The Financial Treadmill
Does it ever seem to you that you are working harder and harder just to stay even, or worse yet, only to be a little farther behind each month? If so, you’re like millions of other people all around the world. The problem is that the way we have been taught to earn money and create wealth doesn’t work any more.
First, we’re taught to: (1) get a good education, get a good job and then work hard. That means that you’re working for someone else. The company pays you a salary and the government gets their cut first, in the form of taxes. You get what’s left over. From that left-over money you need to pay for all of your expenses and if you have anything left over, you’re too busy and too tired to look for an investment. So, you just save the money in a low interest account or a 401(k) plan.
If the business that employs you gets more valuable, it doesn’t help you at all. In fact, it could endanger your job as additional investment funds might mean capital improvements that mean your job is now no longer necessary. If the business gets less valuable, you lose as well. So, there’s no gain with your job and no security.
Your savings account, if you are able to start one, is growing at rate that is less than the rate of inflation. Saving money would actually mean that you are losing money. In fact, in the accounting world we generally refer to CD’s (Certificates of Deposits) as Certificates of Depreciation. It’s a sure-fire way to lose wealth.
No wonder you feel tired and scared.
There is Another Way!
The path for wealth is actually comprised of Seven Proven Steps. You can choose to do one or all of them. The more fully you participate in as many of the steps as possible, the more positive your results will be.
- Create a Business. Make sure it’s in the proper business structure, that you have plans for: (1) A clear exit strategy, (2) How you will fund the business, (3) How you will take money out of it and (4) A strategy to run it in a way that reduces risk for you. Sometimes starting a business is as simple as changing your employment status from an employee to an independent contractor.
- Discover Your Hidden Business Deductions. It can be a major eye-opener when the first-time business owner discovers all the things that are now tax-deductible. These are the things you used to spend money on anyway. The difference is that they are now deductible. Make sure your Seven Proven Steps plan includes a method for discovering and properly documenting these expenses. This is how the business can give you money tax free.
- Pay Your Taxes. No kidding. This is part of the overall Seven Proven Steps process. Use proper planning to pre- pay just enough in taxes at the latest possible time. In this way, you can get 0% loans from the government on your tax money. When you have multiple businesses, you can often select when you want to pay taxes and defer into a far distant time.
- What’s Left Goes Into Real Estate. You might not be able to hit the ideal investment strategy initially of having all leftover business cash go into real estate. But, the more you can put into real estate, without needing to draw anything for personal living expenses, the faster your income will grow. Make sure your real estate investment is done with the proper leverage and through the optimum structures.
- Real Estate Income Comes Out Tax-Free. A good real estate investment will create cash flow for you. If you have made a good deal, you’ll have cash flow. And, if you have a good tax plan, you’ll pay ZERO TAXES on that cash flow.
- Buy a House the Right Way. You need a place to live and face it, that’s not an asset that will put money in your pocket. In fact, your home quite likely will be one of the biggest expenses you’ll have. Look for good deals in neighborhoods that are appreciating and make the best deal possible on financing. Make sure you have a contingency plan in case the value drops and your other income goes down. And above all, use the homestead laws and/or a business structure to protect your investment
- Make Your House Give You Money. The biggest gift that Congress has ever given us is available ONLY for homeowners. The one requirement is that you have to move. You can also take the money out, tax free, from your home to invest in other businesses or real estate properties. It’s a gift – take advantage of all that the IRS allows.
The Results?
You now have three potential places for your wealth to increase – your home, your real estate and your business. Instead of you working for your money, you have your money working for you in multiple places. You are no longer at the whim of an employer or a 401(k) plan for your financial freedom. You control it with a plan that grows money at a minimum tax rate.
One of my clients had a job making $50,000 per year. He left that job to start his own consulting practice. In his first year, he made exactly $50,000 as an independent contractor. And, yet, he had $10,000 more disposable income. That came from taking advantage of steps 1 – 3. The next part of his strategy is to put steps 4 -7 in place.
For each of the Seven Proven Steps there are multiple strategies. In the next seven issues of Healthy Wealthy nWise, we’ll cover each one of these steps in more detail with tax-advantaged plans that you can use!
About the Author
Diane Kennedy is a CPA/Tax Strategist and the author of the best-selling book Loopholes of the Rich: How the Rich Legally Make More Money and Pay Less Tax and co-author of the best-selling book
Real Estate Loopholes: Secrets of Successful Real Estate Investing. For more information on how to legally use the tax loopholes and make the IRS your partner, contact Diane’s CPA firm, DKA, at 888-592-4769 or www.dkacpa.com. Tax law is constantly changing! Keep up to date for free by signing up for a free e-newsletter at www.taxloopholes.com
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