Building a Money Machine and Avoiding Pitfalls with Mel Abraham

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1:06This is the Ed Myerich Show. Welcome back to the show, everybody. So this week, I get to share a brilliant mind with you on a topic that matters, which is your money. And I think you're going to hear some things about money, retirement, saving, mindset, strategies you've never heard before. And I would have had him on just for that reason. But what you're also going to get to experience is one of the kindest human beings that I know. And just a good man with a beautiful heart. And I love him dearly. And in the last couple of years, we've become very, very close. And he's a tremendous blessing in my life.

1:42He's a CPA by trade, and he's an exciting one. And so you're just going to love today's show. So anyway, I'm going to share with you a dear, dear friend today with so much information. If you can take notes, take it. Otherwise, it'd be mentally paying very close attention. So you can write this stuff down later. My great friend, Mel Abraham, welcome to the show, brother. Oh, Ed, it's so good to be here, brother, just to get to share time with you, man. Yeah, but we're going to share time, everybody, about his new book called Building Your Money Machine, how to get your money to work harder for you than you did for it.

2:14And I love the topic because most people, frankly, they don't think that way. I didn't used to think that way. I just thought about making money. I never really thought about getting my money working for me, particularly because I wasn't making a lot. So I just assumed you had to make a ton of money to ever retire. And you in the book make a case that that's not necessarily true. So I want to start out somewhere, though, brother, because in my family growing up, I think about what were the pain points in my family? You know, what was the stress stuff for my dad, my mom? And it usually came to money.

2:47Yeah. You know, if I drew it back, it was like work stress if my dad had lost a job or something or just money. And, you know, my parents didn't love having to say no to us very often and just money stress. What for you, just to start, because we're going to get into a lot of principles, any of that in your family? Did you start out? Do you have any early money memories, anything like that? You know, one of the first stories in the book was really, so I'm a son of an immigrant. My dad came here at 17 years old with nothing to go to school, became an engineer. So we didn't come for money. We didn't really have money, but we had what we needed.

3:24We grew up, I grew up not too far from you. I was in the San Fernando Valley. But I remember at five and a half years old one day, looking at my dad, who was my hero at the time, for the first time I'd ever seen him cry. And him talking to my mom, I didn't know the details. I knew it had to do with money. And I just remember dad saying, we can't do that right now. And then looking at my mom in tears and saying, I feel like I'm letting the people I love the most down. And it just for a five-year-old, you know, a six-year-old, it was it ripped me apart to just see him in tears. but then I didn't have any kind of knowledge or anything to deal with it.

4:15So all I made it kind of mean was, hey, if you don't make money, you're going to let people you love down. And that's kind of the lesson that I took away from it at the time, but that was something that was in our space. So we had what we needed, but it wasn't like we could just do whatever we wanted. Yeah, funny, I thought that was my upbringing too, and it was like most of it. But I have had this weird thing where I ended up getting pretty wealthy, but that was never my outcome. Even to this day, I didn't want to be poor. And I always wondered where that came from because I felt like I grew up middle class, maybe lower middle class.

4:57but in talking to my mom recently but we were on welfare when i was a little boy and i don't have memories of it but i think a lot of us have some sort of trauma or memories in our life around our parents worrying or stressing about money and it is the single subject of importance in people's lives they know the least about like it's an inevitable topic you have to know about money you or have to learn the currency of money how to save it how to retire how to plan how to budget how to strategize. It's an inevitable thing in life. It's mandatory. Yet 99 % of the population doesn't know very much about it.

5:34And the 10 % that are left, the 1 % that think they do have a lot of bad information as well. So one of the things you submit in the book is you call it like we have a broken retirement system, right? Yeah. What is that? Why? What's broken about it? What do you mean by that? Well, I think that there's two aspects that are broken about it is that we carried with us the old industrial age model into today's world. So back in the day, you would work for a company for 40, 50 years. And then as a gift back for your loyalty, they said, we're going to give you a pension, lifetime of income. And so we didn't really have to take care of ourselves in our future years, in our later years, because we were taken care of for the loyalty we gave to the company.

6:22Then they came to us and said, no, y 'all are living too long. It's too expensive. So we're taking it away, but we're going to give you this instead. Here's a 401k. Here's an IRA. Here's a SEP. Here's all these things. You go do it. But what they didn't tell us is that when they handed it to us, if I had a pension, all I had to do is work. They took care of everything, the investing, all the choices. But now what they gave us is this retirement plan, but it was a bunch of choices. How much do I invest? Do I participate? Can I invest? What do I invest in? All those things that people aren't educated in and we're not talking about it.

7:03But more importantly, the second part of the broken system is the way that they see retirement save save save save save reduce your lifestyle by 20 30 percent then spend and then pray that your money does your money outlasts your life and i it's a horrible like i don't want to do that like i look at my mom she's 90 plus years old six years on dialysis her cost of of assisted living is 15 grand a month. And there isn't a month that goes by that she doesn't look at me and go, am I okay on money? Am I okay on money? That's the last thing we should be worrying about in those years. Now, the blessing is that she's okay because I'm making sure she's okay, just like you do with your family.

7:53But absent that, if we set this up right, we shouldn't be worried about those last years and say, do I have enough money to last the life that I have? So Mel, I always wondered, because I was in the financial business and I always thought, how is it that our culture hasn't changed where we know we're supposed to save and pay ourselves first after we tithe, right? And it's just never changed. And you just explained why. It's because really our parents' parents had pension plans. So they could spend their entire paycheck and they would be okay, potentially. So saving was like a luxury. But it's not that message you said has not gotten to families the last 40 years, especially the last 20 years, like, no, no, you get a paycheck, you stick a little bit in your 401k, then you go to the mall on the weekend and get over the heck you want.

8:40And then you buy some stuff from Amazon. And at the end of the month, you know, you might have a credit card balance or, and then people are used to carrying debt at high interest rates on credit cards. And it's just sort of the way people live. And then you watch presidential debates, everyone's arguing over social security, which is going to be a couple thousand dollars a month for the average person, even if it shows up for you. And I'm like, wow, this really is broken. So what should someone be thinking if they're 30, let's say right now, or even 20 or 40? That mindset you said is broken. What should they be thinking and doing?

9:11I think there's a couple of things. No matter your age, stage, or circumstance, it is our responsibility to take care of our future. No one's coming to save us. OK, if there's Social Security, great icing on the cake. If there's a windfall, great icing on the cake. But the bottom line is this. If we're going to win the wealth game, we have to be on the field playing the game. We can't be on the sidelines and we can't be in the stands. And so what we need to realize is that they taught us well on the income side. Hey, you got to go earn a living. You got to build a business, get a good job, get a good career, a professional path, make money, make money, make money.

9:51What they didn't tell us is there's a second journey we need to be on. That's the money journey. See, we think income is the solution to everything, but it isn't. Because if it were, then people like Mike Tyson would still be wealthy, or Nicholas Cage, or Burt Reynolds, or we can name them all. They made lots of money, but they ended up broke. So it isn't the money that matters. It's what we do with it. And what we're not taught about is what to do with it. What's the recipe to take the money that we earn to build the money machine so it can take care of us? Because when, and I learned this as a single full-time dad raising my son, the realization that I will never be free until I have the ability to separate the earnings that I make from the efforts to make it.

10:47And that's what the money machine does. That's what you do. When we're in the earnings journey, it's us, you and me on stages doing things to make the money. But if we don't do the right thing with that, we will have to do that till we are old and gray. Yep. One thing I want to jump in on it, then we'll talk about the first step. I want to rift off one another here. So here's something that's not said. And it's just, it's hard for people because it's counterculture. The reason that it doesn't, the income is irrelevant is because in our society, here's what happens. If you make$60 ,000 a year, you may be renting somewhere, right?

11:21Potentially, if you're in California anyway. You're renting or you've got a very small house, depending on where you live, and you've got a Honda in the driveway and car payment and you're doing well. As you move up, here's our culture. No, you got a promotion. Now you're making$85 ,000 a year. So now you don't have a Honda in the driveway. You don't rent a place, you own a little bit larger house and you have a Lexus now in the driveway, right? And you spend all that money. And then a few years later, you're making a hundred thousand. If you're fortunate, you get to a hundred thousand dollars in income.

11:50And now you don't have the Lexus. Now you've got a four bedroom house and you've got a Mercedes in the driveway. Right. And then I've just watched this friends of mine that then got to one 50. Now they don't just have that. They have the house. Now they've got a Lake house plus the Mercedes in the driveway and a boat. And so my point is, is that no matter if you make 40, 60, 80, 150, at some point, the first decision to me is that you are not going to change your lifestyle as you make more money for a window of time, five or 10 years worth. So you can stack paper and start to save money. It's like you don't have to have a nicer car because you make more money.

12:27You don't have to live in a bigger house because you make more money. You don't have to eat the best steaks. And what happens is that people in our culture, their lifestyle follows their income. And it almost never changes. And so, frankly, I have more friends that make less than$100 ,000 a year that have financial discipline in their life and strategies that have money saved than my friends who make more than$100 ,000 a year. Now, there's an exception level sometimes. Someone gets to$500 ,000 or$1 million where they're just starting to make more than they can spend. But you and I even know a bunch of those dudes and ladies who have no money also.

13:05So it's not your income. I have several friends. I have a very good family member who he's an airplane mechanic and his wife is a nurse. They both done well in life, right? Their homes paid off. They're retiring with peace and dignity. They've not ever moved out of the home they bought. They paid it off. Their cars are paid off. Their homes paid off. They've got money in retirement accounts. they are living financially very peacefully because they didn't increase their lifestyle to impress people who aren't impressed anyway. So that would be my first step. What is then the next step after that for you in the money machine?

13:41So I think that, and I love that this translates to what I think is the first step for everything we do. And that is, what is our vision for our life? because the vision for our life helps us define the plan that we're on, the strategy we need, the tactics that we do with our money. It also helps us do this, eliminate the temptation that you're talking about, eliminate the peer pressure that you're talking about, because now I can look at it and say, well, my vision for my life is this. And if I go and buy this thing I see on Instagram or try to compete with my neighbor that just bought a Denali, you know, is that moving me closer to the vision?

14:28Let the vision inform all of our decisions. Now we are less susceptible to the peer pressure, the media pressure, the social media pressure of temptation and comparison that cause us to expand our life. Do you think there is a, great advice, do you think there is an appropriate percentage of your income you should be saving regardless of where you're at or an ideal percentage that someone should be going, okay, I got to take, does Mel think I should be taking 20 % of my income, 10 %? Or do you not think of it that way? I do. So I have something called the wealth priority ladder. And in there, I tell people that I want you to strive for 20 to 25 % of your income to go towards building your financial freedom to build your money machine.

15:19Now, prior to that, we want to make sure that we've got control of our liquidity and our debt. And so I look at things through the eyes of, hey, safety first. So let's create an unshakable foundation and now growth second. So I'm not going to swing for the fences when I'm on tenuous ground. I want to make sure that I've got control of some things. and so I have some liquidity in place. I know that I've got control of the debt and it doesn't mean that I'm debt-free. It means that I am in control of it and it's getting paid down and I have a plan. Now I can start investing. Okay, let's get granular.

15:57Let's go granular. It doesn't matter what someone's income is. I make$60 ,000 a year. Let's just say I'm single. Make$60 ,000 a year. After taxes, maybe I take home. I'm making it up depending on where you live. $40 ,000 a year, okay? Okay. So you would like me to be saving somewhere around 800 bucks a month. Is that about right? Yes. Yes. And do you believe initially that 800, just guys, we're just spitballing here, but it'll give you ratios. So that 800 or a thousand dollars a month that I'm saving, people go, oh my gosh, how would I do that? Well, you need to back out the car payment and back.

16:33Maybe you need to look at these other things. You're saying first, before I go retirement account, I need an emergency fund. is that what you mean when you say liquidity? I should have a certain amount of money, liquid in case the car breaks down, mom needs a loan, income interruption, whatever it is. Okay. And where do I put that? Well, we're not going to name investments, but is that the bank? Is that a CD? Currently, because of the environment we're in, all of my liquid cash is sitting in high yield cash accounts. Yep. So three characteristics, 100 % fully insured, 100 % fully liquid, and 100 % expense-free.

17:12So not a CD because that's not liquid. So you'd be in a savings account that's high-yielding. At the time we're recording this, 4 % is not unheard of in a high-yield account right now. 5 % in some places. So yeah, it's not unheard of. And it's good enough for now for the liquid funds for emergency. We need to keep it safe and we need it there because we don't know the definition of emergency. We don't know what's going to happen. We need it there. So, hey guys, I want to jump in here for a second and talk about change and growth. And you know, by the way, it's no secret how people get ahead in life or how they grow.

17:45And also taking a look at the future. If you want to change your future, you got to change the things you're doing. If you continue to do the same things, you're probably going to produce the same results. But if you can get into a new environment where you're learning new things and you're around other people that are growth oriented, you're much more likely to do that yourself. And that's why I love Growth Day. Write this down for a second, growthday.com forward slash ed. My friend Brendan Brouchard has created the most incredible personal development and business app that I've ever seen in my life.

18:11Everything from goal-setting software to personal accountability, journaling, courses, thousands of dollars worth of courses in there as well. I create content in there on Mondays where I contribute, as do a whole bunch of other influencers, like the Avengers of influencers and business minds in there. It's the Netflix for high achievers or people that want to be high achievers. So go check it out. My friend Brendan's made it very affordable, very easy to get involved. Go to growthday.com forward slash ed. That's growthday.com forward slash ed. Okay, let's talk about that. So Mel's had, I was going to put this in the intro, but I wanted it to be in the middle for those that stay.

18:46Mel's had several difficult times in his life. This is a money topic we're going to cover now and a life topic. And he and I have both talked about this because I've had, you know, no secret. You guys know I've had some health issues. Mel's a two-time cancer survivor, right? And so that's an emergency. It can be an emergency financially. So describe, Mel, first and second time, how it affected you emotionally and potentially financially as well in your life when that happened. What were those moments like for you? And did the fact that you had some money saved give you a little bit more peace of mind?

19:26um the emotionally it look it someone asked me you know did the cancer change you which is a crazy question of course it did but the fact is is that what it got me to realize is you know so many people told us that your days are numbered here on earth and we i i didn't take it seriously i just you know and i'm not a i'm not a i'm not a smoker not a drinker you know no one in my family had cancer. It never was even in my thought process that it would happen. And so immediately what I realized is that, oh, they were right. And the question wasn't about how did I spend my money? The question was about how am I spending my time?

20:12And starting to look at it and say, wow, if I measure my wealth in the number of moments I can control of my life, am I truly wealthy? Or am I beholden to the expenses of the demands of the day? Do I get a chance to live by choice? And so that was the psychological element of it, of realizing that I better appreciate the moments and hope that we have, I have a ton of them and a lot of them left in me, but I don't get a second run at this. And so that's how I started to look at things and say, what are the things that really matter? What are the things that really bring me joy? What are the things that bring me fulfillment?

20:59How can I take and allocate my funds and my money and my income and my wealth to allow those to be accentuated and elevated in my life. And so that was part of it. The other part of it was back when I was, like I said, I was a single full-time dad raising my son Jeremy from five and a half. And at six years old, he came running into me saying, hey, daddy, I drew a picture of you at school today. And I look at this picture and it was me standing in front of two computer screens with a phone in each ear. And I go, oh my God, this is a mirror into my soul. And at the hands of a six-year-old, that's when I realized somehow I have to figure out how can I get off the treadmill and separate the efforts from the income so I can be the dad I wanted to be.

21:54And so the gift of that from Jeremy is what gave me that journey to build the money machine that that I talk about, I didn't understand the power of it until the cancer. Because when the cancer hit, I didn't have to drain a bank account. I didn't have to sell anything. I didn't downsize. I didn't do anything. We had a machine. And I talked to my wealth team. I said, hey, the money that you're generating in that, send it to me and allow me to focus 100 % on healing. So I shut down my business. I shut down my speaking. I shut down everything I was doing. And the only thing I did was fight the cancer.

22:36And everything I did from that moment forward was that. And I had to fight the cancer emotionally, physically, medically. But I didn't fight it financially. And it was a gift that came out of a picture drawn by a six-year-old. That's incredible, man. That's incredible. And you've told me that privately before. I know people are leaning in now going, okay. So I need some of this machine in my life. So the good news is there's no way adequately on any podcast you're ever going to get everything out of a book. So I want you guys to go get Building Your Money Machine by Mel Abraham. But what are the elements of this machine?

23:13Like what do they need to know about having this machine that they don't know, Mel? What are some of the elements? I think the first thing is to understand there's five levels of income that we can generate. and only three of them are the things that are going to give you your time back. So everything I was measuring to say, how do I get time back? So at the very beginning of our life, we get a job. That's active income. We're swapping our relationship between making money and effort is one-to-one. Not scalable. That doesn't give us any freedom whatsoever. Then we turn around and say, okay, so that's level one.

23:53The level two above that, I call it business income. It's when we start to pay other people to do some of the things so I can get my time back. It's leveraged in the sense of it gets me a little time back, but I still am required. It's the top three we need to look at. And this is where we start to look at how do we start to generate income streams from these top three. And the first level is asset-based, real estate, equipment, things that are hard assets that I can buy. I make an investment once. I maintain it over time, but I get rents over a long period of time. I've got someone that knows they've got multiple properties.

24:36They're making literally$400 ,000 a year just from rents. And their effort is much, much lower. So that's asset-based. The next step up is residual income. This is where we create something. It's your book. It's my book. It's white labeling things. It could be a downline in a network marketing. It's something. It's songwriters and actors and actresses. Create something. Take the time to invest and create something that will pay dividends and income over a period of time. But I create it once and get paid often. And then the final stage of that is portfolio income. It's what we think about in the sense of investing stocks, bonds, ETFs, index funds, annuities, things like that.

25:24And so I look at them at levels of leverage. But here's the machine. The machine is I can pay for 80 % or more of my lifestyle from the top three. Got it. Got it. and so I have income streams from asset residual and portfolio so when I got the cancer I said flip the machine on let the income come to me and now the bottom two I'm not doing anything in and then when I came back from it I flipped it on its head back and you you now do one and two again that's really good though do you this is a hard one I ask anybody of my friends that are money and I just know that this is what people that are in in you know in a job right now particularly are thinking too.

26:08How do you feel about the 401k thing? So, you know, some people think it's just automatic. They should do it. So everyone, let me just set you the stage on this discussion. There's a debate. So 401k without matching, that's one way where your employee's not giving you any other money. That is pre-tax income you're putting into something with exception. You're not going to touch until you're 59 and a half, 62 and a half, depending on what the age is they use. So that is by definition, you could maybe touch it, but you're going to pay some taxes and some penalties potentially. So there's that. Then there's the 401k where the employer matches.