Taxes are most people’s biggest expense. Therefore reducing that amount means more money immediately available to invest. “The tax law is a series of stimulus packages for real estate investors and business owners.“-
I look at taxes very differently. I look at taxes as a way to increase cash flow. The tax law provides tons of opportunity to reduce your taxes. When you reduce your taxes, you increase your cash flow (often immediately) which can be used to increase your wealth.
Reducing your taxes goes hand-in-hand with your wealth strategy. For most people, taxes are their single biggest expense. This means that reducing their taxes results in instantly increasing the amount they have available to invest.
The government wants to provide jobs and housing. To encourage others to do this for them, the government provides tremendous tax benefits to those who provide jobs (business owners) and those who provide housing (real estate investors).
This is a powerful formula and one that can be used over and over and over again because many of the tax benefits for entrepreneurs and real estate investors produce annual tax savings.
Then, as your wealth grows, so do the opportunities for tax savings, which means not only does the cycle continue every year, it grows every year as well so your tax savings are more, your increase in cash flow is more and your wealth increases even more.
Do you see why I am so passionate about taxes? Taxes are a tremendous tool to build your wealth.
“I think it’s because many people think that their wealth vision is simply to have lots and lots of money, so defining it is a waste of time.”
I hear many reasons why someone doesn’t have a wealth strategy:
– They don’t really know what a wealth strategy is.
– They don’t know how to get started.
– They think they need to wait to get started because they don’t have any money.
– They think they need to get out of debt before starting their wealth strategy.
A wealth strategy is a plan of action intended to achieve specific wealth goals.
The fact is, everyone needs a wealth strategy, regardless of goals, age, wealth, income or debt.
Your wealth vision is your picture of your ultimate lifestyle. Where do you live? How do you spend your time? What are the possibilities?
Now, we can all close our eyes for a few seconds and imagine the lifestyle of our dreams. But to truly define your wealth vision means being very detailed and specific.
For example, in just a few seconds time, we may imagine our ultimate lifestyle to include traveling. In those few seconds, we may imagine the excitement that goes with traveling, and a snapshot of a place we’d like to go, but the details probably aren’t more specific than that.
This is much different than someone who takes the time to specifically define how they see traveling in their wealth vision. For example,
– How often will they travel?
– Who will they travel with?
– Where will they travel to?
– How long will each trip be?
– Will they fly coach or first class?
– Will they stay at a hotel, rent a home or buy a home?
– What activities will do they do when they travel?
The more detailed and specific the wealth vision, the more likely it is to be reached.
I think it’s because many people think that their wealth vision is simply to have lots and lots of money, so defining it is a waste of time.
Plus, they are eager to move on to the next step. But, this first step is critical because you can’t get to where you’re going if you don’t know where it is you’re headed.
Once your wealth vision is defined, key pieces of your wealth strategy can come together.
For example, when you know your wealth vision, you can determine your target cash flow and your target net worth. These targets can be used to develop investment criteria so your investments work toward your wealth vision and not against it.
My answer (of course) is it depends. It depends on your specific facts and circumstances.
Today, I’ll share some of the key factors to consider to help make this decision.
– When can you take distributions from your retirement plan without penalty?
– What is your expected return on investment inside of your retirement plan?
– What is your expected return on investment outside of your retirement plan?
– What will you do with the investment long term?
It’s important to not only understand the tax implication of using debt in your retirement plan, but also to understand how it can impact your investing. Many lenders are not willing to make a loan to a retirement plan without a personal guarantee. However, a personal guarantee, as noted above, could trigger tax. Lenders who are willing to lend to a retirement plan without a guarantee are usually not willing to lend as much as they would if there were a guarantee and the rate is usually higher.
It is extremely important to understand your leverage options inside and outside of your retirement plan before moving forward with your investment.
Another example is investments that create losses for tax purposes. Some investments, like rental real estate or oil and gas, often create losses for tax purposes even though they generate positive cash flow. Losses inside a retirement plan are typically lost because the retirement plan usually doesn’t have any tax for the losses to offset.