“It’s okay to be a superstar – to be the man in L.A., but sooner or later you need to start owning things.”
– Magic Johnson to Shaquille O’Neal
Here’s a simple truth: We live in an ownership society, but the key to financial success is understanding what to own. While Madison Ave would have us believe that late model automobiles, designer labels, and the newest electronic devices define success, those in the know understand that financial success is measured not by the toys we own, but by the assets we possess.
Assets are those things that increase in value and/or produce additional income. Owning assets is the cornerstone of financial success. You can do this by:
Purchasing your own home
Purchasing rental property
Owning a piece of the debt of a business, city, or state (bonds).
Owning pieces of other businesses (stocks, mutual funds).
Starting your own business
More than half of those in Congress are millionaires, and they know all too well the financial advantages of asset ownership. In fact, they’ve skewed the US tax code to favor asset owners.
Consider that those who own their homes receive generous mortgage tax deductions unavailable to those who rent.
The tax on long term capital gains (profit you make on selling a stock after owning it for more than a year) is far less than the income tax most people pay working a 9 to 5 job.
Those who own their own business enjoy tax deductions unavailable to the rest of us. These business owners can even set up their own retirement accounts, allowing them to shield a significant amount of their profits from the tax man.
Likewise, owners of rental property can take advantage of a myriad of tax benefits, from deductions for property taxes to deductions for property management fees.
The game is clearly rigged for owners.
So how do you go about finding the money to become an asset owner? The answer is to spend less than you earn and use the difference to purchase wealth creating assets.
The problem is that our financial habits prevent us from saving the money we need to start our own business, invest in stocks, or save for a down payment for our own home. But, these few tips might help you find the money to become a participant in the owner society.
Stop throwing money out the window
Experts predict most Americans easily squander 10% to 15% of their salary. Maybe your money drain is a gym membership you never use, 165 channels of television you never watch, or excessive bank fees. Cut the financial fat to keep more of your money.
Remember the golden rule of debt; if you can’t afford to pay cash for something, you can’t afford it. Easy credit is seldom easy.
Spend on only what truly makes you happy
We live in a world that tells us we can have it all, all the time. Perhaps that’s the sad reason most of us are living paycheck to paycheck.
But if we’re truthful with ourselves, we’ll realize that we don’t need it all. In fact, a lot of the stuff we buy brings us only fleeting enjoyment. Instead of listening to advertisers tell us what we should desire, perhaps we should take the time to find out what truly brings us satisfaction.
Spend money on what makes you happy, and cut back feverishly on those things that add little value. This simple habit will leave you with more money to invest in wealth building assets.
Avoid debt if at all possible
When we take on debt, the power of compound interest starts working against us. The thousands of dollars we pay in interest over a lifetime could be better spent accumulating assets. Remember the golden rule of debt; if you can’t afford to pay cash for something, you can’t afford it. Easy credit is seldom easy.
Those who are financially successful understand the power of ownership, whether it’s owning their own business, stocks, or rental property. By concentrating on spending less than you earn, you too can find the money to become an owner of wealth building assets.
BMWK, Do you own property, stock or a business?