If You’re 40 and Starting From Zero, Watch This

If you're in your 40s and you're staring at your accounts thinking you've got almost nothing to show for 20 years of work, I need you to stay with me because I'm about to introduce you to a client who felt exactly that right up until the afternoon a single number on a screen completely changed everything. See, I've spent 30 years walking real people out of that exact hole. Not hype, but with a sequence, a specific order of moves that turns the, oh my God, I am too far behind, into a machine that pays you whether you show up or not. This is Building Your Money Machine, where we help you master your money, eliminate financial stress, and live a life by choice. And I'm your host, Mel Abraham. Today, I'm gonna hand you the exact steps in order that took my client from a future he was ashamed of to one he measures in millions. So let's do this. Let me tell you about a guy named Jason. And before I do, one thing, Jason and his wife are real clients of mine, and they gave me their blessing to walk through their whole financial picture on the condition that I kept the exact numbers a bit private. So everything you're about to hear is real. And the figures, though, are rounded just a bit on purpose. Fair enough? So 41 years old, he's married. He has 2 kids, 8 and 11. He earns about $130,000 a year. His wife earns about $90,000 a year. So call it $220,000 a year coming in for the household. 20 years of work behind him. He's got it going on. 20 years of promotions, 20 years of raises. And one afternoon, his company rolls out a brand new retirement portal. Same login, same balance he had seen 100 times. But this time the screen showed him something new. It actually projected his monthly income that that balance that he had, that he had been staring at for years, would produce in retirement. One number, $1,387 a month. Like he refreshed the page because he said it had to be a glitch. 20 years of doing this and trying to do everything right. And the machine tells him that he's got $1,300 a month waiting for him on the other side. It wasn't a glitch. See, now here's what I need you to sit with, because this is the whole reason I'm making this episode. Jason wasn't broke on paper. Jason and his wife looked like winners. They had a nice house. They had 2 cars, the kids in every single activity, family vacations, the whole picture. Like if you met him at a barbecue, you'd assume he had it all figured out. See, his net worth was somewhere around $175,000 to $185,000. But when I sat down with him, we pulled it apart and the money that was actually building his future, the money doing the work of getting him free was literally only about $42,000. $42 grand out of a whole life that looked successful. Everything else was literally tied up in a house he lived in, in the cars that were losing value the second you drive them off the lot, and a lifestyle that ate every raise he ever got. So when the title of this video in this episode says Starting from Zero, I'm not just talking about the person who has an empty account. I'm talking to the person who looks successful and just found out almost none of it is actually gonna work for them. And that's the more common kind of zero than you think. It's the one that nobody actually warns you about. So here's how Jason got here, and I promise you it's not what you guessed. He didn't buy a boat. He didn't gamble. He didn't rack up credit card debt. He did everything that was in the responsible-looking playbook, everything that he was told to do. He bought the house that stretched the budget because everyone swore real estate was the best investment. He remodeled the kitchen because it added value. He upgraded the cars every 6 or 7 years because reliability matters with kids in the backseat. Nothing reckless, nothing stupid. He just lived life. Daycare and summer camps and then soccer and travel baseball and dance for his daughter. A couple of years of private school, now helping his aging parents. Every raise showed up and then quietly, Disappeared into all of it. See, Jason didn't have a spending problem. He had a design problem. Nobody ever built the machine because nobody ever told him the paycheck wasn't the machine. And that's the first step for you. Before you save a dollar or pick a single investment, you have to face the real number, not your net worth. See, your net worth will lie to you the same way it lied to Jason and his wife. The number that matters is this: of everything you own, how much is actually working to make you free? How much of it generates income without your efforts? Take your investment accounts, your retirement accounts, the assets that pay you, and add those up. That is actually the real number. The house you live in doesn't count because it doesn't pay you a dime when you're living in it. The cars don't count. The stuff doesn't count. Now, for most people who feel behind, that number is a fraction of what they thought. And I need you to know something, that that's not a gut punch to make you feel worse. That's the most freeing thing that'll happen to you literally all year, because you can't fix a number that you refuse to look at. The day Jason and his wife saw his real number was the worst day and the best day all at once. Worst because it hurt. Best, because for the first time in 20 years, they were looking at how to solve the actual problem. So step 1 is the audit. You know your real number now, or at least you know how to find it. Next comes the part that everyone wants to skip, and skipping it is exactly why most people never build anything that actually lasts. Step 2 is liquidity, what I call in my book Building Your Money Machine, the peace of mind fund. So Jason did not have liquidity to carry him and his family if there was an emergency, if there was a loss of job. Now, they had 2 incomes, but still. So the first step in this process, whether you're 40, whether you're 50, you're in the process, you feel behind, is to see that you have a minimum of 3 to 6 months survival expenses in a high-yield savings account. That's called an emergency fund. But I like the peace of mind fund, and that's why I talk about it. I want you to, to push towards 9 to 18 months. But Jason started by funding 6 months of his expenses into a high-yield savings account. And he did it literally in 5 months flat. Made some changes, did some things differently. And I know, I know, you clicked on a video about building wealth and the first real move I'm giving you is just a savings account. But stay with me, because this is where almost everybody gets the order wrong. And the order of doing things is everything. See, before I had Jason and his wife put another dollar towards investing, We got his liquidity in place, that fully funded emergency fund and then building towards the peace of mind fund. Because what it bought him and them as a family wasn't just protection, it was peace. And this is why it goes first and why I will die on this hill. When you start investing before you have the cash reserves and life happens, and life will happen, the transmission goes, the roof leaks, I'm dealing with a sewer issue I gotta deal with, the job gets shaky. And because you have nothing liquid, you're forced to yank money out of investments at the worst possible time, usually. Or you're pulling it out of retirement, or you're stopping things you shouldn't stop, usually when things aren't so good, the market's down, and now you've locked in a loss or you've blown up the very machine that you were actually trying to build. See, liquidity is what lets your investments stay invested, is what lets your peace of mind stay peaceful. It's the thing that keeps you from becoming a forced seller. And for Jason and his wife, we literally carved out a piece of every paycheck and routed it straight automatically to a separate high-yield savings account before he could even touch it. Automated, out of sight. And in 5 months, he went from a few thousand dollars of a cushion to 6 full months of expenses sitting there earning real interest while waited. Now granted, 3, 4% interest isn't something to necessarily write home about, but it's not there to build wealth. It is there to protect— Protect. Well, and so something shifted in him that had nothing to do with the math. He literally said, I sleep better. Stopped feeling that low-grade panic every time an unexpected bill showed up. And he was able to make better decisions across the board because he didn't have that financial pressure. Because the person that was there is no longer operating from panic. Because when you make panic decisions, you make bad decisions. You're not sitting back saying a prayer that the car holds together just one more year. 'Cause it isn't in the plan. So if you're starting out, you don't need 6 months on day 1. Start with 1 month, then push to 3, then get to 6. If you have to, to kickstart things, sell some of the stuff in the garage that you swore you'd use and you haven't. Cut 3 subscriptions and start putting the money away. Point every spare dollar at this until it's done. And then you never have to think about it again 'cause it's there. Liquidity is handled. Panic is gone. But with Jason, there was a leak in his boat that we hadn't plugged yet. And it was quietly costing him more than almost anything else. So we're gonna kill that. And that is the debt drag. Number 3, the debt drag. We kill off the debt drag. He had 2 cars. They both had debt on them, but they had zero credit card balances. So he kept that away, which is, which is good. But we had 2 cars that we had to get taken care of. And that's where Jason was looking at things going, well, I'm just gonna finance my cars. Well, Depreciating assets. Now I get it, when we say to finance a car, if you're gonna buy a car, that's fine. Financing no more than 3 years, maximum 3.5 years. Not the 7-year stuff that they're trying to sell you. Well, he got sold into a long-term loan to get the payments down. And so we had to get him out of that. So now we have the liquidity in place. At the same time, we put him on a debt payment plan because the dollars that are going to interest on debt are not the dollars that are compounding for you. It's doing the exact That's the exact opposite of building the machine. It's your machine running in reverse. It's working against you every single month. Now, Jason and his wife's situation was relatively clean. They had one car loan, no credit card debt. So it put them ahead of a lot of other people. But most of, of you that might be listening or watching may not be that clean. So I don't want to teach you a step that only works if you have a life that looks like Jason and his wife's with just a single car loan. So let's just talk about What to do here if you have debt and get you a real plan. If Jason and his wife had credit card debt or a couple of car loans, a student loan, then here's what I want you to do. I want you on a debt payment plan, full stop. That's what we need to do. And you've got 2 proven methods to choose from. You're gonna choose one and you're gonna stay on it. The avalanche method. You're gonna line up all of your debt from the highest interest rate to the lowest interest rate, and you're gonna start attacking the highest interest rate first, putting every extra dollar towards that. Until it is paid off, and then you move it to the next one and move it to the next one. That's the avalanche method. Mathematically, economically, it's the smartest way to go because it will minimize your interest cost. But there's also the snowball method, and this is one that has been popularized because it's the psychological one that you win at the most. And this one, instead of going highest interest, you line up all your debt. By smallest balance to largest balance. And you knock out the smallest one first. That gives you that early win, that gives you that momentum, it gets you, gets you going. Now, both of them work. The avalanche method saves you the most money. The snowball method will keep you psychologically in the game because you're getting the wins. Here's what matters. Pick the one that you'll actually stick with because the best plan is the one that you don't quit. So with Jason and his wife, it was simple. He had one car loan and nothing else. No credit cards, no other balances, no student loans. So for him, it wasn't about picking a method at all. It was just aiming the money at that loan until it was gone in an accelerated way. So we automated the payment, we threw every extra dollar we could find on top of it, and 13 months later, both cars were his free and clear. And that freed up that payment and it didn't dissolve back into his life the way he used to do it with his raises. So we were able to use it for something else. So now we aim that straight at the next step, which is where the real magic happened. And look, I'm a CPA and I know that this, let's build you a debt payoff plan, is not the sexiest sentence that I've said on my episode, on my show. But daggone it, that's the difference between people who build wealth and people who just look like they do. See, the unglamorous stuff that done in the right order Works. So reserves are funded, the debt drag is gone, and now you've got fuel and no leaks. This is where we finally build the thing that does the work for you. So here's the thing, because we're gonna do this real quick, one step that I want you to do is to make sure you know what number you're going towards before we get into the next step. Because if you don't know where you're going, then you don't have a trajectory. And I have an exact tool that makes it easy for you to understand the number and understand what That number is, and that's the Freedom Number Calculator. It's totally free. We'll hook it up for you down here. It's melabraham.com/number. It'll walk you through figuring out how much do I need to be free? What am I building that machine to? At least at a ballpark range. All right. Step 4, build the machine. Here's the number that, that changes your life and it changed Jason's life. Once we had the number for him, We got him investing. But based on one of the things that I talk about and I teach in my courses and my clients in the Wealth Priority Ladders, I want you to start funding 20 to 25% of your income directly into investments, building the financial machine, the money machine to give you that freedom. I want it on autopilot. So what did we do? We took his wife's salary and his salary and we automated it. So it was going into an investment account, low-cost index funds. Actually, we put it into his 401, we got the company match, she had a 401, got her company match, and we were funding 20% of their income going directly into investments in low-cost index funds and ETFs. And that range that I'm giving you, it's not random. It's one of the rungs in the wealth priority ladder, as I said, because it has shown that Whether your age or stage is, is in this place, you have to build, you have to fund, you have to work it. And that average of 20 to 25% is where people land. Now, if you're younger, you might be able to go to 15%. If you're older, you might have to push it to 30%. But if we really want to give us the freedom and build the machine, we gotta get in the game. And we get in the game by automating it and putting it to work for us. So, Let me show you exactly how Jason hit it, because you can copy this move literally dollar for dollar. The first thing was this. I said his 401. Jason earns $130,000 of the household income. His company matches 50 cents on every dollar that he puts in, up to 6% of his salary. So 6% of $130,000 is $7,800. So when Jason contributes that, the company drops another $3,900 in there. Every year. That's free money. Nobody hands you free money in an adult world except right there. And most people are leaving it sitting on the table. Well, Jason and his wife grabbed it all. They kept climbing. They kept maxing out his contributions and her contributions, putting, putting it away in that way. And the range of contributions, depending on the year, it ranged from $20,000 to $23,000 because each year it goes up. Second, his wife, she actually had an IRA account. She didn't have a 401. She had an IRA account and she was putting $7,000 a year invested the same way. Now, that adds up between the two of them, not including the match, of almost $28,000. Add in the $3,900 the employer chips in. Now, all of a sudden, you're putting away over $30,000 a year. On a $220,000 household income, that puts them right around the 15 to 25% range in there. All of it invested in low-cost index funds and ETFs earning, let's say, a conservative percentage of 8% per year. The long-run average return of the broad US stock market is typically around 8%, varies year to year, but that's the game. Now, I want to be straight because this is the thing. It was boring. It was 3, 4 funds. That's it. It's not some adrenaline rush type of ride for these investors. Boring is the strategy. See, Jason and his wife weren't trying to beat the market. They didn't day trade it. They didn't chase the hot stock that people were talking about. They didn't chase the memes. He simply bought broad diversified index funds and ETFs. He owned a slice of the market and he kept buying. Whether the market was going up or down, and he just left it alone. See, the people trying to get rich and they're trying to do it quickly almost always underperform the person who quietly bought the whole market and got out of the way and let the time do it. See, the excitement is right there where the losses live. The boring automatic index fund path is where the real money gets built though. And I've watched it play out in my own life as well as in real families for 30 years, and it's not even close. So Let's run Jason's tape. He walked in with $42,000. That was the only amount he had working for him. He got his reserves set, he killed the debt, then he got himself into a 15 to 25% range of investing and just held it. 11 years later, that $42,000 and those contributions had grown to close to $600,000 working towards his freedom. Okay? Read those 2 numbers, $42,000 to roughly $600,000. Same guy, same income. He didn't get a windfall. He didn't inherit anything. He just built the machine and fed it, and he did it in the right order and let time and compounding do the heavy lifting that he used to try to do with his own 2 hands. That's the shift. Jason and his wife spent 20 years being the machine, trading time and efforts for every single dollar. Then they spent 11 years building the machine that earns without them. And if your money stops the day you stop, you're not free, you're rented. Well, Jason and his wife stopped renting their future. Now the machine is built and it's running. But there's one more lever that they pulled that most people fumble completely. And it's the difference between a machine that grows slowly and one that accelerates. And that is this. Step 5. Feed the raises, not the lifestyle. There's one move that quietly doubled his speed. Every single raise, every single bonus went to the machine before it hit his lifestyle. And this is the exact trap that got him in trouble in the first place. Remember, for 20 years, every raise silently dissolved into a bigger life, nicer car, bigger house, more stuff. Economists have a name for it. It's called lifestyle creep, and it's the reason people that earn $220,000 can feel just as broke as someone who's earning $80,000. The income goes up and the whole life expands and it swallows it, so nothing's left to build with. So we flipped it. When Jason got a raise, here's what we did. It didn't go to spending first. We gave him a slice of the raise that would go to his lifestyle, so he did get the reward. We gave him a slice that might go to a celebration of the raise, and then the rest was put to his future. So the income might climb, but the investing was climbing too. The lifestyle moved a bit. And so what happens is that you start to build that and you create a gap between the lifestyle and the wealth creation. And that is a powerful wealth-building tool that most high earners completely waste. So this is the way I want you to look at this, because this is me talking to the person who's listening or watching and makes great money and can't figure out where it's all going. See, you don't have an income problem. You have a design problem. Same as Jason and his wife. The answer was never earn more so I can spend more. The answer is to let the raises and the income feed the thing that actually sets you free. And keep your life at a level that you chose instead of one that just crept up on you. See, a good rule to aim for is once your reserves are set and the debt is handled and you're putting away 15 to 25% of your income to work every single year, then you consistently, year after year, know that you're going to get decent returns, decent contribution into the machine. And over time, it's going to build the machine into hundreds of thousands of dollars and beyond. Jason's in his 50s now. The machine is humming. The raise is feeding it, which brings up the question I get every single time someone over 50 comes in and says, wait a second, that's for someone who's 40. What, what happens if I'm in my 50s? Well, let's give you a little perspective. So if you're in your 50s right now, the tax code just handed you a gift and almost nobody uses it. See, Jason and his wife are in their 50s today. And the day they turn 50, the government lets them put more into their retirement accounts, more than those that are younger than them. It's called catch-up contributions. Literally, as of the date of recording this, Jason can put $8,000 more into his 401, and his wife can put $1,100 more into the IRA. So catch-up contributions change every year, but that's the bottom line is that you can start to max things out In a whole different way. So when you say I might be behind and maybe I'm 50, start to look at how you can reallocate the funds to make it work. There are things on your side that make it easier, but you have to take the actions to do that. The law, the tax code is on your side. All right. So here's the other thing that I think we don't think about. And this is the part that I've been holding back this whole episode. The reason I'm not worried about Jason and his wife at all anymore, and even though he started late, is let me show you what happens next. And it's going to change how you think about time overall. And that is this: Jason and his wife roughly have $600,000 working for them today. Watch what this number does if he never adds another dime. Never adds another dime. There's a rule in finance called the Rule of 72, and you divide 72 by the rate of return That you get, and you get the number of years it takes to double it. So let's say he's still getting that 8% return. If he's getting an 8% return, 8 into 72, that's 9 years. That means that the number will double in 9 years. So Jason's machine is at $600,000. In 9 years, doing nothing, stopping contributions, which he's not, in 9 years, by the time he's 60, that will be $1.2 million. And in another 9 years, by the time he's 69, it doubles again. It'll be $2.4 million. Now hear me on this, because this is what happens. This is assuming that he has not put another dime in, that you get an average long-term return of 8%, and $2.4 million becomes the floor. And that's what happens if he just stops cold today and doesn't do anything stupid, doesn't let lifestyle creep sneak back in. And doesn't start bleeding the machine, just leaves it alone, lets it run. He could quit right now and still more than quadruple his money. But Jason and his wife are not quitting. They're just in their 50s. They got at least another decade, decade and a half of their career ahead of them. And they're earning and they're maxing out and they're gonna continue to do this. So their money, their wealth will go well past the $2.4 million. See, that's what a machine does. He spent 11 years building it. And now it's doing more work in the background than he could ever do with his 2 hands and his effort. This is the game. See, I want you to go back to where we started. A man refreshed a webpage. He stared at a number, $1,387 a month. Certain he'd blown it. 20 years of work and nothing to show for it that really counted. But he wasn't broke. He was just never taught that the paycheck was never gonna set him free. Only a machine does that. That man is now looking at a future that's measured in millions. And more important than millions, he's looking at a life that he gets to live by choice. That's the whole point. It was never really about the money. It was about the life the money makes possible. And every bit of it started the day he stopped hiding from his real number and took the first unglamorous step in the right order. So here's my ask. If you listen to this, watch this whole thing, and something inside of you said, that's me, That's my $1,387 moment. I need you to build this. Let's build it together. That's the work that I do with people, taking them from real numbers that scare them to a machine that frees them. If you want to help building yours, then do me a favor. Stay in the game. Stay with me on this channel. Share this. Do it with someone. Because here's what I know: earning more doesn't make you free. A money machine does. And I'm here to help you make it. All right, if this hit home, do me a favor: hit subscribe and share it with someone who needs to hear it. That's it. Hope to see you soon, and I can't wait to see you in the next one or on your path to financial freedom. Until I do, always, always strive to live a life that outlives you. See you in the next one. 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 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.