Article Summary:What are the four main steps in building wealth?
The four main steps in building a wealth cycle foundation are:
- Pay yourself first
- Understand the legal entities available to you and the tax implications of each
- Determine whether to be an active or passive investor and using the appropriate strategies
- Develop and commit to your money rules
PAYING YOURSELF FIRST
Paying yourself first is a money rule. Can you imagine how much you would be worth if, from an early age, you had been conditioned to pay yourself first by depositing a portion of your earnings in a wealth account? Even if you only put in $1 per week, today you would probably be sitting pretty.
LEGAL ENTITIES / TAX IMPLICATIONS
In the United States, a number of legal structures, vehicles or entities may be used to hold and protect your wealth. These structures are separate and distinct from the taxpayers who form and/or own them. When you create any of these entities, it is assigned its own Employee Identification Number (EIN) number, which is separate from your social security number. Your legal entities are also taxed separately from you personally. The legal protections and responsibilities differ for each of these vehicles, as do the tax implications. How you structure your investments, what legal entities you use, can have enormous tax and legal consequences. Legal business entities are advantageous because they can:
- Protect your personal assets
- Protect you from being held personally liable for legal obligations
- Keep your finance and financial dealings private and
- Maximize your tax savings.
If you're operating a business and you want that business to be treated as your asset and/or you're continuing to grow that asset, the legal entity you select can:
- Protect the entity (i.e., your business)
- Protect your assets (i.e., your home and intellectual property such as trademarks, copyrights, patents and trade secrets).
The goal of asset protection is to minimize your risks and to help grow and maintain your asset base. The right legal entity will provide you with those benefits. Under our U.S. tax laws, different structures exist for employees and corporations. Employees are taxed on the amounts they earn. Usually, taxes are withheld from employees' paychecks. Under the corporate tax structure, corporations deduct appropriate business deductions and pay taxes on whatever is left. Discuss with a tax professional to determine what deductions you may be entitled to.
ACTIVE OR PASSIVE INVESTING
Before you decide on the investment strategies you plan to follow, determine whether you want to be an active or passive investor. Active investors get directly involved in the investment. They may become general partners or take a role in the management of a business or particular venture. In contrast, a passive investor essentially only puts up money, sits back, lets others do the work and waits for profits to roll in.
YOUR MONEY RULES
We all have money rules, everyone of us! They dictate how we use credit cards, balance our checkbooks, pay off our lifestyle debt or pay ourselves first. They determine how we handle money, think about wealth and run our finances. Most of us didn't set our own money, we simply inherited or adopted them from others. Usually we integrated them without questioning because they came to us from people we loved and respected and because talking about money was taboo. If the concept of money rules is new to you, you may not have the requisite knowledge to make some of your rules non-negotiable at this time. However, you soon will if you continue to educate yourself on each of the investment strategies you're considering. If you stay focused on your goals and are flexible, your money rules will clearly evolve.
Loral Langemeier, founder of Live Out Loud, is known as the millionaire maker. A team made multi-millionaire by age 35 she actively invests in business, the market, multiple real estate ventures and more. Through her diverse experience, she developed the concept of a Financial Wealth Cycle which is the core of her coaching programs. President of several companies, Loral is a nationally known speaker, coach and author of the book, Guerrilla Wealth, part of the best selling Jay Conrad Levinson Guerrilla Marketing series. For more information, visit www.liveoutloud.com