The following was written by my tax advisor Tom Wheelwright. Tom is a CPA here in Tempe, AZ, but he is known around the world from his books. Tom has written a lot about the tax codes and has a keen understanding of why the tax code is set up the way it is, not only in America but in most every developed nation in the world.
There is a HUGE difference between being rich and being wealthy. There are many famous athletes and musicians, etc that make it RICH off of their talent. Talent can make you rich, but it takes a financial education to make someone WEALTHY. Wealth means not only do you have a lot of money, but you can continue to make more money when you need, and you have your assets protected. You can be rich from free parking(capital gains), OR.. you can be wealthy from cash flow!!!
I once heard it put this way, your wealth is the equivalent to the amount of time you could go without working and sustain the quality of life that you desire.
Written by: Tom Wheelwright
Do you know people who make lots of money but never seem to have any money? Or maybe they have luxurious homes and expensive cars, but they still have to go to work every day to make ends meet?
Those with lots of money may be rich, but they are not necessarily wealthy. In fact, many people who have high income, often have very low wealth.
This is because making lots of money has nothing to do with how much wealth a person has.
I was talking with a new client recently who runs a very successful business. He makes hundreds of thousands of dollars each year, but has more liabilities than he has assets. Plus, he has to be “in” his business in order for his business to sustain its success.
While he is well-educated, his education never taught him how to turn the money from his business into permanent wealth. If he stops working, so does his business.
This client is rich, but he is not wealthy.
This is not a criticism of this client. It is usually what we are taught (or rather what we are not taught). Most people do not receive any education on how to be wealthy.
Rich Versus Wealthy
Being rich is different than being wealthy. The difference is very simple:
Rich people only have money and how long they have the money is unpredictable.
Wealthy people know how to make money and have sustainable wealth.
In other words, a wealthy person will always be wealthy, whereas someone who is merely rich will only be so for a short period of time until the money is gone.
Once you know how to make money, you can build sustainable wealth. The money never stops coming. If you have a reversal of fortune, it’s not a big deal. You just make it back.
You Can’t Simply Hand It Over and Forget About It
Most people are taught to turn their finances over to a financial advisor, and that taxes are too difficult so they need to hand them over to a tax advisor.
The problem with this is that many people think this is the end-all solution and once it is handed over, they can forget about it.
The idea of handing over your taxes and finances to someone else can be tempting. But the reality is, the likelihood of getting the results you want is very slim when you hand over your taxes or your finances.
Even the best advisors cannot provide the best results if their clients are not involved in the process.
One key piece of knowledge the wealthy have is that they understand how their daily decisions and actions impact their wealth and taxes. While they have a team who handles their wealth and taxes, they understand that they have a key role and they know when they need to get their team involved.
Here are a few examples of when your team needs to be involved:
– Before setting up a new entity
– Before any major purchase (real estate, equipment, vehicles)
– Before selling an investment
– Before taking on a new partner
– Before starting a new business
These are just a few examples, but they all start with BEFORE.
The new client I was talking with came to me AFTER a major purchase. While we were able to do great things with his wealth and tax strategy, we could have done even better if we were involved before.
I’m not suggesting that you have to do all the work or become an expert. There are experts that you should have on your team, who can do the work for you, but you have to have the knowledge to know when to get your advisors involved and the knowledge to understand how your actions impact your taxes and your finances.
Focus on your wealth!
Founder & CEO