067 Three Investments You Need to Build Wealth

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. What is the best investment to build wealth? Well, in this episode of the Affluent Entrepreneur show, we're going to talk about what you need to have in your portfolio and in your world to create wealth and financial freedom. I'll see you in the episode.

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. One of the biggest questions I get is, what's a good investment, Mel? What should I be investing in? I mean, especially in these crazy times with the uncertainty and the ups and downs of the market and inflation and interest rates going up and all the things, what do you do? It's confusing. You know, advisors are trying to sell you stuff. And so here's the thing. I know first off, we need to look at things through the eyes of the long term. You know, if we're coming at this with the overnight success perspective, I call it the beanstalk syndrome. Throw the beans out the window. The next morning you wake up and there's the beanstalk. We're going to be sadly mistaken and worse, we're going to be hurt. We're going to, we're going to lose our money. Get rich quick. The problem with get rich quick is we have to keep doing the get rich quick to stay rich. And so I want you to start taking a long term view. I'm going to talk about three categories of investments that I think everyone should have some sort of mix of depending on lifestyle, depending on access, and depending on your circumstances. And we'll talk a little bit about that because if we look to financial freedom, financial Freedom. In my book, we go through stages and I've, and I've talked about these stages. And the journey, what I call the financial liberation, liberation journey walks you through financial stability, financial security, financial independence and financial freedom. And at each of those levels, there's some very different things that need to come into play. And I'll make sure that I hook that video up for you at the end of this video. But the key here is this. You have two machines that you need to build as an entrepreneur, you're building your business and, and, or if you're not an entrepreneur, you have building a career, one of those two things, but they're machines. If we think about it from a machine standpoint, we say, well, what does that machine need to have? What does that machine need to do? Well, it's going to need to create cash flow for you because it's the cash flow from that machine that we're going to use to build the, this, the second machine, which I call a money machine because it's the money machine where you're going to find financial freedom, where you're going to find that freedom. And that money machine needs to generate enough cash to support the lifestyle you want. So let me recap that because I think it's this, this concept is so important. It is, it is the core premise of the Affluence blueprint. Everything I teach, the things that I do in my, with my members, in the master's program and all that, is that how do we take our income streams, the things that we are creating that are generating and give, get ourselves freedom. Because if, if truth be told, if I'm an employee or an entrepreneur, and the only way that I have money coming in is that I get on the treadmill every day, I wake up and I'm working 8, 10, 12 hours a day. And now I got cash coming in so I can pay my bills and I can do the things that I think I want to do. But if I get off that treadmill, I stop my job, I stop my career, and I got nothing. At the end of the day, how do I survive? Or I'm going to move back into the basement with my kids, you know, that kind of a thing. So we often make this mistake with believing that either our business or our job is where our wealth comes from. And it is part of it, but the other part of it is that we need to use that career, we need to use that business to build this machine, the money machine, the portfolio. I say we have to transfer our profits to A portfolio. Okay. And that portfolio is made up of specific types of investments. So hopefully you start to understand that. I'm gonna, I'll go to the iPad, we'll talk about some of this. But understand the reality of what we're trying to get at here is that I need to, I need to have a couple of, of things in place. I have to have an income machine. This is going to be your business or your career that's going to produce some dollars. But the problem with that is you're constantly, this is my great artwork. Constantly having to run on that thing to have the dollars come in. But what we need to do is take a little piece, a little piece of that dollar and start to move it over here and build a money machine. And it's that money machine that gives us the freedom. And because that money machine is then going to throw off cash so you could live. Okay. And so the reality on this is this. Look, you can call it a retirement, you can call it a pension, you can call it whatever you want. It is a portfolio of investments that can generate cash, that can support the lifestyle that you dreamed of, that you're dreaming of. It is what your birthright is. But it's not just given to you. You have to create it, you have to build it, you have to claim it, you have to own it. I believe that it's, it's within reach of every single person. If we just understood the, the ways to claim it. This is the reason that I have the show. This is the reason I do my content. This is the reason that I, I'm doing the things that I'm doing to help people understand how to go out and claim it. So if we're going to build, we can talk about the business and optimizing the profits and doing that later. How do we scale our income and everything? But what I want to really hit on though is then what are the investments? Because, you know, should I investing in crypto? Should I be investing in real estate? Should I be investing in stocks? I mean, the stock market just went up 900 plus points. Then it dropped 1200 points. That kind of ride. I mean, should we be in there? So let's just talk about the three investments. I think you need to have to build wealth. Okay. And these are investment categories, if you will. And, and the first is, this is. I think, number one, you need to have investments that are income generating. Income generating investments. What is that? Well, it could be, it could be real estate.

We get into real estate because if we look at it real estate. We can rent it, we can flip it, we can Airbnb it. All of those are there to generate cash flow on an ongoing basis. And it's that cash flow that will start to supplement our life, supplement our income or replace. What we want to do is replace our income or, or pay for the expenses of the lifestyle that we want. Now, when we talk about real estate in general, we want to buy it for cash flow. We want, I'm going to say.

Minimum, 7 to 10% returns. Cash on cash. Cash on cash, minimum. Why do I like real estate? Now, there's some things that I don't like about real estate, and I'll tell you exactly what I'm doing. It doesn't mean that you have to do it this way. I did it this way for a reason. But real estate happens to be one of the only investments that has three characteristics. One, it gives you cash flow or it has the ability to give you cash flow. So you've got a cash flow play when you buy real estate. Two, you have appreciation. The value of the real estate goes up. There are in, in Arizona last year alone, Arizona last year alone, the property values, home values increased by over 30%. Now, it's an anomaly. Although Arizona has been at the top of the list for the last three years. I'm not telling you it was Phoenix, but I'm not telling you to go buy something in Phoenix because the market has gone crazy. In fact, so crazy that the last year the average around the country is about 19% increase in value. That's appreciation. Buy a piece of real estate now and it goes up. Okay, now there are some markets that are, are flat. There's some markets that might go down in this environment. We might see a tapering of that growth. I actually, I don't think we might. We will do. Are we going to see a decline in property values? Maybe. It just depends. I'll talk about that in another, in another episode. But your real estate gives you cash flow, it gives you appreciation. And even if it doesn't give you appreciation, it gives you something else. Okay? And that is this. It gives you equity build. What do I mean by equity build up? Okay, so equity buildup is this. When you buy a piece of property, let's say you, you per the, you purchase a home and you purchase. I'm going to change the color on this. You purchase home for. Call it $200,000. Okay. You put a down payment down.

Let's do traditional. You do a down payment of 20%. So you have $40,000 as a down payment, and that means that the rest of the 160,000 is done as a mortgage, as a loan. So the way that this would be looked at is you have equity in the house, and the equity in the house is, is the purchase price minus the loan balance. So your equity, when you first purchase it, is going to be the down payment pretty much. But as time goes on, say you go five, 10 years, and I've got, I've got a tenant in there that's paying the rent, which is paying the mortgage. And so my mortgage now goes from 160,000, let's say it's down to 150,000. And let's say that the loan goes down to 150,000. The home doesn't change in value at all. It's still 200,000. So I have the home value of 200,000, minus my current loan balance of 150,000. That gives me equity of 50,000. And I started with equity of 40,000 because that was the down payment, which gives me an equity buildup of 10,000. So the property didn't appreciate at all. I didn't pay the mortgage, the tenant did. I mean, I did pay it, but the tenant was paying me so I could pay the mortgage, but the tenant paid for that buildup. So if the property never went up in value in the whole life of it, and the tenant stayed there for that time and paid the mortgage for you by paying you rents, all of a sudden you have a $200,000 piece of property with no debt on it. So you have 200,000 in equity. So it's the one place where you have cash flow, you have appreciation and you have equity build. Okay. And there is a fourth aspect to this investment, which is one of the reasons it makes it so different also. And that is this, the fourth aspect of this is that it's going to give you tax deductions. You get to deduct the expenses against the income, you get to deduct depreciation, you get to deduct the loan interest, insurance, taxes, all of that stuff travel to the property. It gives you a tax shield. So the rest of the investment, most of the rest of the investments aren't going to give you all of those aspects all in one. That's one of the key attractions to real estate is that you can get cash flow appreciation, equity buildup and tax write offs all in one single investment. So income generating, the first one for income generating is real estate. The second income generating asset or investment that you can make is. Is in a business, okay? It is in a business. Now, one of the greatest businesses to all businesses, if they're successful, should be able to provide you cash flow. It's called profits. Too often.

All right, I might get on a soapbox here. Too often we get so caught up in the revenues. Too often we get caught up in the sales and we don't think about the operations. I don't care that you made a million dollars in sales. What I care is what was left after you paid all the expenses. Because I can make a million dollars in sales, but if I have to pay out a million two, I'm 200,000 in the hole. That's not fun.

That's not fun. I'll give you a real for instance, is that. And this is why profitability becomes so important. When my partners pushed me out in the mid-90s, I know I'm aging myself. We had a staff of 29, okay? I had a team of, team of 29. It was costing us a hundred thousand dollars a month just to open the doors before any of us took a dime out. So we were, our expenses were $1.2 million a year before we saw a dime. Because we've got to pay the bills, got to pay the structure, the building, the rents, all of that stuff, okay? When I left, I said all I need is an office.

Access to the infrastructure, in other words, the copy or the phone system and that kind of thing and.

The reception, you know, that's it.

What happened that first year when I was out is it was me, an assistant and a part time receptionist. So went from 29 to three in that process.

I grossed about 70% of what they grossed. Now they had 29, call it 28 because I was gone. Okay? But they, I grossed 70% of their revenue, but I netted.

Ready for this five times what they made. Five times 500%. Point being is this. A business can create a tremendous amount of cash flow, but it only creates the cash flow if you manage to the bottom line, the profits of the business don't get so caught up. And now. So I made, I grossed less than they made, but I netted far greater than they did. I'd rather have that business model than theirs. And so I stuck with mine for the rest of the time. But businesses can be a great investment from a cash flow standpoint. Now, one of the best businesses to do this in is a digital business, an online business, digital courses, coaching, masterminds, events, those kinds of things. And the reason for that is is because it is a high margin business. Margins on a digital business could be anywhere from 50 to 80%. So think about this. And when I say margins, let's say that you have a digital business, you create a digital product, you put a program online and you sell $100,000 worth of it. And if you have an 80% margin, $80,000 of that ends up in your pocket. Granted, you got taxes and things like that, but you get the idea. 50% margin means 50,000 ends up in your pocket. Unlike bricks and mortar businesses where their margins are probably down between 10 and 20%.

So if you're looking to scale your income, if you're looking to build wealth, one of the greatest ways is going to be creating a digital online program or some sort of digital business that allows you to leverage time, leverage your knowledge, and leverage the distribution because it's online without a lot of costs. Okay, so the two primary income generating investments are going to be real estate and a business. Real estate in a business. So category one, we said was income generating. Category two, the kinds of investments that you want is going to be wealth growth. Okay, so we want, we want growth assets. Now some of these, some of the things are going to, are going to overlap here. Okay, so you can have growth assets. Real estate, real estate can be one of them because remember, it can appreciate. Okay, so we've already talked about real estate. The other one is a business. So we've talked about that. Businesses can be growth businesses in the sense that maybe we create a business that we can sell. Now if it's an online business, depending on how it's a brand or personal brand, probably not very sellable. But we have bought and sold businesses. I have done that. I do a lot of valuations and helping people with doing that. So there are folks that will make millions and millions and millions and billions of dollars building a business and selling it. Now that's, it's a long haul and there's a lot to do and it's a bit more complicated, but it is a growth investment. Now it doesn't need to be your own business. So there's a couple kinds of businesses you can, you can invest in your own, you can invest in, in a startup. Okay, startup. I've done this before where I'm an angel investor with a startup where I'm giving some initial fund, a piece of the business. So when, when the business sells or they get additional funding, I get bought out at a higher rate. Okay, it's growth, it's not providing necessarily cash flow but, but you have the ability to do that. So the two types of businesses that come into play is building your own business for growth or getting into someone else's business for growth. And then the other wealth type of growth asset that you can do is stocks, which indirectly is really ownership in public companies. I can own a piece of Apple. I can, you know, every time if I buy a share of stock, yeah, it's a stock certificate, but it's ownership in a business. And if Apple grows, there's the growth. So buying and getting into the right types of growth companies, something that is going to appreciate and grow over time can be a growth asset. So I have cash flow assets, income generating assets, and I have growth assets in there. Now I have a video that I did on how to pick stocks. What are the things that I look at in analyzing companies for stocks Now I'll hook that video up at the end of this video for you all also. Now realize this, if you're just starting out, I don't, when I'm working with people in the affluence blueprint or in the master's program, I don't recommend going after a single stock. There's too much risk with it because if you put your eggs in one basket and it goes against you, Look, Facebook lost 30% of its value. Actually it's below, it's down 50%.

Netflix dropped. I mean you name it, there's, and if that's all you own, that's a challenge. So what we recommend, what I recommend is when you start when, especially when starting out and you haven't built a critical mass in your money machine is I do it with low cost ETFs, low cost index funds because you get the diversification, you get the allocation, you have, you have some things in place that will reduce your exposure to blowing up your account, if you will. Okay. But stocks in the stock market, it are, are the, are the other ways to do that. So that's wealth, growth wealth growth assets, typically real estate, business interests and the stock market. And then the third category of investments that I think you, we all should, should be looking at is what we, we call, what I call protective investments. Okay. Protective investments. Now these are primarily what you'll see.

Especially in inflationary times. You'll hear people saying oh, move to move to gold. These are going to be precious metals, those kinds of things that are tangible, real money that I, I can, I can grab. So it's going to be gold and things like that. Now you will, I have heard people say well, crypto, crypto currency. Now, I'm not sold on crypto yet. I just, I don't, I don't, I don't think that, that it is necessarily.

Protective as yet. They, they've tried to say that it's protective, but I'm watching the volatility of crypto right now, and the volatility of crypto starts to make me think that it's not, it's still moving with the market. Okay. As the market has, has tanked and dropped, so has crypto. There is a tremendous amount of volatility in it. So I'm not sold on it as a protective asset, a protective investment as yet. I'm watching it, I'm playing with it, but we will see. So right now the primary protective investment would probably be the precious metals, gold, primarily in doing that. And so these three categories, investments, there's a mix to them that you need to have. Okay. And so if you looked at it this way, and you said, I, I'm going to have it, it just depends on you. I can't tell you what the percentages are, but you're going to have a portion that's going to be income generating. Okay? You have a portion that could be income generating, like we said, real estate, business interest, and you could put in there bonds, but bonds are not so good these days. You're gonna have a portion that's gonna be growth generating and then you're gonna have a portion. And the size of these pieces don't matter. I'm just, it's just for illustration. So you'll have a portion that's protection, a portion that is income generating, and you'll have a portion that is growth generating. And then you'll get a mix of them, depending on what's going on in your circumstances, the amount of wealth you already have, the size of your money machine, the needs, your financial plan, all that stuff has to come into play. But I want you to start looking at investments through the three sets of eyes and saying, is this income generating? Is this growth generating? And now you can have some that do both. Like I said, real estate. Okay. Or is this protective assets and, and work it from, from that perspective. Okay. I hope that this helps. And like I said, I'll hook up those couple of videos right here for you and to help you out, to move you further, you know, how do you look at stocks? How do I look at stocks? If I'm going to look at stocks in that way? And, and so we'll make sure that you have those to help you out and stay in the game. Here's the deal. Doesn't matter what's going on in the market. Market's going to go up, it's going to go down. We can't impact it. We can decide how we're going to respond, how we're going to interact, how we're going to play in that market. And if I can help you on that journey to make sense of it, if I can help you to start to get you on the path or move you faster on the path to financial freedom, I would feel blessed and honored to have that as part of, part of my journey. Listen, I've got nothing to sell to you. I'm not an investment salesperson. I'm not an insurance salesperson. I just want to sell you on the dreams. Your dreams are real. Let's make them real. It's your chance, it's your possibility. Financial freedom is a birthright. Let's give you the tools, the tactics, the strategies to go claim it. All right? And if you have questions, if there's anything I can support you with, hit me up, send me a dm, send me a message. I might bring it on the show. I might do a video about it. Let me keep you on the path to financial freedom. And until we see each other in another episode, another show, I are on the road. Always, always strive to 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 fluent entrepreneur Facebook group. Now by going to melabraham.com forward/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 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.