Hi ric ,
If you thought building wealth was about how much you make then you
would be wrong: it's about how much you keep.
The single biggest expense standing between your earnings and
savings is (drum roll, please)... taxes.
Nothing else comes close.
When you add together federal, state, and local taxes on items like
income and consumption, factor in the pass through of all other
taxes like corporate taxes, import duties, etc., you quickly see
what an extraordinary burden taxes have become regardless of your
income level.
That's why legally controlling this expense is the 5th essential
wealth building principle. You must learn how to keep more of what
you make.
The key point is how your government (in it's infinite "wisdom")
has decided to favor certain financial practices through tax
incentives.
How does this all fit together? Well, remember a few emails back
when I taught you the 3 paths to building wealth - paper assets,
real estate, and business?
At the time I explained how paper assets were a wealth parking
vehicle, but real estate and owning your own business were wealth
building vehicles. This critical distinction surprised a lot of
readers.
While the stats make this claim indisputable, I wanted to give you
two reasons why it is true.
The first reason was contained in the last lesson - leverage. Few
leverage opportunities exist in paper assets (and all carry
significant risk and cost). However, business ownership and real
estate offer maximum leverage opportunities (many without
increasing risk or cost - some even lower costs).
Now you are learning a second reason these two asset classes are
favored wealth building vehicles - tax advantages. Real estate and
business ownership offer tax advantages not available to W2 wage
earners or paper asset investors.
(Yes, I know I'm using United States centric terminology; however,
similar laws and principles apply in most common law countries for
my readers outside the U.S.)
The government has decided to make these two asset classes the most
tax favored wealth building vehicles available.
For example, it is entirely possible to own real estate that
puts cash in your pocket every month while providing valuable tax
deductions that give you a bigger tax refund at the end of the year
as well. You can't do that with earned income from your job or
capital gains from stocks and bonds without going to jail.
Similarly, when you own a business many expenses are paid
partially by the government as legal tax deductions. This can put
more money in your pocket for any given level of income.
Now, it is beyond this brief email instruction to give detailed
analysis of all the deductions available or how they work. There
are too many countries, too many rules, and everyone's situation
is unique. You'll need to learn the details from one of the many
books focused exclusively on this topic or consult with a competent
tax professional.
Instead, what is important for this lesson is to understand how
real estate and owning your own business are two wealth building
vehicles that afford both valuable tax deductions and leverage
opportunities.
The leverage and tax advantages can dramatically affect your rate
of compound growth which will shorten the amount of time it takes
to achieve wealth. In short, these two principles allow you to
create more wealth with fewer resources - both time and money. You
can't apply these two principles to paper assets.
It is why more people build wealth through real estate and business
entrepreneurship than any other vehicles. It is also why paper
assets are generally used to park and preserve wealth built
elsewhere.
Sure, you can still achieve financial security the traditional way
with a W2 job and savings plan invested in paper assets (which we
will cover in detail in the next several lessons). This
strategy works (without leverage or tax advantages) if you have the
time and discipline to make it work.
It is well-proven financial path that is governed by strict
mathematical limitations.
However, many people want to turbo charge their results. They want
financial security in 10-15 years instead of taking a lifetime. If
you're one of those people then there is no getting around the
necessity for leverage and tax advantages.
Your homework from this lesson is to develop a working knowledge of
the various tax strategies that apply to your chosen path to
wealth. Develop this knowledge or find a professional to help you
because it will pay you dividends for a lifetime.
I know it has for me. That is why it's your 5th wealth building
principle.
I hope you've enjoyed these first 5 principles to wealth. Yes,
there are many more essential wealth principles which are fully
explained in the first two steps of the "7 Steps To 7 Figures"
courses. They will teach you exactly what you need to know to put
together your own personal plan for wealth... step-by-step.
In the next series of lessons in this "52 Weeks To Financial
Freedom" series I will continue to share ideas from "7 Steps To 7
Figures" group coaching by explaining exactly how the traditional
"save your way to wealth" path works with investing in paper assets.
This is important material since nearly everyone applies this
strategy - for at least a portion of their wealth - me included.
I hope you are enjoying these lessons. As always, a great way to
give back is to spread the word by telling your friends, tweeting,
linking, and liking this resource. If you get a valuable insight
then tell the world and link back.
Thanks for your support, and I'll see you in few days...
Todd R. Tresidder - Founder
FinancialMentor.com
CreateCorp Business Solutions, Inc.
DBA FinancialMentor.Com
14085 Raider Run Road
Reno, NV 89511, USA
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