The Affluent Entrepreneur Show

Why Knowing Your Financial Numbers is Vital to Your Future

April 06, 2023 Mel H Abraham, CPA, CVA, ASA Season 2 Episode 132
The Affluent Entrepreneur Show
Why Knowing Your Financial Numbers is Vital to Your Future
Show Notes Transcript Chapter Markers

If you're looking to build a secure financial future, then you need to know your numbers. I'm not talking about just your bank account balance or your credit score; I'm talking about your entire financial picture. Your net worth, your retirement savings, your investment portfolio - all of these numbers matter. 

The road to financial freedom actually has four milestones along the way to make sure you are on path. And when navigating to financial freedom, everyone must pass through these milestones. Do you know where you are? The other thing to realize is that our retirement system is broken, and this episode shows you why and what you need to do instead to take control of your financial destiny for good.

That’s why in this episode, I’m going to show you why understanding your financial numbers is vital, how to calculate them, and how you can use them to create a plan for your future. But it's not all about numbers and statistics. I'll also discuss the common pitfalls of the current retirement system and the pathway to financial liberation.

By the end of this episode, you'll have the tools and knowledge to take control of your financial future and work towards the retirement of your dreams.  So, don't wait any longer - take control of your finances today!


  • The path to true financial freedom
  • Why our retirement system is broken and what you need to do about it
  • Understanding your number and why it matters
  • The stopping points on the journey to financial freedom

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“The Entrepreneur's Solution The Modern Millionaire's Path to More Profit, Fans, & Freedom” –

Mel Abraham  00:00
If you're simply trying to replace your income in retirement, you might be making one of the biggest mistakes that most people make when it comes to wealth creation. Now, don't get me wrong, we want to replace our income. But I think there's a bigger game at play here. And in this episode of the affluent entrepreneurship, we're going to talk about your number, why you need to track your numbers, and the process to get you there. So I'll see in this episode of the app and running soon, this is 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. All right, let's talk about numbers. Let's talk about your number. What is your number? Look, if we're trying to get to financial freedom? Do you even know what that number is? That imagine this for a moment, you're one of those people that maxed out your 401k, you got the company match every year, you did everything right, you're putting money away, and then you find yourself down the road, getting ready to retire. And you're looking at the numbers and you go, God, I don't have enough. I don't have the lifestyle that I want. Now, here's the challenge is that we have a broken retirement system, we're going to talk about that. But I want to shift your mind, I want to give you some tools and a way to look at this. So you start to understand what that number is. And now you know, where are you gonna go to because here's what we've seen Northwestern Mutual did a recent survey. And they said that most people believe they need to have at least 1,250,000 in assets to retire comfortably and 20% Jump from 2021 to 2022. So 20% up. But here's the other devastating, I think statistic, that retirement savings dropped to below $90,000 dropped 11% from 2021 to 2022. And that the anticipated retirement age has gone from 64 years 62 years of age 62 and a half to 64. The expected right retirement. So here's the challenge with this is that if we don't get this right, if we don't take control of it, we could find ourselves down the road in our later years where we we are struggling with income or we're on fixed income, not having enough assets to have the life that we really dreamed of. And I don't want that for you. And so in this episode, I want to walk you through the financial liberation journey, I want to talk through some of the pitfalls in our current retirement system and how we do that, and the pathway to get you to the number that you want. And stay tuned, I'm gonna give you a tool to help you do the calculations at least to get the ballpark so you know where you're at. And what you need to do. Alright, so let's get started, I'm going to jump to my iPad. So we can walk through some of these frameworks and walk you through it. If you are listening and not watching, make sure that we'll make sure that we hook it all up in the in the show notes. But you can go and watch the video on on YouTube, just the same. And make sure that we give you the tools to get access to making the difference in getting control of your financial numbers. So let's do this. So we're gonna jump here the financial journey. This is truly about how you create liberation, how you become financially liberated. And you know, often people will come and they'll say, Well, I want financial freedom. The problem is, is that if you're sitting there, like the statistics said, and you've got $86,000 saved for retirement and your financial freedom number is well over a million. That chasm may seem so large, that you'll say I'll never get there. And so you settle. I don't I don't want anyone to settle. I don't I don't think life is a settled life. I don't think we live a good enough life. I think we we live it fully. Whatever that fully is. Whatever you define. We live it fully. We get to the end of our days, we got our toes on that grave. We're looking down, we look back, we're sweating, we're dirty, we're tired and we go, it was well left. That's where I want for you. Okay, no matter what your circumstances are, no matter what they are. I've had hard times I have lost money I've had to start over again. We've seen people that far worse than me far better than me. So I get it that you might have some circumstances going on in your life. But those are moments and moments that we need to build on Okay, moments that we need to build on. So one of the things that I tried to do in this financial liberation journey, this journey to financial freedom is to understand that there is stopping points that there are gateways we have to go through to make sure that we're on that journey. Otherwise, there's this big chasm, like I said, financial freedom might be $2 million $3 million for you, when you start to calculate the number, and you might be sitting there at 100,000 You go on never get there, it seems so far away. So we're going to give you some stopping points, and some things to strive for, as as benchmarks to get you there. And so the first stopping point and the first benchmark, is to make sure that you reach financial stability. And financial stability is where you have enough assets generating cash flow, that they will cover your necessities. It will cover things like your medical, your shelter, your food, your transportation, your clothing, okay, it covers all the necessities. It isn't. It isn't the luxuries, it isn't the the discretionary is, if you will, it's not, it's not Netflix, it's not many pennies. It's not fun technology. Yeah, that's nice, and we'll deal with it. But at first, to have financial stability, we want to make sure that the necessities of life, our survival is taken care of utilities, transportation, shelter, food, medical, those things are taken care of. And when those things are taken care of, you can you can sit back and say, I'm at least on stable footing. That's the first stopping point. And once we have financial stability, okay, once we have financial stability, you then move to the next piece. And the next piece is to find financial security. Financial security is where you have enough assets generating enough cash flow, that you could cover your living expenses. So let's just play the numbers for a moment. If we look at this, if we look at this, and say that our necessities just transportation, rents, medical is $2,000, then that's how much our necessities are, that's where we need for financial stability. Clearly, if it's just $2,000, you're not living in California, or you're not living in New York. Okay, if your monthly monthly survival is on 2000 bucks, okay, it's probably a little more than that. Now, what about your expenses, the rest of your expenses, this is where you add back the mani pedi This is where you add back the Netflix, this is where you add back some of those other elements. And so maybe that instead of it being $2,000, it's now $5,000. Okay, because you added some things back, that it's covering all of your current expenses. In other words, you have enough assets generating cash flow, that your current expenses are covered, your life doesn't change. Okay? That's financial security. Which leads me to the third piece, and the third stepping stone. And that third stepping stone is what we call financial independence. Financial Independence is where you have the ability to replace 100% of your current income. See, because I'm anticipating that maybe even though your expenses are $5,000, that maybe your income is something greater, maybe it's $7,000. So you're earning 7000, your expenses are five, you have 2000 leftover that you're using for investing and doing other things. So financial independence, is where you replace 100% of your income. And now, not only is are the assets, able to pay for your current lifestyle, it's able to fund your investing in the growth of that lifestyle over time. That's true financial independence. And then the last stage is financial freedom. And the last stage when we talk about financial freedom, this is what covers your vision. This is when we sit down with our clients and our and the folks in in the affluence blueprint. We start to spend the time say, What do you want the hope the ultimate life to be like? Now it could be you want a tent in Montana? I totally cool. Okay. Or it could be you want a yacht in Monaco? I don't care. Okay. The question is, what's yours? And what does it take to get you there? When you want to reach financial freedom, the expectation is that we're creating a money machine, an asset pool that generates enough cash that not only covers my survival, covers my survival. It covers my current lifestyle. because it covers my current income, but it also pays to have the additional lifestyle that we envision down the road. That's true financial freedom.  

Mel Abraham   10:09
That's the liberation journey. And so this is where I think we should be striving. The challenge that I see with many financial planners, is they look at your current income. And they say, well, let's just replace your income. And in fact, they don't want to replace 100% income, they replace about 70 or 80% income and say, That's good enough. I'm sorry. Maybe I'm a stick in the mud. But if you're gonna work all your life to build a retirement, the last thing I ever want to tell you, is that great, thanks for working for 4050 years. Now reduce your lifestyle by 20% and get on with the rest of your life. Hell, no, no, no, I'd rather be in a place where I look at you and go, you get to increase your lifestyle by 20%. Go enjoy it, go live it folly. That's what I want for you. That's true independence. That's true affluence. And so and it's possible. It just, it's a discipline journey. It takes some work. But the problem is that we come from an industrial age mindset, where we have a broke system on how they taught us to live and to build wealth. And I'm going to walk you through what this looks like is that they literally told us to get in the game, and, and start saving, here's your 401k, here's your IRAs, here's your savings account, start saving and just save during your earning years, as much as you possibly can. And they don't give you a whole lot of guidance. Okay, your max on on the IRAs is a little over six $6,000 a year, on the on the 401k, depending on age, you're in the $20,000 or $30,000. Range. Okay, but they're telling you to replace income. The problem is they don't have your lifestyle vision. In in in the works. They're not thinking about what are we actually trying to accomplish? They're just saying save, save, save, save, save, with no target with no number with no idea of what the destination is. And so what ends up happening is that if you get to the destination, you don't even know you're at the destination. Do you have enough assets already? Do you have a big enough money machine already? Do you need more? Are you nowhere close? Do you know that? That we're gonna get to the bottom of that in this episode? Because that's the thing that I think is missing from most plans is that they're not looking at what your vision is. They're not saying hey, Jane, John, what do you really want for you to live? What do you want it to look like? And how do we plan to make that happen? See, what they do is they tell you to continue to save during your earning years. And you get to this one point that they call retirement. And then they turn around and they say, okay, reduce your lifestyle, because your retirement most most plans require you to take 70% or 80% of your income. And we work off of that. So they say reduce your income and then start spending it down. So you spend during your retirement years. The problem is they don't know how long you're gonna live in. So you have this dynamic of a hope and pray, save, spend pray, that's the mentality. That's what we've been taught, save, spend pray, and what are we praying for, we're praying that our life doesn't outlive our money. Because they have you spending and, and if you're fortunate, you have plenty of money in your life. And in your your money is greater than your life. But if you're unfortunate you live longer or your money isn't enough, and your life is greater than your money and you run out. And so this idea of save, spend and pray is the wrong methodology. It's the wrong way to do it. What I say you got to do and this is what everything is that we're trying to accomplish here is that we need to build a money machine and others we're going to save and invest and grow. And then that money machine is going to spit off cash flow we're not spending it down it's it's it's creating enough cash flow to cover us at the financial freedom number. So it never declines. And then when that machine when your your life is through and may it be a long, long time from now, that machine passes to your to your heirs it could be your spouse, your partner, your kids, your grandkids, your charities, and they get to work off the cash flow, and then it keeps passing out. If God forbid, something happens to me, that machine, the cash flow from the machine takes care of Stephanie's life. And when God forbid, something happens to Stephanie, it moves to Jeremy and Cami. And God forbid something as it moves to, to Aria and Emily, my my granddaughters in the machine has the potential to be a perpetual existence when you understand the skills it takes to run it. But what I want to do first is to get you out of the mindset of save, spend, pray, I want you to get you in the mindset of save, invest, grow. Okay, that's the thing that I think needs to happen. Now, how do we do this, let's just look at the path to make this happen. And the path is got eight steps to it. And this is to get to your number because right now, you may not know what your number is, we're gonna get to the number I'm going to show you how to calculate the number, how to get to the number. So you start to understand the first thing is this. You got to look at your life and say, What do I want my life to look like? I sat with my wealth team, I said, my wife, I love to travel. And when we travel, we don't necessarily want to do it cheaply, we want to do it where we create an experience that we can relish, we can remember we want to create memories. And so it's expensive. We said we want to make sure that we have about 100 grand a year, minimal portrayal. They looked at me wide eyed and go, why I got no, that's us define your life, their job, a wealth team's job is not to criticize your life unless it's unethical, immoral or illegal. It's not their job to criticize what you want to create as a vision for your life. It is their job to facilitate you accomplishing it. And they'll put some of it back on you say great if we're going to do this, you need to earn this. And we're going to see that when I get through the numbers here. But I want you to first spend the time truly defining your life. What are the things go back to the episode where I talked about the affluence vision, we'll make sure we hook it up in the show notes. But the the affluence vision, where you start to understand what is truly meaningful, what is truly impactful, what is truly peaceful, what is it going to take define that, then we start to look at the next piece, the next step is once we define it, is we need to estimate what it would cost us on a monthly basis to have that life. Now I get it, I'm gonna get notes from people that say you can't estimate because I'm not retiring for 20 years, I get it. But that doesn't give you an excuse to not try, I would rather have a fuzzy target no target at all. Because most people are driving with no target all they have no destination, they're not even looking at the horizon. So I'd rather get a fuzzy target that we can define and refine and be more precise as you get closer. Okay, so we have a trajectory and a direction to go. So you're going to estimate the cost. So step two, is to estimate what it would cost you have that type of life could be 10,000 a month, it could be 20,000, and can be 50,000, I don't know, depends on how you define your estimate what that is now, to get to the ballpark of what number you need to have as a machine as a total amount. And this is, this is really a rough rough estimate. Okay, it is a ballpark number. That will at least give you a trajectory, if we were spending the time doing a detailed plan, we would take into consideration a lot of the nuances that are unique to your life, it could be the number of kids college bound kids, grandkids, charities, those kinds of things. This, this formula that I'm going to give you is very generic. That's going to give you a ballpark but it is not going to give you specifics to to your life yet. You'll have to define that and this is more for your wealth team to do with you. But this will at least let you know, what's the ballpark number. Okay, so you take that estimated cost, let's say it's, it's, I don't know. $10,000 Okay, a month or, and so that's $120,000 a year. Okay. You You take that. So step number three is that that you will take that number and multiply it by 25. Okay, so let's say it's $120,000 a year. Okay, you multiply it by 25 What is that? 3 million I think it is. Okay, don't this is this is always dangerous when I'm doing math live, but I'm going to do it any ways just to see if we can get it. So let me just do this 120,000 times 25 3 million I did it, right.  

Mel Abraham 20:11
Alright, so 3 million bucks. So What's that telling you is that you need to have $3 million in what we call investable assets, assets that can generate cash flow, in order to cover $120,000 In, in annual expenses to have the lifestyle you want, if that's what it is, now, here's the thing to understand. This is assuming you're going to retire at a traditional age in your 60s, okay, if you're sitting back in the fire movement and say, I want to retire at 40, okay, well, that's another 20 years, that number is going to probably need to be larger, you're gonna have to be a little more aggressive. So. So this is where I say the unique circumstances may not are not covered in, in this type of formula, but it's gonna give you a ballpark. So now you look at it and say, okay, but now I get it, I might need 3 million bucks. But I already have some assets, I'm already putting money in a 401k, I'm putting money I have my money invested in index funds or, or in other investments. So you take that portion of those investments that you have. And you make sure that you understand what the value of those investments are, by the time you retire. And so you'll you'll assume that they're going to continue to grow for a period of time, and you calculate what that number is. And, and so you have your investments that are an offset. So this is what you need. This is what you have your investments already, that you have. And there's a second thing that you have. And that is how much are you going to save every year between now and retirement? Okay, I know this is going to be a lot of math, when we give you a tool that makes it easy. I just need you to understand the principles follow me here. Okay. So I know what I need. I know what I have currently. And now I figured out how much am I going to put away every year. Okay, I'm going to say 20,000 A year 40,000 A year 10,000. year 5000 A year, I'm going to save those every year. So now I have that going to have this that I'm going to write. And so now you look at it, you subtract those two numbers from it. So if I need 3 million, and I look at it, I say Oh, I already have a million in assets. And I'm gonna be putting $10,000 away for the next got a you know, whatever yours I have, those numbers come off the 3 million. And what you end up with is this let leftover amount. Number seven is this leftover amount, which is the amount that you actually have to build. Okay. And then from here, you look at and say if for instance, let's just put some numbers to it, if I had 3 million, and I already had half a million in assets, okay. And I'm going to put money away, that's going to be another 200,000 and assets. That means that I'm going to have half a million plus 700, that a 200,000. That's 700,000 off the 3 million off the 3 million. That means that that I'm going to end up with $2.3 million that I need to make up for what follow that 3 million minus or 700,000. I know math is not always easy. But that's the game we're playing. That now allows me to understand I need 2.3 million that allows me to look at the last step. And that is how much more do I need to save to make that happen? This is the exercise that a lot of people don't want to do, because they don't like the answer. Or they're afraid of the answer. But the problem is, if we run away from the answer, we can't solve the problem. I'd rather you be aware that, hey, I've got a million dollar gap. I have a half a million dollar gap. I need 200,000 Or I'm already there. I need 3 million and deal with it. And we say all right, because once we know that now we tackle with how do we earn it? How do we save it? How do we invest it? How do we make it a reality? Now, I know I went through some calculations here, here's what I want to give you to make it easier for you because the choices you make with your money today should be in service of the future you want to create tomorrow. Let me say that again. The choices you make with your money today should be in service of the future you want to create tomorrow. So I created a tool that is downloadable. It's totally free. Okay, and I want an end What you'll see is that you'll actually be able to put your numbers in. And it'll calculate the number for you. It'll do the calculations we just walked through, I just need you to understand the calculations, how you get the tool is go to Mel Forward slash, number. And you'll download an Excel template, you're going to put information into these yellow boxes, and then everything else is going to calculate for you, you'll put in the years to retirement, you'll put in your current investable assets, you'll estimate your annual savings, you'll estimate the returns on your investments that you're going to get. And you'll put in the number that you're going to need every year for your lifestyle. And the rest of the calculations will be done for you. It will give you a ballpark of where you need to be, it'll at least let you get there and go, Oh, I got some work to do. Great. Don't look at it as Oh crap, I got some work to do. Get excited and say, Now I know what kind of work I've got. Let me get the work done. Now we start implementing strategies. Now we start looking at what the House are. Now we start looking at things like like, do we need to control expenses? How do we elevate and scale your income? How do we how do we do so and we'll do some more shows on this too. Because once we know what our target is, now we actually have the game to play. We know where we're going towards to build that money shooting to give you that financial freedom. Now I know this was a heavier episode with some calculations, I was doing some math. Go back to it. If you're listening to it, slow it down. I don't know if you want to slow my voice down. But But I'd also invite you to go to the YouTube and watch it because I'm actually drawing it out there and you'll see it there. And then download the tool Mel forward slash number. We'll hook it up in the show notes and go through that. Alright, let me know what you come up with. Let me know what you're thinking. Let me know what it makes you feel like because then we can solve the problem. It doesn't matter how far you are away from the number you want. What matters is that you're on the journey, and then we can navigate ourselves to it. Hopefully that makes sense. Hopefully you found this a value. Go get the tool, go get the number. Let's figure it out. You're not alone on this path. Okay? Always, always, as you're doing this. Stay focused on your vision stay focused on creating an affluent life. Stay focused on doing the things that actually matter that actually move the needle for you in your way. Okay, and as I always say, on every episode, until we get a chance to see each other on the road. Another episode to always, always strive to live a life that outlives you. I'll see you in the next episode. Cheers. Thank you for listening to the affluent entrepreneurship 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 and I'll see you there.

First stopping point: financial stability
Second stopping point: financial security
Third stopping point: financial independence
Fourth stopping point: financial freedom
True Independence: The Goal of Financial Planning
Industrial age mindset
Example calculation
How much are you going to save every year between now and retirement?
The Basic Affluence Number Calculator