In this episode, I delve into the harmful money mindsets and behaviors that have been ingrained in us from an early age. I discuss the traditional earnings formula that keeps us trapped in the cycle of trading time for money and offer insights into the lesser-known wealth formula that uses money to make more money. I also talk about the importance of leveraging productive debt and understanding the taxation system to maximize our financial gains.
IN TODAY’S EPISODE, I DISCUSS:
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In this episode, I delve into the harmful money mindsets and behaviors that have been ingrained in us from an early age. I discuss the traditional earnings formula that keeps us trapped in the cycle of trading time for money and offer insights into the lesser-known wealth formula that uses money to make more money. I also talk about the importance of leveraging productive debt and understanding the taxation system to maximize our financial gains.
IN TODAY’S EPISODE, I DISCUSS:
RECOMMENDED EPISODES FOR YOU
If you liked this episode, you'll love these ones:
RECOMMENDED VIDEOS FOR YOU
If you liked this video, you'll love these ones:
TAKE THE FINANCIAL FREEDOM QUIZ:
Take this free quiz to see where you are on the path to financial freedom and what your next steps are to move you to a new financial destiny at http://www.YourFinancialFreedomQuiz.com
OTHER RESOURCES:
7-Day Money Plan Workshop: https://www.TheMoneyPlanWorkshop.com
Affluent Entrepreneurs Private Facebook Group https://www.melabraham.com/group/
CONNECT WITH ME:
Website: MelAbraham.com
YouTube: MelAbraham.com/tube
Instagram (@melabraham9): MelAbraham.com/ig
Facebook Group: MelAbraham.com/group/
TikTok: https://www.tiktok.com/@melhabraham
GET MY BOOK:
“The Entrepreneur's Solution The Modern Millionaire's Path to More Profit, Fans, & Freedom” – melabraham.com/book/
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 is 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 athlete entrepreneur. All right, let's talk about this. This is going to be an interesting one. This one's going to be a fun one. Let's talk about the eight ways that I think that they're teaching us to be poor. That happened to me, too. Like I said, I have been three plus decades as a financial advisor, as a CPA, as a valuation professional, valuing businesses, scaling businesses, building businesses, buying and selling businesses, helping entrepreneurs, just like you, build their wealth. But all of my schooling, all of my education, none of it prepared me to be wealthy. And had I just followed that, it would have kept me poor. It's because here's what we know. The fact is that wealth creation is a behavior. It's a behavior. It isn't about the money. It's about what we do with the money. It's a habit, it's a behavior, it's a decision, it's a choice. But our behaviors are created through our thoughts. So if our behaviors are created through our thoughts, then it is important for us to understand how we're getting our money thoughts in place to do the things that we do. And so what ends up happening is that where do we get our thinking from? Where do we get we get our money thinking from? Well, it's not school because they're not teaching it there. It's not at home in most cases. I grew up in a home where I'm a son of an immigrant family. My dad came here at 17 with nothing to go to school. He was an engineer, chemical, plastics engineer. It wasn't like we had money. Came from money, any of that stuff. We didn't have that. And Lord knows, talking about money in our home, it was deemed to be impolite. Don't talk about money. So where else were we going to get this education or this thinking around money from a wealth standpoint? From media? No, they demonize the wealthy. They demonize having money. What about social media? You think they know any better? Some of them. I mean, come on. So you've got people out there that are telling you, oh, buy a lambo. That's the way to get wealthy. No, it's not. All right. So the fact is that there isn't a formal education around wealth creation. Living a wealthy life. Living a rich life and doing that unless you intentionally go and seek it out. And so what happens is that the thinking we get is caught, not taught. And since it's caught, not taught, we have to be aware of where it's coming from because that's what's going to drive our behaviors, and our behaviors will. Drive our money situation. And so one of the things that. I think we need to do is break down some of this thinking, break down some of the behaviors, so you start to understand where this came from and how we can look at it differently moving forward. Okay? And so the first thing I think we need to understand is this idea of there's two formulas and one formula is the formula that we're all taught. The one formula that we're all taught in school or it's driven into us as we're growing up, is what I. Call the earnings formula. Okay. In my book, in my upcoming book, the Money Machine, I talk about this being the earnings machine. Okay? We are constantly told, go get a. Good education, go get a good job. Go get a good income. Go earn money, go earn money. Make sure that you have a good income. So we're on this treadmill of earnings, which is the earnings formula. But the actual formula is what they tend to do is put us in an area where we're saying, how many hours do I have times my wage, whatever that number is, and I get a salary. And so we're put into this environment where we are swapping time for money, time for money. And there's some people that will sit back and stay in that situation forever. Look, I came from being an accountant. We use timesheets. We sell time for money, we get paid time for money. It's a horrible business model, and there's some that will move from it. But understand where this starts to play out, when we start to just do the math behind the time for money game. What does it take for you to make a million dollars? What does it take for you to make a half a million or 2 million to build the net worth that you want? Well, I got something for you. I created a calculator that I'm going to use. I'm going to run through some numbers for you so you start to understand how this can play out when you start to do this. And what does it take to get to a million dollars, what does it take to get to $2 million? And then we're going to break down some of the other things, so stick with me on this. All right, we're going to do the math, but I'll do it for you. All right, so let's assume that you're getting paid $30 an hour. Hopefully, you're getting paid more than that, but we can change it because I have a calculator that can do it at $30 an hour. You're going to do 20, 80 hours per year, which is the typical full time year. Now, hopefully, at some point, you're working less than that. I don't work that many hours. Okay. But if you did that at $30. An hour, you're going to get paid about$62,400 a year. Well, I can't invest the full 62,400 because I have to pay taxes. I have to pay for my living. I have to do all that. So I'm just going to arbitrarily say 50% is going towards taxes, living, and all that stuff. So you end up with half of it.$31,200. Okay. That's left over that you might be able to invest. So if I had $31,000 a year, how long would it take me to get to a million dollars? And the answer is, at an average rate of return of 8%, the answer is 16 and a half years. So it's going to take you 16. And a half years to get to a million bucks. Now, if I wanted to go to. $2 million, it's going to take you almost 24 years to get there. Okay. So it's possible, but you got to be hoofing it and making sure you're putting the money away in a proper way. And so it's important to do that. Now, if your spending goes way up, say, instead of 50%, that goes to, say 70%, because a lot of people are living check to check right now. But let's say that it was 70%. Okay? And I do that now, all of a sudden, I only have$18,000 going towards this. It's going to take 22 years to get to a million bucks. My point is this, is that your road to wealth creation can't be a math equation. It has to be something more than that. And there's this idea that I talk about called the time money loop. And what ends up happening is at the very beginning of our financial journey, almost everyone at the beginning of the financial journey, we swap time for money at some point we go, I don't like this. I don't like this. So what do we do? We start swapping money to buy our time back. This is when we hire someone to do the yard work. When we hire someone to do the home cleaning, is that we're using the money we make to get some time back to us. But then we get to what I. Call the wealth formula. So we have the earnings formula and the wealth formula. And when we get to the wealth formula, this is when we use our. Money to make more money. This is the wealth formula. But no one talks about this at all, not in school. I do. My book does. Okay. We're not really having these conversations because we're teaching the earnings from. We're teaching that industrial aged kind of thinking of, just swap your time for money, work really hard for a lot of years, and hopefully you'll get there one day. And so one of the things to realize is that they're not teaching us. The wealth formula, which is using the. Money that you earn from the earnings formula to acquire assets that are going to create wealth and create cash flow for you on an ongoing basis. That's the money machine that we talk about in my upcoming book. We walk through it all. Okay? The point is that that's one of the keys that we need to. That's one of the distinctions we need to flip the switch on in doing this. But we don't talk about any of this. So the only things we know is to go earn money, go earn money, go earn money. And you wonder why we're on this earnings treadmill of make it, spend it, make it, spend it, save a little, save a little. But we don't have the machine. All right? So that's the first thing. The second thing is the wealth. And then the third is that we see downturns. We're taught to see downturns as risk, as risky. Okay? So what ends up happening is that if there's a downturn in the market. We freak out, we go the other. Way, we're scared about it. We say, I don't want to be part of it. Warren Buffett said, you need to be fearful when people are greedy, and greedy when people are fearful. In other words, what he's saying is that when there's a downturn, there's opportunity in the streets. When we're way up high, there's a. Whole lot of greed, and something's coming back home to roost. And so what? The wealthy see a downturn as an opportunity? They salivate. They know that this is an opportunity to get rich. This is an opportunity to build wealth. This is an opportunity to get in a market, whether it's real estate or stock investing or other investments that allow you to get on that hockey stick curve. Okay? Now, I'm not telling you to time the market all that. We can talk about that, but the reality is that I'm just trying to change and shift the perspective. So you understand the difference. Yes. When there's an economic downturn, there's risk, there's uncertainty. But let's not forget, there's also opportunity. And this is why we build wealth the way we say to. To make sure that we have enough liquidity in place to keep us safe during the uncertain times, but give us enough liquidity to take advantage of opportunities during the uncertain times, because that's when they're most prevalent to be able to make that happen. All right, next one is this is that they understand. They don't talk about the wealth flatline. Okay. If we talked about the wealth flatline, our youth would understand the importance of getting in early. The fact is this, when you first. Start investing, when you first start investing, you're in a situation where our wealth creation does this like a hockey stick. But there's a zone here that's flat. At the very beginning. Everyone goes through this. And what you're doing is you're making investments on this line, into your 401K, into your IRA, into your savings, into different investments, and you keep doing it. And in the end, you sit back and go after doing it for years. You look at your accounts, and you go, we've only made $67. This makes no sense. Why am I doing it? And what do you do? You stop to give up. Worse yet, you do what I did. You cash out and said, this ain't working. This ain't working. See, what they don't tell us about is that on the other side of the wealth flatline is the acceleration zone. This is when our money starts to create more money than we could create with our efforts. But the only way to get to the acceleration zone is a four letter word called time. That's it. And the wealthy know that the sooner they get in the game, and the. Longer they stay in the game, the better they are at. At it. Now, we're not educated to that way. We don't talk about it that way. We don't talk to our youth and. Our kids to say, hey, start at 16, even if it's with $10. Start at 20. Start at 22, whatever it is. But Lord knows, don't wait till 45 or 50. Now I know some of you out. There might be 45 or 50. Whatever the age or stage you're at, let's get in the game. Because the sooner we're in the game, the sooner we can get to the acceleration zone. But the problem is, when I talk about this is how are they teaching us to be poor is by not telling us that we need to get in the wealth flatline. But not telling us the importance of getting in the game early and staying. In the game long doesn't tell it to us. They don't talk about it. Next one. We're not taught to make wealth creation a priority. We live in a consumption society. Consume, consume, consume. Lifestyle. Paraded on Instagram and socials and all that stuff. Even if you're financing it on credit cards and debt. Yolo, you only live once. And that's what we're being caught. The problem is what's happening is that we are earning our money through the earnings formula. We're spending our money through a consumption type of society. And then whatever's left over, we decide to invest to get on the wealth flatline. It's not enough and it's too late. Because we didn't make investing the priority. What the wealthy do is they make investing the priority. They earn the money through the earnings formula. They invest it first to get on the wealth flatline. And then, whatever's left over, they build their life. And if they don't have a good life with what they have left over, they go and figure out how to. Make more money so they can have both. And so they know that investing has to be the priority. Because over time, by doing that, you'll build your money machine. And that money machine is going to produce more income than you ever could from your efforts. And when you have the right money machine built, like we talk about in the book, is that when you have that right money machine built, what's going to happen is that the cash flow from that is going to take care of you for the rest of your life. Well, we have to start building it early because it makes it easier. Doesn't mean you can't do it later in life. It's just a little more effort. That's fine, we can do it. I've done it with both. Okay, I've lost it. I've recovered it. I've built the machine. You can do the same. You can do the same. All right, next one goes along with the consumption, society and wealth priority is this idea of the Joneses keeping up with the Joneses comparison, if you will, in the perspective of what we see paraded on the Internet, all of that stuff. There's no reason that just because your neighbor bought a Denali, you have to go get a Denali or a Porsche. Yet what happens is we tend to make buying decisions based on comparison. What did they do? I'm going to do it. What did they do? I'm going to do it. Keeping up with the Joneses will keep you broke. Because you know what? The Joneses are bankrupt. They live on credit cards, they live in debt, they live stressed, they're unhealthy, their stuff is about to be repossessed. So it's really important to sit back and not have that consumption first mentality, the comparison mentality. Here's the more important thing. Too many people are more concerned about looking wealthy than living richly. I want you to live richly. I want you to experience life fully versus creating something from the outside that. Looks wonderful, but on the inside it's stressful as hell. Number seven is the proper use of debt. Okay? When we talk about debt, okay? I am not one of those that says all debt is the devil. Let me be clear. All debt has two characteristics. No matter whether it's credit card debt, mortgage debt, whatever debt it is. If you owe money, there's two things to it. One, it costs. You pay interest on it. And you might say, oh, but I. Got a family loan and it's interest free. Oh, no, there's emotional interest there. Nothing's for free. Two, so the first characteristic is it costs. The second characteristic is it stresses. Stresses you. It stresses your financial situation. Carrying debt, no matter what kind of debt, is a stressor and it costs. Now, what I want to make sure. You do is that we're not taught how to use debt effectively and properly. There is productive debt and there is destructive debt. Destructive debt is used for consumerism. Destructive debt is something that we are using to fund a lifestyle, to buy. Stuff, to accumulate things that, since we. Have to do it on credit card or debt, means that we cannot afford it right now. So we're borrowing from our future to pay for it today. That's destructive debt. To be avoided. To be avoided. Productive debt, however, is debt that allows. You to create more wealth or allows. You to create more cash flow. Done properly, productive debt can be called leverage. Leverage is maybe buying a rental property and using debt on part of the rental property. Done smart. You'll cash flow it. You'll have an asset that grows equity, that builds up and cash flow that comes out. So there is productive debt. That's the proper use of debt. Okay. But we still have to be careful about it because remember, it stresses, if we ever have a situation where we can't pay the debt, even if it's productive debt, it's going to hurt because that's when you get repossessions and problems with banks and all of that stuff. So you just need to have the. Proper use of debt. But we don't talk about, we're not taught that in school. We don't talk about it at the house. So how are we supposed to know this? Okay, number eight, we don't know what taxes are doing. We don't talk about it. I'm just going to hand it to the accountant. Do you know that if you look at statistics, a lot of accountants make mistakes? It's important for you to have a basic understanding of your rights under the tax code. What's deductible, what isn't deductible. Ask the right questions, make sure you're. Getting your fair share. You're not there to overpay your taxes. You're there to pay what is legally. Due based on the tax code. And when you're in a situation where taxes, depending on what state you live. In, can be beyond 50%, it's really valuable to sit back and go, for. Every dollar I can save or deduct, I save $0.50 in taxes. And I have that $0.50 that I can go invest. That's huge. Think about it. If I can take a legal deduction for an additional$10,000, that means I save 5000 in taxes. I put$5,000 away, invest it over. Time and do that year after year, see what happens. So we tend to not look at the tax exposure we're not taught about. We don't talk about it. But if you're going to be properly on this path to financial freedom and this wealth creation journey, it's something we have to think about. It's something we have to be educated on. It's something we have to be aware of. We don't have to be experts, but we certainly to have a little bit. Of an understanding on it. All right. The last one I want you to. Focus on is that what we are. Not focused on is value creation. Here's what we're told. This goes back to the earnings formula. Hey, good work ethic, work hard, get. A good job, you'll get a good salary. They'll keep paying you all right. Here's the challenge. We live truly in a value exchange economy. And since we live in a value exchange economy, what they're paying you for is the value you bring to the company. Or if you're in business, your customers are paying you for the value of the solutions you provide. So again, what we need to do is move away from an earnings formula where we're swapping hours for dollars and rather come to a value formula of what is the value of the solution we bring. And if you are in a job and you want to get paid more, yeah, you can work more hours, but at some point you're going to cap out, or they're going to say, we're. Not paying you overtime, or you find. A way to be much more valuable to the company, which gives them the opportunity to pay you more because you are more valuable to them. You make them more money, you make them more productivity, you make them more profitable, you give them some other things that come from it, and they're willing to pay you a portion of that. And if they're not, you find one. That will appreciate the value you bring. But what we really need to do is start to understand value instead of doing some math equation between hours and dollars. And the wealthy understand this. The wealthy understand that they need to work from the wealth formula versus the earnings formula. The earnings formula is there. They understand the time money loop. They understand that downturns and uncertainty bring risk, but they also bring opportunity. They understand the wealth flatline to get in the game, stay in the game, and stay in it long term. They understand that investing has to be a priority and that they're not going. To compare themselves to the Joneses. And they'll use debt as leverage, the proper way to build more wealth, to create more cash flow and do it that way. And they'll do what they can to minimize their tax exposure so they can keep the most in their pocket while creating additional value in their customers eyes, the company's eyes, and the solutions they bring. If they taught us that rather than teaching us to be poor, they'd be teaching us be wealthy. Well, now you know, and let's get going on. All right. I hope that you found this valuable. I hope you found this. Found this helpful to start to look at a different perspective for your journey to financial freedom, to look at it and say, what could you be doing differently? To take control, to take control of. Your own financial destiny, to realize, as I say, that financial freedom is your birthright. We just got to know how to. Go claim it well, that's why I have this channel. That's why I have these videos. That's why I have my book. I want to help you go claim it. It's your birthright. Let's do it together. Right? Till I see you on another episode, another video, or on the road. As I always say, always, always strive live a life that always you. 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 forward slash group, and I'll see you there.