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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. Why did the ultra wealthy seem to play by a completely different set of rules? Money rules, wealth rules. And why do more people know about them? Well, if you've ever felt like you're doing everything right, you're working hard, you're savings, you're investing, but you still don't feel like you're getting ahead, it's because the game is rigged unless you know how to play it. And the wealthy don't just earn money. They use a different set of strategies. They play a different game. They allow themselves to understand. Understand how to keep more, grow more, and leverage more, often in ways that most people don't consider.

So the ultra wealthy, they. They play a different money game. And part of it is they have at their disposal things that maybe you and I might not. And at firsthand you think that, well, they're privileged and, and certainly they are, but the reality is that some of the things that they do are accessible to you. We just don't know about it. Too often we don't know about it because we simply don't have these conversations. And so in this episode, I want to have the conversations. I want to talk about the different things that I've seen working with the ultra wealthy and what I see they do and how you can bring that into your life, which is actually the most important part, is that are there things that they do that you can do, or do you have to wait till you have a whole lot of money? Now, clearly some of it requires you to have a certain amount of money for it really to benefit, but there's a lot of it that I think can change. And so let's just talk about some of the things that I think really impact their ability to build wealth, keep wealth, grow wealth, and have control of wealth. The first is this. There is a mindset shift that the ultra wealthy have, and they have some key principles that really set them apart. And the first principle is this, is that they focus on controlling assets and not just Accumulating cash. In other words, they're not just hoarding assets. And we want to build assets. And you want to build assets in your 401k, in your IRAs, in your, in your net worth to do that. But hoarding assets, hoarding cash isn't what gives them the flexibility to live a life of choice. They realize that what they need to do is have control of assets and more importantly, cash flowing assets. Businesses, stocks, real estate. Things that will not only appreciate but also provide income. There are two ways that we can build wealth in the process that you buy something that goes up in value. You buy a stock for $100, it goes up to $200, your net worth goes up and your wealth goes up. The other way to do it is you buy an asset that provides cash flow. So you buy a piece of property that pays you rent of $1,000 a month. So you buy an asset and it's giving you cash flow. But the other way to do it is to make sure that you're buying an asset that potentially does both. So in a piece of real estate, for instance, the property goes up and it pays cash flow out with a stock, you might have appreciation in the stock and they pay dividends. So what happens is the ultra wealthy understand this concept. We call it the affluence cash flow where they, they say we're going to buy and control assets so we can create cash flow in our lives. Because it's that cash flow that gives us the freedom. It's the cash flow, the money machine cash flow that I talk about in my book. Building your money machine is about removing.

The connection between your earnings and your efforts to earn it. And the way you do that is you build cash flowing assets. They also. The other SEC mindset shift is this. They play a long term game. And when I say long term, in their eyes, it's even longer than you, than you think. A lot of times when we talk about long term investing, I'm saying I want you to look at things through a minimum of a decade. But when you talk to the ultra wealthy, they don't even think in decades, they think in centuries. They're looking at 100 year wealth versus 30 year retirement because it changes things. They create family wealth structures with trusts and holding companies that literally last generations. One of the concepts in the building your money machine is our ability to take this machine and have that machine support my life with my, my beautiful wife with Stephanie. And then God forbid, when, when we're gone, it moves to my son and his wife and then from, from there to our granddaughters and on and on and on. Now mind you, I, I've talked about this over and over again. We never transfer assets without skill sets. Whatever generation this, this is going to go to has to prove that they have the right to possess it, the right to steward it. If they don't have the responsibility, the rights and the skill sets, they don't get the assets. And that's why when, when the ultra wealthy are looking at things, they're looking at things through the eyes of family wealth structures that can last beyond, beyond a decade, beyond 30 years and into generations. And when you do that, you not only are transferring assets, but you're transferring skill sets and knowledge.

As you go along. So that's the second mindset shift and the third mindset shift that I think needs to come in play is they use leverage wisely, they'll take out low interest loans. Now they understand the difference between destructive debt and productive debt. Destructive debt is to pay for financing lifestyle and consumables. They don't do that. You know, if we're putting our lifestyle, our travel or things and stuff on credit cards because we can't afford to pay for it today, they won't do that. The ultra wealthy understand that if they're going to use debt, it is to acquire those assets, that cash flow. And so in this kind of structure here, one of the things that we need to look at and each of us need to think about how do I incorporate it into my life, Is to sit back and say I'm going to look at debt differently. I'm going to shift my mindset on debt and I'm only going to take on that debt that can increase my wealth or my cash flow in the long term. I'm not going to use credit cards or debt to finance lifestyle today, consumables, luxuries that I can't afford to pay cash in that will allow you to put yourself on this journey of decades of wealth. The second thing that I want you to start to look at is to explore how things would look if you look through a hundred year set of eyes instead of a 30 year retirement window and what you would do differently to make sure that you are educating and integrating some of these things into their lives. Now that then allows us to look at this in a much deeper way and more tactically. First off, let's just talk about the debt, the leverage game if you will. They want to use, the ultra wealthy want to use other people's money. Now I'm going to caution you here. If you overextend yourself, even if it is good debt, even if it's productive debt, in other words, you are taking on pieces of real estate and you're financing, you're earning other people's money. That is strategic productive debt. But if we don't buy the properties, right, if we over leverage and we have an economic downturn, which we will, because that is just the way economic cycle go and you don't have the liquidity to carry it in the downturn, this is when you start to have a house of cards that falls. It's what happened to, you know, Dave Ramsey with his real estate. He had everything leveraged and when the market turned on him, he didn't have the liquidity to carry it. It's the very reason that in chapter 12 of the book we talk about the wealth priority ladder. Because my job is to make sure that you are safe first, growth second. And so we want to give you an unshakable foundation. And one of the elements of that is making sure to have enough liquidity to carry things during the downturn. Now, having said that, you, if you do that now, you look at and say, I'm going to use debt to create additional assets, to take control of additional assets that create additional income that allow me to, to grow. But I'm going to be smart about the debt. I'm going to get as low interest as possible and I'm going to, otherwise I'm going to pay cash for things. And so this is one of the first elements that comes into play is how they use debt. And at some point I want you completely debt free because that albatross of debt, remember I say debt has two personalities, personality traits that whether it's productive or destructive debt, they both have it. And one is that all debt costs, there's an interest rate attached to the debt and that is the cost of using someone else's money. And currently those interest rates can be high depending on the kind of debt it is. The other personality trait is all debt stresses. It stresses you psychologically to just know that you have this debt, this liability hanging out there. But it stresses you fiscally, financially also because it's stressing your cash flow. So we need to be really smart in our use of debt in here. But this is how you start to leverage your way to wealth. It's not the place that I start people, because it's the very reason I have the wealth priority ladder is I want you to start the right way with little debt and do it with liquidity to keep you safe. There's also something that a lot of ultra wealthy use and I am not a big proponent of this. I'm just going to be upfront about it. And it's this infinite banking structure. Now this is an insurance policy. I am not a fan of it. I have been very critical of it. The problem, the reason I'm critical of it for a couple reasons is one, the people that sell this, sell it as if it is the solution to everyone. I think that there's a very narrow, narrow sliver of people that will actually benefit from this. There is a tremendous amount of cost associated with these policies. You're literally buying a whole life insurance policy policy and it has to be structured a specific way. And their, their sales pitch is that you can borrow from the policy.

And it's tax free and you can pay it back. And, and so you have this policy that is in place that you can use as your own bank. Therefore the infinite banking kind of perspective. And, and I'm not going to go into a ton of detail here but the fact is, is that there's usually a lot of costs and commissions to it. There's usually takes five to seven years before you have enough cash value to borrow out of it. You're really not borrowing from your policy, you're borrowing from the insurance company and secured by the policy. And in the end what ends up happening is that cash value doesn't come to your heirs when you die, it goes to the company. And I think that there's some nuances there. But ultra wealthy and high level individuals, this may make sense. I don't think it makes sense for most people and therefore I don't like it as a strategy, but it is a strategy they use. And I want to be full disclosure and say, hey, here's what they do. Now the second area of focus for ultra wealthy is this, is they understand the tax game. Listen, none of us like to pay taxes and it is just a fact of life. Now tax rates will go up, tax rates will go down, tax rules will change. I don't expect you to be a tax guru, but I do expect you to have a fundamental understanding of how taxes are played, how they affect you. Because think about it this way. I live in California, it's one of the highest tax rate states in the country. When you take my income, federal taxes, state taxes, I could be paying 50, 50% tax rate. Okay?

So it is really important for me to understand how I can use the tax law Legally to justify as many deductions as possible to save me that 50, 50% tax. Otherwise I'm never going to see that money again. And so I understand that. And you want to understand some of the different tax elements that apply to you, whether you're an employee, whether you're a business owner, whether you're, you're any of those. How does taxes apply to you? Because if they're taking 20, 30, 40, 50% sometimes of your income in the form of taxes, if you can get legal deductions to keep more of that into your, in your pocket, it's going to be there to build your wealth over the long term. Now, one of the best ways to do this is a business. There are two kind of tax systems. There is the tax system for employees, wage earners. The one that get people that get the W2s, they get their wages, they may have some interest and dividends, and then they have their itemized deductions. They take, you know, their home mortgage and their real estate tax taxes and those kinds of things. And by and large, they don't get a ton of deductions. What happens is that if they have to pay for a car payment, they get their paycheck. Their paycheck takes taxes out, they get their net check. I remember when I was young, the first time I got a paycheck, I was getting paid. I don't know, back then the, the minimum wage was like $3.75 an hour, which was a lot back then. But I remember I was supposed to get paid $200 and. But my net check was only $130. I said, what happened to the rest? Well, I went to taxes. That's the challenge. And now if I had to pay a car payment, I pay it from the 130, not the 200, because the government took their piece first. But if you have a business, a side gig or anything like that, you might have the opportunity to pay for those expenses before taxes, which makes them less expensive. So what ends up happening is that the ultra wealthy understand and you have the capacity to do this as a wage earner, as an individual, to create a business that allows you to then take certain expenses and run them through the business as a legal deduction and therefore pay for them before you pay tax. Now, let me be really clear. Your business deductions, the general rule is that they have to be ordinary and necessary business expenses, and you have to prove that they are a business use ordinary and necessary. You can't just flippantly say, I'm going to open up a business and I'm going to pay my groceries, I'm going to pay my clothing bill, I'm going to do all that through that. That's not legal. That's not, that's not going to fly. But if I open up a business and I need to use the Internet or I have phone, you know, phone and Internet that I need to do, or travel or things like that, some of that might be legal, ordinary necessary business expenses that I can take as a tax deduction. Office expenses, meals, those kinds of things. So one of the things to think about as an individual is, is there something you can do to create a business that allows you to convert some of the expenses you would normally have and make them business expenses. Now let me be really clear. When you create a business, it has to be a business that is intended for profit. Otherwise it'll, it'll effectively be disallowed. So if you're going in business, you're going in business to not get a tax deduction to make a profit, to, to legitimately do a business. Okay? So that's one of the biggest strategies that the ultra wealthy will do is they realize I, by having a business, I can get some tax deductions. The second thing that the ultra wealthy will do is that they will do the buy, borrow, die strategy. In other words, they buy assets, they'll buy real estate, they buy stocks, they'll buy investments, they'll buy those assets and those assets will go up in value. So say I buy a stock for $1,000 worth of stock, it goes up to 10,000. If I sold the $10,000 worth of stock, there's a $9,000 gain, 10,000 minus 1,000, $9,000 gain. I pay tax on that gain. What the ultra wealthy will do is they'll say, well, it's up at $10,000. If I sell it, I have to pay tax on the gain, but instead of selling it, I'll borrow money against it. So I'll take money as a loan against the asset. Well, loans are not taxable. So they'll borrow, they'll borrow against the asset. Now be careful here. Anytime you take debt, it is a double edged sword. Yes, you have cash that's coming to him, but you also have a liability that has to be paid at some point in time. Now when they die, under the current law, they get something called a step up in basis. So that same let's say they die and the Stock is worth $10,000. They get a step up to 10,000. Now, when they sell it, there's no gain. Now, I don't want to get overcomplicated here, but the bottom line is that the ultra wealthy realize that rather than trigger attacks by selling an appreciated asset, they would borrow the cash out, still get the cash to use. Now they have the liability to pay, but they have the assets still in doing that. So that's the buy, borrow and die strategy. And then.

The other strategy, the last strategy that they do in taxes, or one of the.

More often used strategies is using entities to move income legitimately from higher tax brackets to lower tax brackets. For instance, by using an S corporation C corporation structure where you have a 21% tax rate against a 37% personal tax rate, and changing tax tax year ends will allow you to shift income to lower tax rates. In some situations, this can get complicated. You want tax advice to do it. You want someone to, to pencil this out and do that in a proper way. And so, but know that those are the three things that they'll do to try and use the tax to their advantage, the tax laws to their advantage. Three top things. There's other things that they'll do more complex, but these are things that you have the access and the ability to do. And that's why I'm highlighting these. That leads me to the third element of this, and that's their investment game. How do they look at investments? So first we looked at mindset, second we looked at taxes. Now I want to look at investments.

They look at their wealth and say, how do I multiply my wealth? Because it's not about just dollar for dollar putting money in, but when I get my money to work harder for me than I did for it, what is happening is that that dollar becomes $3, $5, $10, $12. Every dollar you put away will become a multiple. And that's the game that they're playing. So, so they'll look at things through the eyes of appreciation and cash flow. So they're going to look at investments that have the capacity to appreciate and generate cash flows. Whether it's cash flowing, businesses, dividend paying stocks, rental, real estate, index funds, all those things they want to, they want to build their net worth. But I look at it and say there's two net worths I want to look at. One is your overall net worth. That is all your assets, minus your liabilities, everything you owe, whatever's left over is net worth. That is what a lot of people will work from. I don't want to work from that because that doesn't give us the whole picture. My house here is a. Is a relatively expensive house, but it isn't an asset on my. It is an asset on my net worth statement, but it isn't an asset from an investment standpoint. Why? Because it costs me to have it. Now. I need a place to live. I can hear it now. So I'm not saying that. I'm only looking at it saying as part of my money machine. The only assets that I consider are those things that can create cash flow and support my lifestyle. This house is part of the lifestyle, but doesn't support the lifestyle through cash flow. The other assets support the lifestyle through cash flow. So the ultra wealthy have a high focus on investable net worth and the cash flow that that net worth generates. The combination, they're not just collecting assets. And so they, they are looking at those types of things and they'll invest depending on who it is. But if you follow my process, I want you to invest in a diversified portfolio first. That gives you liquidity, diversification, lower risk. It gives you appreciation and gives you potential cash flow. That's the safe process. Then we'll move to other, other investments that we call and they call alternative investments. So the second thing in their investing game is they look at alternative investments. This is where I actually will put into things like real estate and other things that have a little more risk, a little more effort, and a little more ch. Challenge to it. But if you follow the wealth priority ladder, you have the liquidity and you have the unshakable foundation should one of those investments go bad. And so the kinds of alternative investments that you could look at is private equities. This is buying into businesses. I do angel investing, private equity investing, those kinds of things. I don't do a lot of it because I don't care to take the risk and I don't need to take the risk. And does that mean that I leave money on the table? Sure. It means that maybe there's a home run that I could have jumped into and I didn't. But I'm okay. I have a plan, a dynamic plan that I follow. And if the plan informs me of the path and everything, so I don't need to take all kinds of crazy risks because the plan shows me that I don't need to. So private equities, venture capital funds, this is startups, even more risky, real estate syndications, real estate investment trusts, oil and gas deals, those kinds of things that they'll invest in. And so remember, as you look at Your investing. I want you to start simple first. Index funds, ETFs, low cost, get the foundation. Then you can start to look at these alternatives. If you're unsure about when and what to do, follow the process that I break down in detail in my book, building your money machine. Okay. In chapter 12. Okay. That's the investing, how they look at investing. Then number four, they look at their protection game a little differently. In other words, they realize that they need to build a fortress around their assets. Because remember, they're talking about doing this not for 30 year retirement, but for a century, for generations. So when I'm structuring and building my money machine, how do I protect it? How do I put structures in place that keep it safe from lawsuits, losses, bad decisions, you know, bad advisors, those kinds of things? And so what they do is that they will use ultrawalta, will use legal structures. Now I'm going to say something here and then I'm going to warn you about it.

Many cases, they try not to have any assets in their own name. They'll put them in LLCs, holding companies, trusts, separate ownership, separate liability, and do that. Now it is a wonderful thing to do for legal protection. But every time you do that, you're creating complexity. And complexity creates friction. Friction creates risk, risk creates losses potentially. Okay, so I've had some clients that have created a tremendously complex structure for purposes of I don't want anything in my name. But they didn't have the assets to support the structure, they didn't have the people to support the structure. And it became so unwieldy to manage that the cost benefit didn't make sense. So before you start going and stripping everything out and putting everything and holding companies, LLCs and trusts, do an evaluation of where's the risks coming from, what am I protecting against, why am I doing this? And making sure that there is a true benefit to the cost of putting these things in place. Because every time you create an llc, every time you create a holding company, every time you create a different entity, you potentially create another set of books that you gotta keep, another tax return that you gotta file, a set of expenses that you wouldn't otherwise have to do, and just the complexity grows. And so I don't want to grow the complexity too soon. And there's no reason to do that. So in many cases, most people, as they're starting out, about the only thing they need is a will and a living trust. Then they might have their llc. If they have a business interest, it's either going to be an LLC or an S corporation. And then you might start putting some other things in place. Do not get into very complex structures.

Too soon. And there are plenty of folks out there that will sell you into a structure. They'll charge you 20, 30, $40,000 to put this beautiful structure in place. And it is bringing an elephant gun to a pigeon shoot. You just do not need it. Okay? The second part of the protection game that they understand is they will use insurance to protect things. Now I am not a proponent of insurance except for certain situations. I think insurance companies, unfortunately, they, they are in three lines of business. The first, first line of business is to collect premiums. That's it. They want to get our money on premiums. That's their first priority. Their second priority is to find an exclusion so they don't have to pay us. Their third priority is, oh crap, I got to pay you. All right, we're third on the totem pole. And that's why I just, I'm not a, a huge proponent of the insurance industry because they're not really served. They're serving their bottom line, which I get. They're not serving us and we pay our premiums in and when we need them, sometimes they're not there. And unfortunately I'm hearing a lot of that with the fires and the floods on the south and the fires here. How insurance companies are looking for little, little ways to exclude and get out of paying, which is unfortunate. And so, but the, but the right types of insurance done right is extremely helpful. So they'll I, I've got a long term disability policy that ensures my income streams should I not be able to work. When I herniated discs in my back when I got on my bike accident, my cancer, I was getting paid from an insurance company tax free because I couldn't do the same level of work and bring in the same level of income. Although my machine was able to do that for me, I still have the insurance policy. I've had the insurance policy in place for decades. Key person insurance. If you are a business person and you're the key to the business, there may be key person insurance if you have a family that depends on you. Life insurance. And I would say term life insurance, not whole life, not some, some fancy policy, just term life insurance, you know, can come into play. Liability coverage, umbrella coverage, event. If you do events, event coverage. I want to shield myself from as much of the liabilities possible. In other words, I want to offload the liabilities and the risk to these insurance companies. Now When I do this, though, when I'm getting an insurance policy, I want to be really, really particular in reviewing the exclusions in the way that they're going to try to not pay out. Okay. So that, that's how they. They get in the protection game. And then the last piece, I think, is really understanding that, that how they play the diversification game. Number five is the diversification. Diversification game. They look at wealth through a global.

Standpoint, not just local. So they'll do some things to diversify their assets by having money in other different countries or banking systems to have more security. Now.

Again, just like structures, I'll be honest, none of my money is in foreign bank accounts. It's all local to the US And I don't think that that level of diversification is necessary at this stage. And so I think that you want to be really careful about some of these. They sound really interest offshore bank accounts. And, and I'm going to put it in Switzerland or Singapore or, or real estate in Dubai and all that stuff. Y', all, let's start simple. Let's get some, some things in place and we can worry about this global wealth game later on. It doesn't, it doesn't necessarily.

Give you the benefits unless you're at a level that makes sense. And then the last thing that I think that comes into play is this, is they will look at global mobility, dual citizenships, lower tax rates in other countries, things like moving to. You know, some have moved to Puerto Rico to pay a different tax rate, and there are some very specific rules to do that. And this isn't an episode about that. And here's my feeling on this. You want to build a lifestyle, and that's the reason we create wealth, is to live a lifestyle, a life of choice. That doesn't mean that we should be making our decisions based on taxes alone. My wife and I, truth be told, we went and looked at different places to live that could reduce our state tax rate, whether it was Washington, Tennessee, Texas, Florida, you know, Puerto Rico, any of those places. But in the end, when it came down to it, we said, we love where we live. We love being on the beach. We love being close to our grandkids and family. And so in the end, we just said, this is the price we pay to have those things. And I don't allow. I don't want the tax elements to define my choices in life. And I don't want that for you either to sit back and just say, hey, this is where I want to live. This is the lifestyle I want. And so rather than uproot everything simply to win at the tax game, but lose potentially at the life game, it doesn't make sense. All right, now, in the end, there's just a couple things I want you to think about. You don't need millions to do this. Here's what you can do right now. Shift your mindset. Think about cash flow. Think about cash flowing assets, thinking about controlling assets and strategic use of productive leverage debt. Okay, that's one to think about starting a business. So I can shift some of my deductions from after tax to pre tax. Take, take advantage of the tax laws that allow me to do that. Okay. Number three, invest in a diversified portfolio of stocks that have the ability to appreciate and produce cash flow.

Not speculative, that we know has, has grown over time at the foundation. Low cost, low fee. Then explore investments beyond the traditional stocks. Follow the wealth priority ladder. So you might then start to explore things like real estate, private investments, and things like that. And then the last piece is this. Protect the assets protected with the right legal structures, the right trusts in place, the right wills in place, the right rules in place.

Whether you have millions or you have hundreds, there are elements of this that still apply to you. It's very upfront for the ultra wealthy because they have the magnitude of wealth to deal with it. But the challenge is that so do you. You have the access to it, and it will help you. If I just. If you just got 20% more, kept 20% more by using some of these strateg, that's 20% more income that you can use to build your wealth that much faster. Even if it's 10%, even if it's 5%, it adds up. So I want you to start educating yourself. I want you to start asking those questions. I want you to start looking at it, but I want you to also try to keep it as simple as possible and don't get convoluted and complex and don't get sold into an expensive structure or complex structure that actually doesn't give you a whole lot of benefits. All right. I hope that that this helps. This was a question that came in that I wanted to answer, and I think that there's some helpful things in here for you to think about. I'd love to hear from you. I'd love to hear your thoughts in this journey and anything that I can do to support you. All right. And until I get a chance to see you in the next episode, we're on the road to your financial freedom as I always say, always, always.

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 there.

And that's it for this episode of Building youg 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.