If You Don't Understand Cash Flow, You'll Never Be Able to Retire

You could do everything right, work hard for decades, save diligently, even build a 7-figure net worth and still run out of money in retirement. Because whether you get to retire was never decided by how much you make. It was decided by one number most people have never calculated. And it isn't your salary and it isn't your net worth. So if you don't know yours, you're planning your future on a guess. This is Building Your Money Machine, where we help you master your money, eliminate financial stress, so you can live life of choice. And I'm your host, Mel Abraham. And I wanna make sure that we get you dialed in on the right numbers, so you can retire the right way. Let's do this. All right, I want to start by proving to you exactly how little your income can protect you. Because once you see this, you'll never look at your paycheck the same way Again, here's the deal. Retirement is a cash flow game, and the paycheck you're counting on can't win it for you. And the fastest way I can prove that is a family who made millions of dollars a year and still lost everything. I know every detail because I was actually their business manager for a time period, and I had a chance to see this thing starting to unfold. So in a good year, my client, a guy who was in the music industry, brought home somewhere between $1 $3 million. So a good wage, you know, well above average. And they lived like it though. They had 5 cars, a Bentley in the driveway, a big beautiful home on the bluffs in Malibu, extravagant trips, and the shopping— oh my God, one single shopping spree one time, his wife came home, spent $11,000 on shoes. Oh my God. So now I'm a CPA and I've been doing the math over 30 years and I still can't make sense of $11,000 of shoes. I've seen every statement with them. I saw every wire and every credit card bill. And what I saw inside those statements is the reason I'm making this video, because from the outside, this family was untouchable. Inside the statements, a lot of that lifestyle was riding on credit cards. The attitude was always the same. Eh, it'll get taken care of. There's more to come. I'll just make more money. And I warned them. I spent time warning them, not just once, not just twice, but over and over and over again. We're running low. We're running low. Every time, instead of changing habits, what did they do? They borrowed more. They found someplace to take it from. They refinanced the house again, but they kept the party going. And it got to a point where the wife actually asked me to start hiding things from her husband. And at that point, that was the end for me because I can help people, but I can't help people that won't look at the numbers. I can't help people that want me to lie about them. So I walked away. Now, the story doesn't have a happy ending. The story ends like this. He ultimately was diagnosed with cancer and he passed away before he was even 60. His wife, his two kids were left with a huge mortgage on a house that was worth less than the mortgage. Mortgage and a pile of debt, a fleet of cars that suddenly didn't matter at all. And they lost everything. And that family had an income that most people can't even imagine. But what they never had, not for a single month in all the years I worked with them, was cash flow. And I need you to hear this part because this is so important. You might be thinking, well, Mel, I don't make $3 million. So this isn't for me. Listen, that's exactly why it's you. If a family with 7 figures can die broke, your margin for ignoring this is zero. They had a massive engine, but they had no fuel line. Most people are trying to retire with a smaller engine and the same missing fuel line. Because underneath all of that and all the brochures and the sailboats and the retirement calculators and all the silver-haired cubs laughing at the salads and everything, retirement comes down to one brutal fact. The day you retire, the paycheck stops, but the bills don't. Retirement is the day your life has to run on cash flow alone, which means retirement is a cash flow game. And if you spent your whole career managing income instead of cash flow, you've been practicing the wrong sport. See, income is what walks in the front door. Cash flow is what's still in the house at the end of the month. My Malibu clients, they had the grandest front door you've ever seen, and the back door was wide open the whole time. So if income can't save you, what can? If that's the case, well, I'm gonna give you the answer in 3 sentences. And this is the sticky note version of 30 years in the trenches. So grab something to write with, and let's make it happen. All right, the 3 numbers: income, cash flow, and freedom cash flow. Those are the things that I want you to understand. The 3 sentences is this: income is what someone pays you, your paycheck. Cash flow is what's left after taxes and your cost of living. And freedom cash flow is what's left after your life is fully funded. And that's the money that buys the assets. Now let's walk through them because each one is a gate to the next. See, income's the number that everybody knows. Your salary, your business revenue, your commissions. You ask someone what they make and they'll tell you the dollar. And it's also the number that the world applauds. Raises, bonuses, 6 figures, 7 figures. The dot-com was built on revenue numbers, on income numbers. But not cash flow numbers. And so when we start to understand that, you start to look at it differently, but you don't get to keep the top line. The taxes come off first and they don't ask your permission. They just do it. Then the cost of living takes a bite. That's the mortgage, that's the cars, that's the insurance, that's the 14 subscriptions you forgot you had. And then what's left after all of that? That's cash flow. And the wild part is, ask the same person who knows their income to the dollar what their cash flow was last month, and you get a shrug or you get a blank stare. See, we memorize the number that impresses people and ignore the number that decides our future. Then there's this third number that almost nobody tracks, and that's the freedom cash flow. That's what's left after you funded your life fully. After the bills, after the fun, after the life itself. That's not spending money. Freedom cash flow is the only money that ever buys assets. It's the money that feeds the machine. No freedom cash flow, no machine. Doesn't matter what your W-2 says. Now run my Malibu clients through those 3 numbers and the whole tragedy explains itself. Income, enormous. Cash flow, Zero. Most months, less than zero, which is why the credit cards and the refinancing existed. And freedom cash flow, it never existed at all. In all those years, with all those millions, the machine never got fed a single dollar. And so when the income stopped, when he passed away, everything stopped because income was the only thing they ever had. And this is what I mean when I, I say most people manage money instead of managing cash flow. Managing money is watching the paycheck arrive and hoping that the month works out. Managing cash flow is knowing on purpose in advance what comes in, what goes out, and what's left to build with. One of those is a plan. The other is just a prayer with a spreadsheet. And you can't know your cash flow if you don't know what your life costs. See, a lot of people don't know what their life costs. These people didn't know what their life costs no matter how much I tried to tell them. And most people guess at it and they miss by a mile. So here's a question for you. If you've never really put a real number to your life, I'm gonna help you with this. I built something called a lifestyle cost calculator. It's totally free, takes a few minutes. You go to melabraham.com/lifestyle. I wanna help you start to understand in detail out what your life costs. It might open your eyes, it might surprise you, might even depress you a little bit, but we'll take you from there. But because without knowing that, we can't go into managing it. We can't fix things that we aren't aware of. So I want you to grab that tool for free and let's get you dialed in. Now, your Cashflow Number tells you where you stand today. It doesn't tell you what your retirement costs are. And the way the retirement industry calculates that for you is backwards, I think. Let me show you the mistake because it steals years from people and I don't like this. The point of retirement is life. It's not the number. And so when we calculate our retirement, we should look at life, then the number, not the other way around. A woman came to me a while back. We'll call her Megan. She was an entrepreneur. She was successful. She was selling her programs, her products. It was going well. And she and her husband already had over $700,000 in assets. So now you'd think somebody with $700,000 put away, would sleep well at night. Well, she didn't. She carried more money stress than some people I've met who had nothing. Her business kept her in the game, but she had to keep performing. Her husband had to keep landing his raises, landing his bonuses, landing his sales quotas. Every year the pile got bigger. The pressure never dropped an inch. And sit with that for a second because it breaks the story most of us have been sold. The story says, The anxiety goes away when the number gets big enough. But Megan is proof that it doesn't. A pile with no price tag is just anxiety with a balance, you know? But we gotta ask ourselves, why was she stuck? Because they were doing what the industry teaches, so she shouldn't be stuck. Accumulate as much as possible. And where does that target come from though? See, the retirement industry starts with your income. This is the mistake that I think they make. It's an easy number to tag because you know what your income is. They take your salary and they replace some percentage of it. Then they multiply it out over years and boom, there's your magic number. See, they start with income because income is that easy number. It's sitting right there on the W-2. But look at what they skip. It skips the only question that actually matters. What life are you trying to fund? See, your income says nothing about your life. I know people that are making $400,000 a year, who need every dime, every nickel of it, and people that are making a quarter of that, living a life they love with room to spare. See, replacing income isn't measuring the fuel that you need to run the car, to run the machine. So this is the order that I've used with clients for 3 decades, and it never changes. It's the same thing. It's life first, then the number. Take the time to define your life, not what the number is for your life, but what's the life you want? What kind of trips? Where do you want to live? All the things. And then let's figure out the price tag on that life. Then and only then can you figure out how to fund it. See, retirement planning that starts with income is planning backwards. That's the work that Megan and I did. But one thing had to happen first. When she came to me, she wanted to build this on her own. She didn't want her husband in the conversations. Not because the marriage was in trouble. She wanted to do it independently. And honestly, I, I honor that instinct. But you don't build a life in isolation, and a retirement plan is a life plan. So her first assignment wasn't a spreadsheet. It was a conversation with her husband about what they wanted their life to look like. And when they finally sat down and defined it, something surprised them. See, the life that they wanted was simpler than the one they've been grinding for. Not small by any stretch of the imagination. And when we put a price tag to it, it came in around $225,000 $100,000 a year. That's a substantial life, but it was a real number now. It wasn't just something out of their imagination, and it had their names on it. And instead of some ghost that could never catch, they now know what they're going after. And the change was almost immediate. See, the question stopped being, how do we pile up as much as possible before we collapse? And it became, how do we fund $225,000 a year? See, one of those questions has no finish line and the other has an answer that you can build towards. So you could feel the pressure literally come off their marriage, off of her business, off of his career. And notice what this does to the word retirement itself, because Megan and her husband are nowhere near 65. Her goal was for her husband to be able to step away early and for her to live completely By choice. See, retirement is the day work becomes something you choose instead of something you need. And that day has nothing to do with age. You could literally hit it at 43. Some people never hit it at 75. Most people spend 30 years chasing a number somebody else's formula picked for them, feeling behind the whole time. But feeling behind at least implies you know where the finish line is. And most people don't. Most people are lost in calling it blind. So Megan had her number, $225,000 a year. This brings us to the final piece, the one this whole video is building towards. How do you fund a life without renting yourself out forever to pay for it? So we fund the life with less and less of you. See, 2 and a half years, That's how long it took Megan and her husband to get within eyeshot of funding the $225,000 life. Not 30 years, not 30 years of white-knuckling it, lottery tickets and all kinds of things. 30 months of deliberate, boring, beautiful moves. And what they did was nothing exotic. They kept maxing out the 401s. They built up the brokerage account. They set up the 529 plan for their daughter. They followed the sequence that I call the wealth priority ladder. I wrote about it in my book, Building Your Money Machine, which tells you exactly what the order to do things in so every dollar goes where it works the hardest to optimize it. Now, I'm not going to teach the whole ladder here because this is a short-form video. It's part of a course, it's part of the book. But I am going to break down some things that I think really matter in going through this, because underneath this is that if we don't know how to allocate our dollars properly in a priority, we can't get it to work for us the proper way. But underneath everything they did sits one idea, and it is the retirement twist that makes all of it work. It's not enough for the cash flow to exist. The cash flow has to show up without you. See, think about the ways money can come in. To you. And there are 5 kinds of income as far as I call it, I call it the 5 incomes that separate you. But the question is, how much effort do you have to put in? And the whole purpose of retirement is creating a situation or an environment where you have cash flow coming in without too much effort. That's the purpose of the money machine. And at the bottom, you have what I call active income. This is where you're putting your efforts, your employment, your solopreneurship, your entrepreneurship. But it requires you to deliver. You could be a coach, you could be a consultant, you could be a speaker like me. It requires you to deliver. It's one unit of you for one unit of money. That is not scalable and not sustainable. And when you step off, it steps off with you. Then you go up and you have business income. This is where you start leveraging and getting a team in to do some of the things to get some of your time back. So now you've bought some of your hours back, but still, if you disappear for 6 months, what happens? So does the money. So most people get stuck in those bottom 2 rungs. I want you in the upper 3 rungs. The next rung up is asset-based, asset-based income, acquiring assets that generate cash flow that don't require a lot of effort. It could be real estate, it could be equipment. Then above that is residual income where you create something like my book and I get paid every time the book gets sold. Residual income, you create something and get paid repeatedly. And then the last is portfolio income. Those are the 3 areas of income to sit back and say, as I'm building, as I'm building and doing my career, my profession, my business, how do I start to put things in place to generate those kinds of income? Because those kinds of income give you your time back. And the idea is this, is not to accumulate a bunch of assets. The idea is to create a bunch of assets that have cash flow. That's the game. See, Megan's family built, they looked at the top 3. Now they did most of it in the top 1 in portfolio income. And what happens is that they keep moving forward, paying less and less with their effort. See, the money machine is built on those top 3. That's the whole design. Every dollar of freedom cash flow you move into them is a dollar that starts working, shifting, from you to the money making money for you. And now you can see the trap that catches almost everyone, because when people feel behind on retirement, their instincts are to climb harder on the bottom two floors, bigger salary, more clients, harder hustle, side hustle, side jobs. And they're trying to outearn a problem that earnings can't fix because every dollar from the bottom floors stops the moment you stop. See, my Malibu clients, they had the biggest bottom floor income I've ever managed, and it evaporated with the man who earned it. Megan's family, on the other hand, a fraction of that income, but they built a cash flow that will outlive their careers, that outlived their efforts. Same math, same formula, opposite ends, and the difference was never the size of the paycheck, all right? So let's bring this home. Retirement is a cash flow game. And my Malibu clients proved income can't win it for you. Millions a year walked in the front door and a widow and two kids were left with nothing because there was never one month of real cash flow underneath the lifestyle. So you track the three numbers, income, what someone pays you, cash flow, what's left after taxes, and the cost of living, And then freedom cash flow, what's left after your life is fully funded. And the only money that ever buys assets are your freedom cash flow. Then you flip the order. The industry has taught you that when you start to look at it, define your life, price it out, and then fund it. And you fund it with the income that needs less and less of you. So the machine keeps paying when you stop. But I'll tell you the part that I never put in a spreadsheet. The biggest change I see in people that do this and make this shift has nothing to do with their portfolio. Has to do with them. They get calmer. They stop second-guessing every decision. Couples will stop fighting about money because they're finally reading the same map. The guilt drains out of their spending because the life is funded and they know it. I've seen it in my relationship with my wife as we've moved further and further along. And somewhere along the way, they stopped believing more income is the answer to everything because they found that the thing income could never give them is life if it's not planned out right. Clarity creates confidence. Confidence changes decisions, and those decisions will change lives. That's what's waiting on the other side of this, and it's worth more than any pile. A life you priced, a life you funded, a life you chose on purpose. That's the game. That's what's going to get you there. So rather than trying to accumulate assets and get a bunch of stuff and think that that is safe, how about we look at how do we get assets that generate cash flow that doesn't require your efforts? Because your retirement is a cash flow game. All right. Hopefully this opened your eyes. And if it did, do me a favor. Hit the subscribe button. Give me a like. Give me a comment. Let me know what you think. Let me know. Which of the 3 numbers you're gonna start tracking this week. I read 'em all and I read 'em all personally and I love having conversations with y'all, all right? Listen, here's the deal. When it comes down to it, earning more doesn't make you free, a money machine does. And that's the game I want you to play, all right? Till I get a chance to see you on your path to your own financial freedom, building your machine, helping you along the way. As I always say, always, always live a life that outlives you. See you in the next one. Cheers for now.