My Favorite Investing Accounts (And How to Maximize Your Returns)

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 accounts do you need to have as you're building your wealth and on your path to financial freedom? This is a question I get all the time. Where should I put my money? What are your favorite accounts, Mel? What are the kind of investment accounts? Well, in this episode of the affluent entrepreneur show, I'm going to break down the six accounts that you might be looking at, and I'll walk you through the exact flow of how I would fund those accounts and how you can start to build your path to financial freedom. So I'll see you in the episode. Welcome to the affluent entrepreneur show. This is the 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.

Welcome to this episode of the affluent entrepreneur show. This one, we're going to talk about what to do with your money. Where do you put it? I mean, we've got banks failing. We've got, you know, takeovers and selling of banks, and you're going, is my money safe? Well, let's just talk about it because here's the thing. Most people will come to me and they, they'll say, I don't, I don't know. What do I just put in a savings account? Or should I use an IRA? Should I use a 401k? What do I do with all these things? It's the thing that I call the account jumble. We're going to answer that question in this episode. We're going to talk about where you should put your money first. How do you allocate it? What are the different accounts? I'm going to walk you through six accounts that you might consider on your path to financial freedom. And there are six accounts that I consider. Many of them I use. Some of them I don't. And I'll explain exactly why I don't use them. But in the first place, I want to just start to talk about what do you do with your next dollar? This is something that we talk about in the affluence blueprint. It's called the wealth priority ladder. It's core to how we allocate our money as it's coming in. Listen, here's the thing. Wealth creation is a behavior. It is not about money. It is a behavior. It's about your habits, your decisions, your choices that you make with your money as, as you move through it. There is, there are statistics out there that show that most of the people that are millionaires, 80%, almost 80% are, you know, first generation millionaires. Meaning that, that they made it, they didn't inherit it, they didn't get it gifted, they didn't, they didn't win it in a lottery. They created it. And, and so how do they create it? Well, it's through this process is through. They have a process in a system to follow where they know when the dollars come in, they make investing a priority. Okay. And based on that priority, if they do that, do certain things, it's behavioral, it's habits, they can build wealth and you can too. The same study talked about, talked about the fact that the majority of the millionaires that were Studying there was 10,000 millionaire studied.

Never made more than $150,000 a year. So, so you're talking about something where you don't have to make big sums of money to become a millionaire. You just have to do the right things with your money at the right time in the right way. We're going to walk through some of that. We're going to talk about the account. So here's the deal. I'm going to jump to my iPad because I want to walk you through the wealth priority ladder. I did it in another episode in more detail. I'll make sure that we hook it up in the show notes here. But at the same time, I'm going to walk you through kind of quickly what it is and how, how we look at what do you do with your next dollar and there's a graphic associated with it. I'm going to jump to the iPad. If you're listening and you're not watching, totally fine. We'll make sure you can get access to the graphic in the show notes. But at the same time I want to make sure that you can always go to my YouTube channel and make sure that you watch the video so you can see me build the graphic for you. So let's jump to it. Let's talk about the wealth priority ladder and make it happen. So one of the first things I want people to do is this. I want them to be in a position where they, they are not going to have to dig a hole if something unexpected comes up. There's statistics out there that show that people are not prepared to pay an unexpected expense of 4 or $600. Meaning that, meaning that they don't have the money to cover that expense. Meaning that they ultimately have to go into debt, put it on a credit card, borrow from a friend, borrow from family or, or let some other bills go so they can take care of this emergency expense, this unexpected expense. I don't want that to happen. So the very first thing that we do in the wealth priority letter is, is what we call the comfort fund. This is going to give you comfort that if something unexpected happens, nothing is going to derail you. And, and the way we look at it is I want you to have a minimum of fifteen hundred dollars or one month's expenses in that account. Okay. This would be able to cover most things. Transmission goes out, something like that. You have a medical case, medical thing and you have to pay a deductible. You have a damage on the home and you got to pay a deductible. It should cover most of those things. And what it's meant to do. It's not a, it's not an emergency fund. It's not anything like that. It is simply to give you some breathing room so you don't choke is something unexpected comes up. The second thing that we do is, is we get to phase two in this. And phase two, we start to look at both what we call a peace of mind fund, which is other people will call it emergency fund. I like it as a peace of mind fund because it's telling you that I just want to give you peace of mind. You're good. You're good. Okay. And we, we attack consumer debt. We attacked the destructive debt. So these two pieces are the next, next phase. So when I talk about destructive debt, I am not one of those people that believe that all debt is the devil. All right? They is productive debt and there is destructive debt. Now I know that some people will, will argue with me about this, but I'm okay. Because if you use debt smart and you don't over leverage yourself. Good debt, productive debt will help you increase your cash flows or increase your net worth. If it is not increasing your cash flows or not increasing your net worth, then it is destructive debt. It's typically for consumables is to buy the big screen TVs, is to buy the technology, the luxury vehicles, is to buy all those things that are lifestyle stuff but they don't increase your net worth and they don't increase your cash flow. Therefore it's destructive debt. Typically I want to avoid that. And if you have any of that, I want you to get rid of it. I want you to to get it paid down. I want you to be on a debt payment plan to make that that happen. If you are carrying balances right now with credit cards, let's face it, we're in a rising interest rate market. Those payments are going to get more and more expensive because credit card payment interest rates are going into the 20s and close to 30%.

You know, at some point it's going to take you decades to try and get this thing paid off. And then you're going to pay when you add up all the interest, you know, eight, ten times whatever you originally the original purchase price is. So I want you to get rid of destructive debt. Okay, so the next dollars in go to, we get rid of destructive debt. But here's another thing that I depart from. The normal commentary around this is there are those out there that say you got to get rid of all your debt before you start investing. I don't believe that's the case. I think that your debt management muscle is a different muscle group than your wealth creation muscle. And if wealth creation is built on habits, so is debt management. And so habits and muscles need to be developed over time. I want you to develop your wealth creation muscle at the same time. That means that what I'm going to do, if you don't have an emergency fund, if you don't have a peace of mind fund in place, then what I'm going to do is I'm going to take whatever dollars I have and I'm going to split it. I'm literally going to take care of the peace of mind or emergency fund. At the same time, I'm going to try and take care of my destructive or consumer debt. Now I get it. That means that the debt is going to hang around longer. But it also means that you get in the investing savings habit quicker and sooner. And so this is the thing that, that we want to do at the beginning. What I'll tell people to do it. Depends on your, your nature. You may split it 50, 50. If I have 1000 extra dollars at the end, 500 goes towards debt, 500 goes towards my peace of mind fund. And, and if you're more aggressive, you may say I'm willing to put more towards the debt. You'll put 700 to the debt and 300 to the peace of mind fund or vice versa. Those things are going to be personal choices because here's the thing I know about debt. No matter whether it's destructive or productive, all debt has same character, two, two characteristics. No matter whether it's destructive or productive, all debt costs, there's an interest charge to it. So all debt costs, no matter what the purpose of the debt is.

And all debt stresses, it stresses psychology and it stresses financially. So it doesn't matter. Productive or destructive debt, it's going to stress and it's going to cost. So in some senses at some point I want you completely debt free and I certainly want you out of consumer destructive debt in doing that now. So if we get you on a debt payment plan, you know that you're paying down the debt, you systematically do that and then the rest will go towards the peace of mind fund. If you want to get on a debt payment plan and you're unsure about what to do, I want you to go to melabraham.com forward/debt, no debt. There is a free training, a free tool, a free downloadable template that you can put all your debt in, all your payments in and you can sit back and look at do I want to do this on a snowball method or do I want to do it on an avalanche method? One will reduce the total amount of interest and the other one will get you paying off the smaller balances first. It's a choice that you want to make. Okay. And then you want to stick to the choice. But if you need help with it, go to there, there's some training there and you get the tool totally free. Melabraham.com forward/no debt. We'll put it in the show notes to make that happen. Now let's talk about this peace of mind fund or the emergency fund as others will call it. Some people will say three to six months. For years I've been saying three to six months is not enough. The pandemic proved me right. Even Mark Cuban started talking going, we need more than three to six months in an emergency fund. Yeah, I think that you need nine to 18 months, especially if you're an entrepreneur, especially if you're the sole breadwinner of your family. Now, you might say, that's a lot. I get it.

And then you're going to hear a whole bunch of people saying, but Mel.

If I'm just putting that money aside.

I'm losing money to inflation. There's certain dollars that are meant to create wealth. There are certain dollars that are meant to create liquidity, and there's certain dollars to give you a piece, some peace of mind. Every dollar has a job description, and we just got to know what it's meant to do. Not every dollar is meant to grow your wealth. And this, the Peace of Mind Fund, is meant to give you peace of mind, give you liquidity and, and make sure that you're safe and, and, and in good shape if something goes wrong. So we say 9 to 18 months average, call it 12 months, but I want you to start building that up now. So you're going to take the money, you're going to pay off your destructive debt while you're building the Peace of Mind Fund. When you get the Peace of Mind Fund fully funded now, you, or you get the debt fully paid off, you can go to the next piece, the next phase, which is really about your Freedom Fund. This is where you start investing. I want 20 to 25% of your income, your household income, 20 to 25% of that household income. Going to, investing. Now, you may not know what the investments are right now, so at the very beginning, all you're going to do, all you're going to do at the very beginning is put it in a High Yield Cash account. We'll talk about those when we get to the accounts. Okay. You'll put it into a High Yield Cash account. Just park it there temporarily until you decide where it's really going to go. But I want it out of sight, out of mind. Next. You're going to, you're going to. When I know that I'm putting 20 to 25% of my income away and I'm fully funding that, then I can turn around and look at my, my mortgage and say, should I accelerate the payments on my mortgage? And now do it. I wouldn't accelerate it until I know that I am fully funding my investments and at that rate. And then the next piece would be college. Now, I have a very, very unique perspective. Not very unique, but a different perspective on college. Here's the thing. I don't think that you have a responsibility to put your kids through college. I know that's going to rub people the Wrong way. It's a desire. I get it. It's a good desire. I get it. I did for my son, okay? However, if it's going to cost you your financial future.

Then you don't do it. Because the best gift you can give your children is to make sure that you aren't knocking on their door at 60 years old saying, I ain't got nothing because I paid for your college, so I need to sleep on your couch, okay? Or that they watch you on welfare or they watch you on government assistance.

So what we know is this. Your financial future's coming. We want to take care of that first. Once we know that that is funding and everything is taken care of there, then we can look at paying for college. But we don't forsake your financial future, which we know is a certainty, to pay for their college, because that's an uncertainty. We don't know if your kids are going to go to college. We don't know if they're going to finish college. There's other ways to pay for college. They can get, they can get grants, they can get scholarships, they can do work programs, they can do all kinds of things to pay for college. But when you get to your financial future, to your retirement, you don't have access to other things. So I want to take care of that first. Hopefully that makes sense. And then the last stage of the wealth priority ladder is affluence. This is where you're living out your affluence vision. This is where, where you are giving generously and you're creating a generational machine, a financial machine that is going to create, create legacy for you well beyond your time here on Earth. This is the wealth priority ladder. This is the process we go through. I did it quickly. We go into much more detail in the affluence blueprint and when I'm working with my elite clients and everything like that. But I wanted you to get a perspective of where your next dollar goes before we start to talk about, well, what accounts should we use? So let's transition. Let's look at the accounts we should use and how this could play out. This is something that I call the account jumble. Because there's so many accounts, you kind of go, I don't even know what's going on. We're going to take a look at the different accounts that you can use, but we're going to look at it through two, three different sets of eyes, three different filters. The first is to look at and say, is it liquid? Can I get access to the money. Okay. The second is, is are there tax benefits? And the third is, what are the risks associated? Now, those risks can be risks of investments, but it also could be risk of, is there any insurance on the money? Just like we saw with some of the banking stuff that goes on. So I'm going to primarily talk about six accounts that you may have in your stable of accounts. You may use all six. You may use some of the six. I'll tell you the ones that I use and why. I'll tell you the ones that I don't use and why not. And we'll tell you, we'll walk through, are they liquid other tax benefits and is there and what's the risk exposure there? And then we'll walk through how your money should flow into those accounts. All right, so let's jump in. So the first account that we're going to talk about is something that we all are used to, checking your savings account. This is your traditional bank checking or savings account. It is liquid. We can, we can get at the money. I'm writing checks on it every day. I'm, I'm pulling money out every day. I saw. So I have no problems getting, getting at the money. Okay. So it's fully liquid. There are no tax benefits. You're just putting money in. You don't get a tax deduction for the money going in. You don't get any benefits taking it out. If you make any kind of interest on a savings account, it's going to be very little.

You're going to, you're going to pay tax on that. There's no tax advantage to these, these accounts, typically.

There'S very low risk with these accounts. Most of the, most of the, the banks and credit unions are insured up to $250,000. There's some things you can do to magnify that insurance to 500 or 750,000. And there are some banks that we'll talk about in a moment that you can get as much as $3 million of insurance on your deposits. So if the bank goes under, just like what we recently experienced, your money isn't at risk. Okay. Your deposits aren't at risk. Okay. So that's the first type of account. It's something that many of us are used to. Many of us use. We use it in our business and we use it in our personal lives. Okay. So I'm betting you have that. I have the second account. The second type of account is what we call CD or money market accounts.

These are accounts Typically with credit unions and banks, again, where if you want to get a higher return on the money, then you go into a CD or you go into a money market account, it's liquid, but there are limits because in order to get the higher return on the investment, in order to get the, the higher interest rate, they're going to lock you in to a term. So you're going to be in a six month CD or a one year cd so you can get a higher interest rate than their savings account. So it's liquid, but there's limits. That means that.

If you want to take out the money before the term is up, you're going to pay a penalty. Right? In fact, I just recently did that on an account, but I was willing to pay the penalty because I could get a better return somewhere else that would have paid the penalty back and more within the first six weeks. So it didn't make sense to leave it there locked up. But CDs and money markets, a lot of people will put them in there because they know it's safe, it falls under the guarantee and it's not volatile with the stock market. And it's easy, it's safe. And I know that if they say I'm getting 2%, 1%, 4%, that's what I'm getting. I can depend on it. I can bank on it if you will. All right. There are typically no tax benefits to this. You don't get a deduction going in, you don't get any benefits coming out. The interest you earn you're going to pay tax on. Okay, very low risk, very low risk. Now the next account, and this is the account that I'm going to tell you how we use it and how I want you to consider it is something called a High Yield Cash account. These are cat. These are accounts that have come into play with the whole Robo Advisor online banking. They don't have the overhead of some other banks. And you can get four to four and a half percent on these accounts right now by putting your money in there. Now here's the key. There are some things that I want to make sure exist if you're going to use a high yield cash account. One, it must be 100% liquid. In other words, when you need the money, you can get the money within 24 hours. I can log in online, have it transferred to my checking account and know I have access to it. So it has to be 100% liquid. Number two, it needs to be 100% insured. That means that I don't put money at risk. I means that my deposits are insured. If the bank goes under, I am taken care of. I am good. And three, there can be no fees. I'm putting money in your, in your bank. You're not charging me to hold my money. That's just not the way it's going to go. So, so insured, no fees, 100% liquid. Here's why I think this is a cool, cool account. One, it is liquid. There are no tax benefits typically to it and it's low when you get into an insured account. Now here's how I use this. I use this account a couple of different ways and I have multiple ones of these accounts and we're getting 4 to 4.3 to 4.5% on it, fully insured. If you want to know where to find good high yield cash accounts, I want you to go to Bankrate.com and check out their list of them and look at the ones that have long term, a long term record and that they're paying their, their interest rates on an ongoing basis because some of them will give you teaser rates. They'll pay it for six months, they'll pay it for three months, they'll pay for the first 5,000. Don't get into that teaser stuff because now you're bouncing money around you just what's your rate? And it's going to be in every month. Now these rates on high yield cash accounts will go up and down depending on what's going on with interest rates. But the good news about interest rates rising is these accounts are paying more than their soak. What I do is this is where I have my peace of mind fun. This is where I park my, my money that I don't want in the market. It's, this is my short term money that I know I'm going to need whether it's for a, a down payment for a house or, or it's for improvements. It's money that I'm going to use in the next three to five years that I don't want to put in the market or in investments, lock it up or put it into a volatile situation. So I know I'm going to get 4.3% and I'm good and I just leave it there. So I park my money there that is related to my safety, which is my emergency fund or peace of mind fund, my sinking funds of other things that I'm doing, weddings, that kind of stuff. Also my tax account is there. So I just move it out of, out of sight, out of mind. But my tax account is there. It's safe and it's earning something. I will park temporary money there that is waiting to be invested. So I may have $100,000 in fact, in fact I'm sitting on, on a couple hundred thousand dollars that's waiting to be invested through my defined benefit plan. But it's sitting in a high yield cash account for a moment until I find the opportunity and the right investment to put it in. So I use it as a temporary account. Point being is this. I use the high yield cash account as much as possible to maximize the returns that I, that I'm getting on my cash that's sitting there are not fully invested. Okay. I think it's something that you all should be looking at. Be smart about it. You link the account so you can move the money. Like if I need money out of that account, I just jump online and I have it transferred within 24 hours. It's in my bank account. I can write a check off of it. It is insured, that account. My, my account right now is insured up to $3 million because of the structure of the bank. So I'm fully insured, I'm fully liquid and there are no fees and I get a higher return. That's what I want you to use these things for moving forward. That moves us to this next level of account. These are your 401ks, 403bs, 457bs IRAs. These are the tax, these are the typical retirement accounts that you see in there. There. They give you tax, so they give you tax benefits. We'll talk about the different versions of tax benefits. But, but you have no liquid assets. It's a one way system for a period of time. Once the money goes in, you don't get it out without penalty because they're giving you a tax benefit. And they said if we're going to give you a tax benefit, then you need to leave it in there. These are your retirement accounts. So they're long term money. It's long term accounts that you're going to put it put in there. So we'll talk about how that plays out and what you want to do in there. But think about this. Your IRAs, currently you can contribute $6,500 or $7,500 if you're over 50. Whether it's a Roth IRA or a traditional IRA. You can't get at the money without penalty until you're age 59 and a half.

And there are limits to the Roth you cannot, you cannot contribute to a Roth if your income's too high. It's like 153,000 for someone that's single and 228,000 for a married couple. So if your income's a high income, then you don't have access to the Roth, which is, which is fine. Okay? I didn't have access to a Roth. I have no Roth money because, one, it wasn't in play when I was doing a lot of my investing and growing and to. My income was too high to qualify, so I couldn't use it, and I didn't use a backdoor. We can talk about that another, another time, because I have some, some elements in my investments that disqualify, disqualify me from doing a backdoor Roth. So you can do the IRA account at 6500 or 7500, depending on, on your.

Age. You can do the 401k for 1k right now is 22,500 if you're under 50. If you're over 50, you can go up to $30,000 a year. And that's not including the. If your company has a match, okay? If your company has a match. Now, your Roth, depending on how it's structured, you can put your money in and make it a traditional. I mean, your 401k, you can put your money in, make it a traditional tax deduction. So you don't pay taxes on the money. You. You get a tax deduction for it, but you pay taxes when you take it out later. Or if they have the provision, you can put your money in like a Roth.

And when you take the money out down the road, there is no tax on it. So those are, those are. And when you do a roth through a 401k, you don't have the income limitations that you would otherwise have. So this is where I would start to play is. Is look at your. Your Roth, your IRA, your 401K. If your government or institutional employees. 4, 4, 3B or 457B in there to look at that. Now, here's the deal. It's not liquid. You can get at it, okay? You have tax benefits. You know, if it's traditional, you get a tax deduction now, you pay tax later. If it's Roth, like, you don't get a tax deduction today, but you don't pay taxes down the road, okay? If your tax rate is.

Less than 30%. If your tax rate's less than 30%. Because some people say, mel, what should I do? Traditional Roth. If your tax rate's less than 30%, my thinking is that you're probably better off going into a Roth because the tax benefit of getting the deduction will be outweighed by the growth and the tax free withdrawal down the road. So if your tax rate is above 30%, then you're probably going to look at more of a traditional approach. Take the tax deduction today. But it really depends on your situation and it depends on what your anticipated tax rates are going to be down the road compared to where they are today. Becomes a math equation. Now, are they risky? And I say here they're low to high risk. Here's why. When you do a.

Contribution to a 401k, this is something that people will get wrong. When you make a contribution to a 401k or an IRA, Roth or otherwise, you're putting cash in there from your, from your company, from your checks, from your salary. And then once the money's in there, you have to make an investment choice. A lot of people think that once they put it in there, it's already invested. It's not invested until you tell it to invest. And so you need to make an investment choice of what you're going to do. Now most people, I tell them, when you're first starting out, use Target date index or ETFs, low cost index and ETF funds because it's easier. All you got to do is decide how much and you got to decide what the date is. You don't have all the, the different gymnastics around. Well, what do I, you know, how much should I put in this fund or that fund? As you get more and more sophisticated, then maybe you start to pick and choose more funds in there and do it that way. But when you're first starting out, make it easy, make it frictionless and make it, and make it simple. So why I say that these accounts can have risk from low to high is because it depends on how you invest it. You can invest in highly risky assets inside the account or you can invest in more conservative assets, low risk assets. So it really depends on how you're investing it, on whether it's risky or not. So you need to be aware of that. Okay, the next account, the next account is what we call the HSA Health Savings Account. All right, I love this account. I love it, but I don't use it. And I'll tell you why. All right? Health Savings Account is one of the only accounts that is triple or quadruple tax advantaged. We'll talk about that in a moment. And it, and, and it's totally focused on medical bills. So this is a, an account where you're going to put money into it. You take a tax deduction for going into it and you can use the money tax free.

To pay medical bills. Now, in order to qualify, you have to have what's called a high deductible medical plan. That means that your deductibles are going to be $1400 if you're single or $2800 if you're married filing joint. So they're high deductible plans and they need to be HSA qualified. And you're, if you're with a company, you can see if that is possible for you. I'll tell you how to use this account and then I want to tell you why I don't use the account to make that happen. So here's the best way to use this account. Most people will take it and they'll put money in the account.

And then when they have medical bills, they'll reimburse themselves from the account and call it a. Here's what we do with our clients and here's what I would do if, if it were me is that I would put money in the account. Say I can put money in right now, 3850 a year for single, 7750 for married, filing joint. So let's say I put 7, $700 7750 into the account and I have a bunch of medical bills. Well, I would pay my medical bills out of my pocket. In other words, I wouldn't go to the account and reimburse myself even though I put the money in. So I'm funding the account and I would pay the medical bills out of my pocket and I would file the medical bills away. I would literally scan them and put them in a folder by year and everything and make sure that I keep all the medical bills. And I would invest the 7750 inside the HSA. So now that account is growing and invested and I do that every year. So what I'm doing is I'm using the HSA account as an investment account. And then down the road, after it's grown tax free.

If I need to pull the money out, I go dust off those medical bills and I pull the reimbursement. Then think, think about what happens. This is why this is triple tax advantage. I take a tax deduction going in. It grows, I invested and it grows tax free. Now that $7700 might be worth $20,000 because I left it in there for a decade. Okay? Now I take $5,000 of bills that I had and I reimburse myself from the account. The $5,000 comes out of that $20,000. So I have $15,000 left still. But the 5,000 comes back to me tax free.

This is the beauty behind it. Now you have to have the cash flow to be able to fund your medical bills on an ongoing basis out of your own pocket to allow the growth to make that happen. But that's the beauty with this account. When you can make it happen. Now after 65, it actually converts to it to a typical IRA where you can then take the money out penalty free, but you will pay the tax on it if it is not used for medical. But this is the beauty behind the hsa. Now why don't I use it if it's so good? Because I have high medical bills because of my cancer journey, because of where then I know that my medical costs are going to be high. So it doesn't make sense for me to use an account like this. Now you can elect in and out of this maybe one year you're deciding you're going to have a baby. You might not want to do an hsa. You might want to do a fully funded type of situation. And then once, once that goes past and the baby, all the costs of the baby and everything are, are done, you might go back to the agency. But the point being is that the way to use this account is as another investment account and a tax advantage vehicle to make that happen because it becomes a huge tax benefit. Again, risk in this is going to be low to high because it depends on how you invest it. And if you take it out for medical, it is completely tax free. That leads me to the, the, the final, the sixth account. This is your typical brokerage account. So this is going to be your Schwab, your td, Ameritrade, your Fidelity. Any of those accounts that, that you see in there, it's fully liquid, depending on what you invested in. There are no tax advantages. You're, you're just putting money in. And it's low to high because it depends on what you're investing in. So, so this is the typical account that you will see. There's no tax advantage, there is no retirement plan, there are no penalties, there are no holdbacks. There's none of that in there. And, and that's the final account that, that you might have. So Those are the six accounts, the checking savings account, the CD and money market account is number two, high yield cash account number three, 401k, 403b, 457 IRAs, those retirement account tranches right there. Then the HSA account and then your brokerage account. Those are the six accounts that you might have. So how should your money flow into it? Let me walk you through this. This is the way I would have my money flow into these accounts to, to work through it. So whether you're a business or you're on salary, you're going to have money coming in. If it's a business, you'll pay yourself a salary or a draw. If you're not in business and you're taking a salary, you're going to get a salary and then it carries on from there. From that salary you're going to put money into a checking account. From that checking account you will pay living expenses. From that checking account you will pay your debt plan. Okay? You're going to be, you're down at the bottom elements of the wealth priority ladder. From that checking account you will pay and fund your peace of mind fund. Now once you know that those things are funded and they're doing well, that checking account will then also start funding other sinking funds. Let's say that you have a wedding coming up or a trip or a vacation or an improvement on a home or a down payment. You want some money to be allocated to those, those endeavors so you have the money set aside when it comes time to pay for it instead of going into debt to do it. These things. Just so you know, my sinking funds would be in high yield cash account. Peace of mind fund would be in a high yield cash account. The debt payment is going straight to the debt. My living expenses going to pay expenses. Okay, and then, and then whatever left is left I may put in to a brokerage account. Okay, Just my normal Schwab or Fidelity brokerage account. Now you might be going, well what happened about the, the 401k and all that said, ah, so here's what's going to happen. You're going to take a salary and from that salary, before it ever gets to this checking account stage, you're going to actually fund your 401k, 403b, 457 or your IRA. You're going to make sure that you fund it right away. This should be automatic.

Just set it on automatic and forget it. Just let it keep funding the percentage of income. Remember I want you up at 20 to 25% of your income going into these investing accounts. And then the hsa. Okay, so this is the way that I would play this out with your accounts. But let's just walk through exactly the priority. I'm going to give you a checklist here, the first four steps to make this happen. And so here's, here's how I would do this. The first thing is this.

If you are in an employee in which your employer is matching.

Your contribution to a 401k.

Or anything like that, I want you to maximize the match. Get the free money from the employer into your account. Okay? So if your employee, if your employer is going to match the first 3%, you make sure that you're the first dollars in are going to be the 3% to maximize the match. Now, depending on your tax rate, again you. And if you have availability, you can put it into the Roth side of their 401k or you can put it in the traditional side, the 401k. Okay, but Max the match first. Second, I want it to go towards paying your debt and your peace of mind fund. Okay. One, once I know that my peace of mind fund is completed, then I can go to investing.

Even if I'm still working on the debt.

Number three, if you're eligible, max out the HSA. Remember, married right now is 7750.

But you want to leave it in there and pay your medical expenses outside of it. Invest the money, let it grow tax free. And then number four, if you have money left over that you're trying to fund or trying to get to that 20, 25%, then you're going to put it into the brokerage account. So this is the pecking order, the order that I would do this in to make that happen. All right, so this is the account flow sequencing. This is the way we do it. So I do it with my clients and make it happen from there. So I hope that this helps. I hope that you start to go and say, wait a second. I now know from the wealth priority ladder what I do with my next door. I now know from the account jumble and the account flow, where I should put it and, and continue from there. Because now you can then start to build. And remember, wealth creation is more about behaviors, habits and decisions that you're making. And so if we can build this into a process so it becomes a behavior and a habit, and then you automate as much of it as possible. In fact, almost all of it should be automated so you don't have to think about it. There's no effort. It just happens in the background. You make Money, it goes to the 401k. It goes. Even my bills are on, on autopay. It pays my bills, it moves into, pays my debts down. It pays my into, into the Peace of mind fund or it goes into the brokerage fund. It's fully invested and it keeps going. And now what's happening is you get this money and momentum because things are happening without your effort, without your thinking. We'll always check on it. We'll always verify that we're doing the right things. You know, I have my clients checking, checking their numbers at least quarterly and sometimes monthly, depending on how much they have and the complexity that they're working with. But this is the key to making this happen in your life. So this is your pathway with your cash, with your accounts, how you can make sure that you maximize your returns, you build the path to financial freedom, and you do it in a safe and proper way. I hope that you found this of value. If you have questions, if you have things that come up, if you do me a favor, reach out to me. Go to askmelnow.com, let me know. We'll bring it on the show. We'll make sure that we get it answered. I want to make sure that you're supported on your financial journey. This isn't about me selling you investments or insurance or anything like this. It's about me selling you on a bigger dream and your financial freedom, which I believe is your birthright. Until we get a chance to see each other or talk on the road or on another episode, as I always say, always, always strive to live a life that outlives you. See you in the next episode. Cheers. Thank you for listening to the affluent entrepreneur show with me, your host, Mel Abraham. If you want to achieve financial liberation to create an affluent lifestyle, join me in the affluent entrepreneur Facebook group now by going to melabraham.com group and I'll see you.

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And that's it for this episode of building your money machine where we help you learn how to master your money, eliminate financial stress, and live a life of choice. If you found this valuable or helpful to you, here's what I'd love for you to do. If you do me a favor, go to Apple, Apple podcast or wherever you're listening to this podcast and rate and review the show. It helps us tremendous, 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.