Face it, we probably all have times when we’re guilty of “lazy thinking.” We just kind of “go with the flow” and let others do our thinking for us.
For many people, lazy thinking involves following the “Door #1” plan for wealth-building.
Get a good education
Get a Job
Fortunately, nowadays more people are waking up to the possibilities of Door #2.
Instead of “Get a Good Education” it’s “Get the Right Education.”
Instead of “Get a Job” it’s “Create Jobs”
Instead of “Save” it’s “Invest”
Instead of “Retire” it’s “Create a Legacy”
In our new book “The Maui Millionaires for Business” my co-author David Finkel and I discuss the Door #1 & Door #2 differences and how you can use a business to create the future you’ve only dreamed of for you, your family and your community.
It all starts with “Get the Right Education.” And, that’s the interesting part – I’m starting to see a pendulum swing in the other way from people who hear how the old plan doesn’t work. The problem is their commitment to “education” stops with learning a few buzz words.
Here’s an example of just some of the things that I’ve heard people say this past week:
401(k)’s are bad. FACT: A 401(k) is simply a tax deferred pension plan. Used correctly, as with a Solo 401(k) plan that allows you to select how much goes in tax deferral accounts and how much goes in a tax free Roth account, you can eliminate most of the taxes from your investments. Plus, the Solo 401(k) plan and Solo Roth 401(k) plan can be self-directed for start-up businesses or real estate investments, are not subject to UBTI tax AND can be set-up by anyone, regardless of their income level. A 401(k) where you don’t control (either because you aren’t allowed to or because you aren’t paying attention) is the same as no investment at all.
C Corporations are the best business structure. FACT: A C Corporation can be a great tool for small business owners when they have a lot of medical expenses (C Corporation Medical Expense Reimbursement plan) or higher business income (using double tired tax brackets.) Otherwise, the C Corporation is probably more trouble than it’s worth.
Compound interest is so middle-class. FACT: This is probably the most puzzling one yet. Compound interest simply leverages what you are doing. You can have compound debt (bad debt used to buy depreciating “assets” that compounds are it mounts) or you can have compound leverage that increases the amount of money you earn. It’s a great way to accelerate your wealth plans. I know I’ve made the mistake in the past of paying too much attention to earned income (money I make by a job or self-employment) and not paying attention to what I was doing with the money I made. Make the money, build the assets…and make sure your assets are making money for you as well.
Capital Gains income is better than ordinary income. FACT: Capital gains income means that you have sold an asset. If that’s the asset that was creating the income, you’ve just killed the golden goose to put in the stewing pot. No more golden eggs for you! Plus, if the plan is to take advantage of the lower capital gains tax rate – WRONG! Alternative Minimum Tax (AMT) completely takes away the lower capital gains tax rate. Under AMT, the benefits of lower tax rates go away, as everything is taxed at the same rate.
Real Estate is good. Real estate is bad. FACT: Real estate investing is a skill. Real estate is a product. Too many people bought wrong and are now experiencing downturns. And at the same time, some markets are really kickin’ it. And guarnteed, there are people making a lot of money in the downturn market and people losing money in the up market. It’s the investor that makes the money, not the real estate.
Good financial education is the first step toward Plan B – the true path for financial freedom.