'm going to use for my peace of mind fund, or accumulating cash as a sinking fund for a large purchase because I'm going to make most of my large purchases in cash and do that. Now. The reason we call it a high yield cash account is, is it gets more. You get more earnings than you get in a savings account. The savings account, you're probably going to get little, little, little. I mean, you're not even going to notice it. It's tiny, tiny right now. It'll go up and down depending on what's going on with interest rates. But the high yield cash account right now you can probably get a.5, 6.60 rate of return. It's not a lot. I get it. You're sitting back on. I'm not going to get rich off it. But at least you're making something off of it and you're making more than you would in the savings account. Here's my three rules. With a high Yield cash account, high yield cash count must be 100% liquid. In other words, I can get access to the money at any time without penalty, without fees, without anything. Number two, it needs to be fee free. In other words, there's no expense that you're not paying a fee to have it every month for the bank statement, even a $10 fee, there should be zero fees. And number three is it should be insured. It should be insured. Now, most of the banks out in the US have FDIC insurance or credit union insurance, and they're insuring anywhere between $200,000, $250,000 depending. And there's some things to do to increase that, but I want to make sure that it has those three characteristics as we look at it. So a high yield cash account is 100% liquid access. I get access. There are no tax benefits because the interest earned is going to be taxable and it's low risk because we're not investing it in the market. Okay, so all of these accounts are the types of accounts that you'll have. You can have them in your business and you can have them in, in your personal life, but they should be separate, depending on business or personal life. I use the high yield, like I said, I use the high yield cash account as my accumulation Account for sinking funds, for emergency, for down payments on things, for big purchases. And I'll have multiple High Yield Cash accounts if I need to because there are no fees. And you can set them up, you can find them in on online banks. And I'm not recommending any, any specific bank, but you can look at Allied, you can look at Wealth Fund, Goldman Sachs, look at your credit union, look at Nolo, look at all these different. Go to bankrate.com if you want and see what the best rates are on High Yield Cash accounts. And this is where I would accumulate things. Now the next stage, these next ones are actually ones that are more tax related types of accounts. This is where we start to make investments and things like that. So the next one is you may have an account for a 401k, a 403b or a 457 account or an IRA account. These are your retirement funds. This is your retirement funds. This is when, if you're an employee, they take money out of your check and they put it into a 401 account. Now you don't actually have that account. Now if you're the employer, if you're the entrepreneur and you have a Solo 401, then you're setting up the account. Like I have my defined benefit and I have my 401k plan. We set up the account at the brokerage house and we're moving the money from the business in there and everything. But you got to look at the 401k as a separate account. It's an account that you have because we got to understand how are we funding is where do we put the money, when do we put it in the checking account, when do we put it in the High yield Cash account? When do we put in the 401k or 403b or the IRA account and all that. So when you look at a 401k or a retirement, if you will, is it liquid access? No, it's not. Once it goes in, it's painful to get it out. Okay? Because they're going to charge you tax if you took a tax deduction for it and they're going to charge you penalties if you're less than 59 and a half. And that penalty could be 10 is 10% for federal and depending on the state, there could be a state level penalty of a couple percentage points. So the reason I'm adamant about you do not, not ever, ever, ever, ever draw out of a retirement account. And I know I did that when I was young, boy, I Lost. This was one of my big mistakes that I talked about in a previous episode, but that cost me 50 cents on the dollar because I paid a 12.5% penalty, plus I paid the tax on it. So I had $17,000 in a 401k account. And by the time I was done paying the taxes and penalties, I ended up with eight. Okay, so we need to understand that when we put money into an account like that and we take a tax deduction and we get a tax benefit for it, you cannot take it out without incurring the tax and possibly a penalty if you're not of age, which is 59 and a half. So there is no liquid access. I want you to put it in and assume that it's in there. And are there tax benefits? Yes, there's tax benefits to these accounts. And there's two ways that you can get the tax benefits. One is a Roth, and one is a traditional. Most people are used to what we call traditional 401ks or traditional IRAs. And this is where you put money in and say I put $6,000 into an IRA account, which is the limit now for anyone under age 50, $6,000 into an IRA account. I take a deduction for the $6,000. In other words, I reduce my income by 6,000. I don't pay tax on it. I get a deduction on it for that $6,000. Now, that sits in the IRA account. And then you'll invest it and do other things, and that 6,000 will grow. And at age 59 and a half, you can start taking it out without penalties. Now, when you draw that 6,000 out and any of the growth and earnings on it, you'll pay tax on it then. And so understand that there is a tax. You may get a tax deduction on the front end, but you can get taxed on the back end with a traditional 401k or a traditional IRA. When we look at that, if you do something called a Roth, okay, then what happens is you don't take a tax deduction on the front end, but you also don't pay tax on the back end. So I put the same $6,000 in. I don't take a tax deduction. So I'm paying tax now on the $6,000, but I put it in that 6,000 will grow until my retirement. And then when I want to take it out, I can take it out and the earnings all tax free. So you can have either an IRA or you can have either a traditional or a Roth, depending on Some criteria. Now, one, if you're an employee, you're working for a company, their plan, 401k plan needs to allow for Roth contributions. Some plans do. Most plans do these days, but some plans don't. And so you may not have that option. And today when you look at 401k, you can put up to $19,500 away into your 401k each year. And if you're over 50, you can put another. You can, it goes up to 26,000. Okay, so you can put $19,000 away every year, at least based on the current rules in that 401k. Now if you use an IRA, you don't get the $19,000. You get $6,000 or $7,000 if you're over 50. Okay, now you can, and I don't want to get over complicated here, but you can have a 401 and an IRA. But you need to be careful. You can put into a Roth if you want to create a Roth ira. There are some limitations there that you need to be aware of. If your income is too high, then you do not qualify to put into a Roth ira. In other words, the one where you don't take the tax deduction, then everything else comes out tax free. If you're single and your income currently, if you're single and your income is over $140,000, you don't qualify. You can't use the Roth IRA. There is an indirect way called a backdoor Roth. We can talk about it on another episode or if you're married, filing joint, if the combined income is over $208,000, you don't qualify. So, so just know that going in that there's a couple of different ways to look at this, but this is where we start to put our freedom fund. This is where we start to invest. The beautiful thing about most 401ks, especially employer based 401ks, is most of them will match your money. They give you free money. So they may say for the first 3%, they'll match you 100%. So if you put $4,000 in, they're going to give you 4,000 bucks. If that's, if that's the percentages, you got to look at the plan. That's free money. We take free money and we keep using the free money. Now, if we look at this in a different way, we want to understand how this might play out in the sense of risk. And you'll see in my schedule, the risk is low to high. And the reason for that is you get to make the investment choices in your retirement plan. They will give you a set of choices and you can go extra conservative, meaning that you have low risk, or you can go extra aggressive, which means that you have high risk. So the range of risk is based upon the investment decisions that you make for the Money in the 401. I want you to think about this in a different way because sometimes it's confusing. The 401k is like, is just the COVID you're putting on the account. It's a wrapper, but it's not the investments. So you're not in. You're putting money in a 401k. And there's a second step you need to make. And that second step is to tell them where to invest the money. Now, most 401ks have certain investment options that you have. Most of them are index funds or, or target dated date index funds. So you can create an index fund or ETF based on options in there that fit your risk profile, that fit your, your circumstances, your risk tolerance and, and your age level. So there is two steps. You're going to put money in and then you're going to make the, the investment out. All right, so that's the 401k. We'll talk about when you want to max that out, what you want to put in there in a second. Then you have something called an HSA account. This is a health savings account. This is for medical. But there's something beautiful about this account. Okay. And that is that this is one of the accounts that what we call is triple tax advantaged. In other words, when you put money in now, the only way you qualify for this is that you have to be part of a high deductible medical plan. It's meant to pay medical expenses. So you're going to accumulate cash into it to pay medical expenses. In the current limits, you can actually put $3,600 in if you're single, $7,200 for a family. So you can make that contribution. And the money goes in and grows tax free. Just like an IRA, just like a 401. You can invest the money in it and it grows tax free. And if you draw the money out and use it for qualified medical expenses, you take the money out tax free, you don't pay tax on it. It's a wonderful, wonderful way to pay for medical expenses if you qualify. And you have this high deductible medical plan that allows you to do that. Now here's the other side of this. There's a couple things that happen with this. Let's say that you put money into the account in the HSA account one year, and you have a family, you put $7,200 in, but you didn't pay any medical bills. You didn't, you either didn't reimburse yourself or you didn't have any medical bills. What happens to that 7200? It stays there and it accumulates. So you can put another 7,200 the next year and another 7,200 the next year, and you can accumulate it as if it's a retirement account. Because at age 65, the money in that account can now be used for anything like a retirement account. But the only way it's tax free is if you use it to, to pay medical bills. If you use it for other things, then you'll pay tax on the amount you used for other things. So that's the beauty. You put money in, get a deduction, it grows tax free. If you take it out for medical bills, you don't pay taxes on it. By age 65, it converts and you can pull money out with no penalties and use it for other expenses. But here's the thing that we have our clients do that are participating in the HSA plan is we have them put the money in, and as long as they have liquidity, we tell them to pay their medical expenses personally. And think about this. So they're paying their medical expenses personally. They put $7,200 into the HSA plan and say they have $1,000 in medical expenses. Instead of taking the money out of the HSA plan, they just pay it personally and they save the receipts. They document it, they keep a record of it. And they do this for 10, 15 years. Now, the money that kept going in the HSA plan keeps growing and growing and growing and growing. And then 10, 15 years later, you have the record, you say, I'm going to reimburse myself all those medical expenses. And so you take all that money out of the HSA plan because it's a reimbursement of medical expenses. It's 100% tax free. But the beautiful thing is because you left the money in the account, it grew for those 10 or 15 years. So you have all that growth and all that money that was built during that time still in the account for you to use for medical expenses or other expenses when you turn age 65. Okay? This is why an HSA is such a wonderful account if you qualify. We don't have an HSA Personally, we don't have an hsa. We have a different kind of medical plan and it works better for us because of my history with cancer and that type of thing. But understand that that's a possibility. So that's another account. And then the last account I think we need to, to look at is this idea of a brokerage account. This is your typical brokerage account. If you look at this, these are tax advantaged. I'm going to put those in red. These are tax advantaged. So there's a tax benefit to these. Okay. And so you'll see that here, the brokerage account is what's left over. This is your personal brokerage investment account. This could be at a, at a Schwab, at a TD Ameritrade. It could be at a, you know, any kind of investment house that you want, Vanguard. And this is where we then start to fund additional investments over time. And so is it liquid access? Yes, because there's no penalties to take it out. It's your own personal. It's not, it's your own personal money you're putting in there. Is there tax benefits? No, there isn't. If you buy and sell investments in that account, unlike an IRA or 401k or an HSA, if you buy or sell investments in that account, you're going to pay tax on it. It could be long term gain or it could be short term gain. That's the way that this account works. You can draw the money out anytime you want. The risk level on it is low to high because it's dependent upon what you invest in. Now I could create a brokerage account. You could create a brokerage account, put it in index funds or ETFs or individual stocks if you want. We have some criteria for that, you know, that I work with in the Affluence blueprint to help people understand that. But I think it's important for you to look at this. You determine the level of risk that you want to take on in all of these in your 401k, you know, IRA, your HSA or your broker account. Because you decide the investments, you have control of that and you can determine how much risk you want to take on. And that will change over your lifetime. You know, for me, when I was younger, I was taking a lot more risk. Today I don't for two reasons. One, I'm older and two, I have a, a much larger portfolio that I don't need to take the risks on to make it happen. So that's the, the key. These are the six accounts that I think are really important for you to consider in doing that. The checking savings, the CDM money market accounts, the high yield cash account, which I think everyone needs to have. Your 401k or your IRA or if you're depending on what, where you work, a 403B or 457, your HSA if you qualify, the health savings account, if you qualify, qualify and a brokerage account. Those are the six primary accounts that you're going to have in there. Now what's the order? Where do you put the money? So I'm going to give you some steps before we close this out and that hopefully will help you out. I know that I'm going through a ton of information here and maybe you got to go back and listen to this again and make sure you're taking notes. But I'm hoping that this is serving and helping again. If you have questions on any of the stuff that we're doing or other stuff, post it. Send me a dm. Post it in the affluent entrepreneur group and let's make sure I'm, you know, I'm answering questions and doing lives and doing some things to make sure that you're served and supported in your financial journey. Okay, so, so let's look at this flowchart. That is how I would look at allocating some things. I'm going to assume that you're an entrepreneur, but even if you're not an entrepreneur, this is still apply to you. So I have a business and from that business I'm going to take out a salary. Now if you're not an entrepreneur, you're going to be getting paid a salary from a business. So it's the same thing. And from that salary there's a couple things that we want to use that salary for. That salary is going to go into a checking account. That's the first account. And once it goes in that checking account, from that one checking account, we're going to allocate to pay our living expenses. Those are our needs versus our wants. And we go deep into that analysis, if you will, in the affluence blueprint. So needs versus wants, we're going to pay for our living expenses. Then we're going to look at and say if you have consumer debt now all we're doing is following the wealth priority ladder in this flowchart. If I have a debt plan, if I have consumer debt, the destructive debt, then it's going to pay my living expenses, it's going to pay my debt plan to make sure that my debt plan is getting paid off so I can get myself out of debt in conjunction with the wealth priority ladder. Then we're going to allocate it to our Peace of Mind fund. Now at some point, if you've got your peace of mind fund completely built, the nine to 18 months, then you won't need to fund it any longer. It's there, it's in a high yield cash account. You're going to put that in a high yield cash account and leave it alone. It's there for your peace of mind. That's why it's called the Peace of mind fund. Then from there that you're going to need to allocate monies to other sinking funds. And what I mean by this is that if you have big purchase that you want to, maybe you want to go on a vacation, maybe you want to buy a new car, maybe you're thinking of buying a house. What we want to do is, is have a high yield cash account where we're going to just allocate that money. I'm going to put $500 a month towards our vacation or, or a thousand a month towards our house purchase, down payment, those kinds of things. So I'm going to allocate to whatever other sinking funds that I might have to help me start to understand where it goes. And then once all of those are taken care of, then we can look at our brokerage account. Okay, The Fidelity, the Vanguard, the Schwab, the TD Ameritrade, whatever it is we can allocate to the brokerage account. Okay. This is where we start talking about freedom level of stuff in the wealth priority letter. Now you're sitting back saying, well, Mel, where is this 401k and HSA thing that you're talking about coming from? Ah, so there's going to be a portion of your money. There's a portion of money that's going to go to your checking account. Those are to pay your personal expenses and build the other buckets of income. But at the same time, if you're participating in a 401k, then we're going to have to take a portion of that money to put in the 401, the 403, or the 457 or IRA and.

The HSA. So this is how all the money will flow is that I'm going to get a check and it's going to go in different directions. And my recommendation is that when you do this, you put it on automatic so there's automatically the money goes to the 401k, which is the only way to really do it. Or you can have it automatically allocated to an ira. Automatically pay. I put a lot of my bills on autopay, so the lifestyle bills, lifestyle expenses are paid for. If I have debt, which we don't, the debt would be on an automatic payment. I want to remove the friction out of all of this and make it automatic. Out of sight, out of mind. The money that's getting allocated to the sinking funds or a brokerage account. If I want to put $500 away, I talk to the bank and I say I want $500 to be moved here every single month on this day of the month. And they'll do it. They'll do it. So we need to make sure that we're allocating things and doing things as automatic as possible. So let me summarize this. Talked about six different accounts that you can have. Talked about the flow of them. We talked about the three different elements of them. Whether they're liquid, whether there's a tax benefit and what level of risk there is. At some level, you'll have multiple of these accounts. It's at an institution of your choice. Now let me break it down and let me give you a recipe, just four steps on what do you do first, how do you allocate the money first, how, when do we put into the 401k, when do we put into the brokerage, all that stuff? So let me, let me break that down for you before we close out because I think it'll help you start to understand this. So the very first, this is the account flow sequence. If you are working for a company and they have a 401k, one of the very first things that I want you to do is to look at it and say, I want to max out to the match. So if they say the first 3%, they're going to match 100%, I want you to max out to the match because that's free money. They're giving you free money. Take the free money. So I want you to max it out. Now you might say, well, Mel, do I do the Roth option or do I do a traditional option? Now, this is not tax advice because I don't know your specific circumstances. There's my cya. But let me give you a general rule. Okay, here's the thing that I think we need to think about is this is your tax rate today lower than the tax rate that you're going to have tomorrow, you know, when you take the money out. So if Your tax rate is greater than 30%, then I'm going to tell you that I probably would do a traditional take the tax deduction today, okay? But that's generally, it depends on your taxes and circumstances. If your tax rate is lower than 30%, I might likely pay the tax today, put it in a Roth so I can take everything out tomorrow tax free. Now, a couple of caveats in doing that. You have to be eligible. Remember I said that there's income limits on it, so you got to look at the income limits. But two, there's a second eligibility requirement when you create a Roth. Now this only applies to a Roth IRA. It doesn't necessarily apply to a Roth 401, but the money, the account and the money that's going in has to be there for five years before you draw it out. So you got to be eligible and you got to have that five year window to make that happen. So the first step is to max out, to max out the match level so you're getting the free money from the employer. The second step of this is to then look at it and say, do I still have consumer debt? And if I do, then I'm going to focus on the consumer debt and building my peace of mind fund. But if my peace of mind fund is built and my debt is taken care of, okay, then I'm going to max out my 401k or IRA to the max. So 401k currently is 19,500. If you're under age 50, it's more. If you're over age 50, your IRA is 6,000 or 7,000. If you're over age 50. I would at this point then max everything out, assuming that my debt and my peace of mind fund is taken care of. So I would max that out at this point. But first the match, then the max. If my debt and my peace of mind fund is taken care of, number three, if those are done then and I'm eligible, then I would max out my HSA and start building the hsa. See what I'm doing is I'm building up tax advantage buckets so you can have more growth and take money out as tax efficiently as possible. And then number four, this is the last place I would go is then, then put it in the brokerage account. At that point you have the opportunity to then say, all right, now I'll put it into my brokerage account. This becomes your liquidity in the future. Okay, beyond the peace of mind fund. So this is the sequence that I would do is I would Max the match first and you can use Roth or Traditional, depending on your situation. Second, if my debt is taken care of and my peace of mind is taken care of, then I'm going to max it to the maximum of the 401k or the, or the IRA or the 403b. If it's not, I'm gonna focus on debt elimination and peace of mind building. Once step number two is taken care of and if I'm eligible, I'm gonna max my HSA and then I'm gonna put money into the brokerage account. So that's the game we're playing. That's the key. Now, we've gone through a ton, a ton of stuff, so I hope that this helps. I hope that you get a chance to start looking and saying, okay, I'm not participating in a 401 right now. I need to participate to the match. Great. Just follow this recipe, stay on course and make it happen. This is the key. Listen. Investing truth, wealth building and investing. It's not a exciting, crazy roller coaster ride. It is a slow, boring process. And I want my portfolio to be boring. I want it to continue to go. I don't want the peaks and valleys and all the craziness. So this is the process that we're going to go through to make that happen. So I hope that this helps. Again, I've had a lot of graphics and a lot of stuff in this episode. If you're listening, do me a favor, go to the show Notes. We'll make sure all the graphics are there for you. Or you can watch the video on my show page or on my YouTube there. And I look forward to seeing you in the next episode. But in the meantime, if you have questions, if you have challenges or anything, send them to me. We'll make sure that we make them part of the show. We'll get them answered. We'll keep you moving on your financial journey. And for those of you that are out there saying, I'm not sure how to do this and you're looking for a way to build a foundation, do me a favor, go to themoneyplanchallenge.com this is my free seven day money plan challenge. It's a seven day crash course to build the foundation. A plan. If you want an unshakable financial foundation, we need to build a money plan in place to make that happen. So let's do that. Join me in that seven days. Okay, it's free. Just go through it, do the work. Seven days of simple steps to make that happen and get that done. In the meantime, I look forward to seeing you in the next episode. And always, always remember to live a life that outlives you. Cheers. Bye. Thank you for listening to the Affluent Entrepreneur show with me, your host, Mel Abraham. If you want to achieve 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.

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 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 Podcasts, 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.