WEALTH & WISDOM SERIES
How many opportunities have passed you by because you weren’t aware of them? What you know and the way you think TODAY can impact your financial future more than anything. Many times, the average American is willing to rely more on risk and chance than knowledge when it comes to their money. What is curious is how rich families seem to continually remain rich generationally, even though the investment choices, stocks, brokerage accounts, real estate, etc., are the same for everyone, whether rich or poor.
Now, I know I made that sound somewhat simplistic, but think about it for a second. Everyone will wake up tomorrow with the same opportunity to invest in the same stocks or funds and get the same rate of return – whether they are rich, middle class, or poor. So, there is no real advantage in the types of investments, only the opportunity for the rich to invest more. If picking the right investments was the only difference between the rich and the poor, then the poor would only have to mimic the investment decisions of the rich.
The Difference between THE rich and the poor
So, what is the difference between the rich and the poor? What do these rich families do that other families don’t do? It’s the thought process. For the rich, the center of their financial life is their family and/or business. These center points of their lives are things they own and control. When it comes to their thinking, the rich have three basic rules when it comes to finances.
Rule one: Use the least amount of money to create the most amount of wealth.
Rule two: Guarantee the wealth may occur and a legacy should transfer tax-free.
Rule three: Create multiples of wealth immediately.
These three rules of the rich are quite different than the average American’s approach to his typical 401K. Traditional thinking would have you invest in the stock market, real estate, qualified plans, and bank savings vehicles. None of these traditional investments meet the three rules of the rich. The traditional thinking that the average American is exposed to also contains some wealth transfers. Possible market losses, account and management fees, income taxes, capital gains taxes, maintenance costs, and possible estate tax implications all reduce your wealth. As years go by, these transfers accumulate to a large sum of money. Now just think, if you could keep these transfers of your wealth and earn five or six percent on that money, it would dramatically compound your wealth.
Although most Americans may prosper and have a good life financially, it could pale in comparison had they had the knowledge to apply the rules of the rich to their lives. The center point of most traditional thinking is focused on home ownership and the 401K thought process. Don’t get me wrong, I believe owning a home and saving for retirement are really good things, but it is not the only financial thought process you should have. Remember, you need to be aware of the transfers that are associated with home ownership and retirement plans.
So, while most Americans aspire to be rich, the only thing stopping them from being rich is knowing the thought process and refocusing the center points of their financial lives. Rich people think like rich people; poor people think like poor people. If you knew something was going to be given to you in the future, would you want it to grow in value, or would you let it sit there and lose its value? If you could do something to increase the value of what was going to be given to you with a small investment on your part, would you do it? If you could “make” the value grow two, three, or four times what it is worth today and use the least amount of your money, would you do it?
While you’re at it, if you could make it tax-free when it came to you, would you want that to happen? If you could insure and guarantee all of this to happen, would you do it? If you could do all of this without spending any more money than you’re already spending today, would you do it? This is what the rich do. Does this sound like a 401K? An IRA? An investment portfolio? A bank savings account?
If you are really rich, a real concern would be the amount of taxation the government would seize from everything you owned and worked for your entire life should you die. Understanding the government’s need for revenue and how “taxing the rich” seems to please those running for public office, it seems that some form of estate tax may be there in the future. Depending on when you are reading this, the estate tax law could have already changed.
RICH FAMILY FAIRY TALE
To explain how the rich avoid this estate taxation, I must describe it in the form of a “fairy tale.” The lesson here is not whether the numbers are correct or not but rather the thought process that is used. Once upon a time, there were some rich folks. This family consisted of a father, mother, and a couple of kids. The father and mother had great careers, and over a period of time they accumulated a large net worth. Ten million bucks! They knew that if they were to die, they would owe the king about four million dollars in taxes.
One day the king proclaimed to the rich family that if they gifted all their worldly goods to charities within the kingdom when they died, he would grant them a charitable foundation. The king would also grant them tax credit now, while they were alive, for doing this. With these tax credits, the father and mother would insure their lives for ten million bucks when they died. Their kids would be the beneficiaries of ten million dollars tax-free.
By doing this, the rich family preserved all of the family wealth, and passed it on to the next generation tax-free. They all lived happily ever after. The End. The rich understand the wealth transfers that they face in their lives and work hard to avoid them. Avoiding wealth transfers that they face in the future allows them to spend more of their money today. You may not have many things in common with rich people, but what you do have in common is the ability to view your family as a very valuable tool. Now go back and read the little fairy tale again and look for one thing you could do to invest back into your family.
The rich know the value of financial tools. They realize that their family is one of the most valuable financial tools that they have. To underestimate the wealth potential of the family in the future is a grave miscalculation. To the average American, understanding that the family is a financial tool isn’t even a consideration in their thought process.
This is the difference between the rich and the poor. Unfortunately, without knowledge, this may never change. If saving money in your life is a problem, concentrate on the wealth transfers in your life to solve the problem. If creating multiples of wealth in your future is desirable, focus on your family, all of your family, as a financial tool. If you believe as I do, that the taxes in your future will eliminate much of your future income, your family as a financial tool could solve the problem. This is not about a will or a trust, although those are important. This is about increasing family value and learning how it can change your life.
To discover how to view your family as a financial tool and how this could impact and change your life, seek out a trusted advisor or educator who can discuss all of the opportunities available. The goal is to develop a thought process that will aid you in making better life decisions. Creating Real Life Value For many of us, we have been trained or brainwashed into thinking that the only solution to our financial success is purchasing and owning the right financial products. But, the real answer to controlling wealth is knowledge and the thought process. If all the products one can purchase are the same for the rich and for the poor, then the product is not the difference between the rich or middle class.
The difference must be the thought process and knowing how money works. The reality is that the average American does not pay enough attention to his financial life simply because he doesn’t know how to. He fixes his financial life by switching products and hoping for better results.
Remember this Defining Moment
You can’t do the same things over and over and expect different results. Many people have thoughts but don’t know how to think. They believe that changing their financial thought process would be a monumental chore. Understanding the defining moments should allow you to take small steps now to create large rewards later while learning a process that can impact your everyday thinking.
People need to understand that there is a difference between simply living your life and building a life. To improve your life, start asking yourself these questions: What did I learn today? What did I improve today? What did I accomplish today?
First, to be successful financially, you must have a philosophy that could strengthen your financial position. Second, have a strategy that you understand and control, and finally, learn your financial solutions might be right in front of you. There will always be different levels of rich, middle class, and poor people. It is possible that the actions we take today will improve or decrease our financial value in the future.
What is more important; knowing how money works or having a balanced portfolio? It is equally important to understand the financial tools that are available to you in your financial world and everyday life. These are the things that you may never have thought of before.
But, how can you be aware of opportunities that you didn’t even know existed? Rich people think like rich people. The rules of the rich are based on common sense and logic. The rest of the people think differently, but that can change, and everyone can adapt to the thought process of the rich. It is time to reach out beyond the walls of traditional thinking.