You Can Do Exactly What I Do…
Most parents want their kids to go to school, get good grades, and find a safe, secure job. In reality, that is some of the worst advice we can give our kids. Why? The answer is found in taxes and debt.
My rich dad taught me when it comes to taxes, the rich make the rules. He also said, “If you want to be rich, you need to play by the rules of the rich.” The rules of money are skewed in favor of the rich, and against the working and middle classes. After all, someone has to pay taxes!
In 2007, Warren Buffett was interviewed by and said “The taxation system has tilted toward the rich and away from the middle-class, and I think it should be addressed.” He’s gone public with the fact that he pays a lower tax rate than his secretary.
Sounds to me like Warren Buffett’s secretary needs to start playing by the same rules he does.
Understanding the CASHFLOW® Quadrant is important. It depicts the different ways money is generated and taxed.
The primary distinction of people who earn their money from the I quadrant is that they focus on having their money make money. If they’re good at it, they can have that money work for them and for their family for hundreds of years.
Besides the obvious advantages of knowing how to make money with money and not having to get up and go to work, there are also many tax advantages that aren’t available to people who have to work for their money.
One of the reasons the rich get richer is because they can make millions and pay, legally, little or no tax on that money. That’s because they make money in the asset column, not in the income column. They make money as investors, not workers.
Moreover, people who work for money are often taxed at higher rates than investors, and their taxes are withheld from their wages. They never even see that portion of their income.
One of the many reasons I chose to work predominantly in the B and I quadrants is because of tax advantages. For most people working on the left side of the quadrant, there are few legal tax breaks available. Yet legal tax breaks abound on the right side of the quadrant. By working to generate income in the B and I quadrants, I could acquire money faster and keep that money working for me longer without losing large chunks of it to the government in the form of taxes.
When people ask why Kim and I were homeless, I tell them it was because of what my rich dad taught me about money. For me, money is important, yet I didn’t want to spend my life working for it. That is why I didn’t want a job. If we were going to be responsible citizens, Kim and I wanted to have our money work for us, rather than spend our lives physically working for money.
Next Depression Will Be Great For Entrepreneurs
The reality is that the IRS tax code is written to encourage and reward certain types of behaviors. At a high level, the IRS wants people doing activities that spur growth and that provide jobs. Thus, they have many tax breaks for entrepreneurs and investors. On the other hand, the IRS has little value for people who make a lot of money but don’t create anything for the economy in terms of growth or jobs.
The ultra-rich are those whose wealth is often built on starting a company or investing professionally. These activities are rewarded by the IRS and so they have many more tax breaks than even those making hundreds of thousands of dollars a year. The ultra-rich know how to limit their earned income and instead make most of their money via passive income vehicles like their companies and investments. Thus, they pay a substantially lower tax percentage than high-income earners.
The biggest difference between the “rich”, that is high-income employees, and the ultra-rich is the mindset. And the good news is that you can start thinking like the ultra-rich when it comes to taxes and money, and your wealth will grow.
First, stop looking for a high-paying job and start thinking about how you can create them instead. The IRS will reward you if you take entrepreneurial risks.
Second, invest your earned income into assets that produce passive income via cash flow every month. The IRS will also reward you for that. By this, I do not mean your 401(k), which is taxed at an earned income level. You have to find true assets like rental properties, businesses, and commodities that are taxed at the passive income level.
You do not have to start big. Just do what you can and continue to build into larger and larger opportunities. The most important thing is to think like the ultra-rich, not like an employee.
Change Your Teachers, Change Your Future
My rich dad said, “Choose your teachers wisely” but when we are in school, we have very little control over what we learn and who our teachers are.
One of the problems with traditional education is the absence of real-world experience. Most kids leave school with technical answers to problems but lack the skills needed to put their technical knowledge to good use. This means their most important instructors are the teachers or mentors they meet once they graduate.
One tragedy of this financial crisis is that many college graduates are leaving school but not finding jobs. It is this real-world experience that is crucial to a person’s lifelong learning and development and defines who they ultimately become in life.
One reason why so many students leave school and are unable to find a job is that they have been trained to be an employee. They lack the real-life skills to become an entrepreneur. To make matters worse, many students leave school deeply in debt. Without a job, they cannot pay off their school loans. f the student cannot find a job, the interest on their school loan accrues unpaid interest. In a few years, the debt explodes due to compounding interest, and the student is trapped for life.
As you know, the world of money is changing. Fast. Even if the world economy is slowing, the world of money is speeding up. Bucky Fuller predicted that humanity would be entering the age of “accelerating acceleration.” Unfortunately, due to an obsolete education system, millions of people are struggling ﬁnancially and falling further and further behind.
If you want to change your future, you have to change your teachers.
Editor, Rich Dad Poor Dad Daily