5 Habits of Self-Made Millionaires

1. Snowball Your Money

People who end up very, very rich, think of money as material.  It’s not, first and foremost, the gateway to wacky hijinks or to excess.  Instead it’s a tool for building more money.  Millionaires look for the kind of money that allows them to safely do what they want , sums large enough to pass on to the kids, to amount to power and independence.  It’s not about getting just enough money to buy some fun and fine things.
Therefore, millionaires begin putting money away as soon as they can, a bit more aggressively than others, investing in funds more than just opening savings accounts, engaging in more and more risk as the snowball effect kicks in.

2. Ride The Wave of Uncertainty

Steve Siebold, author of How Rich People Think,” says, “Physical, psychological, and emotional comfort is the primary goal of the middle class mindset,” In other words, people with middling incomes who stay that way have comfort and safety as prime goals—they’re not achieving great riches because they are afraid to try, feeling it would be a shame to lose a decent position in life due to a failed business or a bad investement.
The goal of those who become ultra-rich is to do so.  They aren’t attempting to be sure not to suffer in any way, not to have to ride out waves.  Self-made millionaires don’t get there just because they think it’d be fun; rather, they earn it by dealing with great uncertainty.  Yes, they sometimes fail, but they know how to pick themselves up afterward, rather than feeling only the need to regain some certainty.

3. Choose Not to Choose

We’re taught about yin and yang and about making priorities.  If you want to become very rich, you’ll have to sacrifice time with your family.  Or perhaps it’s idealism or part of your soul or peace and quiet, or time for church.  To some extent, this relates to the desire for comfort—the average person wants to be able to comfortably find balance.
Those who go on to be millionaires find a way to accomplish that which others would find impossible—it may involve rushing around, deftly juggling schedules, paying people to do certain tasks, but they do the things other people don’t have the stomach for.

4. Money Isn’t For Money’s Sake

Any good card player will advise to think of the chips as chips not as real money.  Even if you’re at a buddy’s house with actual money on the table, think of what you’re betting as a game piece—if you think of actual cash value, you’ll get too conservative, which can mean making the wrong moves.
Similarly, while self-made millionaires do wish to be very rich, they’re not thinking of the money itself.  As I mentioned above, they think of money as a tool—for freedom, choices, not having to be beholden to others.  For many ultra-rich, money isn’t for many small things like shoes and mp3 players, but fewer big things like voyages around the world, homes, and perhaps that pro sports team they’ve always wanted.

5. Hang Out With Millionaires

Being around other millionaires, of course, encourages networking and opportunities.  But it also gives one the chance to see for themselves the habits I’ve been describing.  It will give one a chance to emulate people in a way that will lead to success.

Source: http://frugalentrepreneur.com/2014/09/5-habits-of-self-made-millionaires

5 things you MUST do to start your own business

Trying to start your own business can be exciting, but it’s also really scary. It’s a whole bunch of mixed emotions and sometimes those emotions can be so overwhelming that you never even start!

We have dreams when we’re young and as we get older, those dreams change. We start out wanting to take on the world.

Singers, actors, astronauts and doctors, soon become public servants, office workers and tradesman.

While there’s certainly nobility in ANY workplace, the question remains, when did our dreams change?

For some, the dreams is simply to start your own business, but at some point in time, you deviate from this plan.Maybe it was the risk involved, or your circumstances changed. Or maybe you’re thinking about starting a business but haven’t really pushed yourself over the edge yet?

Well starting a business isn’t hard and doesn’t have to be any more complicated than you make it out to be.

Here’s 5  simple things that might give you enough push to start your own business.

1. Follow your dreams

If there’s one thing that’s guaranteed for an entrepreneur, it’s failure. But with failure, comes strength and knowledge.

It takes failure to reach success, because of the many lessons you’ll learn along the way, but unfortunately we’re not built to accept failure easily.

It’s not easy to get back on the horse after you’ve fallen off. In fact it’s very tough! Entrepreneurial spirit is strongest now than it ever has been, but many dreams are never realised because we aren’t confident of our own abilities.

Trying to start your own business can be overwhelming but there’s always someone who can talk you through the obstacles and challenges you might face.

- Friends

- Family

- Networking events

- Mentors

The obvious key to starting a business is to simply start. And if you don’t know where to begin, then look to the resources around you. If you can’t be resourcesful, how do you expect to succeed?

2. Be savvy and minimise costs

With technology advancing faster than it ever has before a lot of savvy small business owners are starting to look at low cost solutions to starting a business. Choosing to rent everything in the office from the reception (Outsourcing to another country or to a virtual office) is a great way to save on expensive overheads when you’re starting out.

It means you can stay up to date with technology without the high upfront costs associated with it. It also allows you better control of cashflow, which is the number one reason most businesses will fail in the first 12 months.

Think about ways to minimise costs, but dont cut costs. There’s a big difference.

- Try the Phillipines for a good quality, low cost, Virtual assistant. You can expect to pay between $5 – $7 per hour for a reliable outsourced worker and if you research the market, you can find one perfectly versed in english, with graphic design and IT skills to complement the service.

- Cross capitalize with another small business start up. Split office space with a non-competing start up business. Advertise in the local paper or online. You’ll not only limit your overheads, but also share a space with someone as motivated as you are

- Create strategic partnerships. Does your business, product or service offer something valuable? Trade that service with someone offering a product or service that YOU need. Bartering is a great way to minimise spend and save money for cash flow purposes. Cash is king

- Rent out un-used space. If you have space in your office, rent it out part time. Make the most out of any opportunity to increase your capital. Work smarter, not harder.

3. Get a good work-life balance

Starting a business takes a lot of work and it won’t stop once you’re up and running. If anything, it will get harder before it gets easier.

But this isn’t a reason to quit or to never even start at all!

It’s important for you to be happy, and if you spend all your time in the office, it’s very unlikely you will be. Even if you’re just starting out.

We’re in a position now where we can capitalise on tools to access our computers and work stations for anywhere we want. Invest in good, low cost internet solution and spend one day a week working from your favourite park.

Or take a spontaneous trip. Taking a break over the weekend doesn’t mean you have to completely forget about work – Keep you smart phone close and your laptop closer.

4. Think about your strategy online AND offline

Most small business owners are guilty of letting the ball drop online. They fail to realise the potential that’s out there for online businesses.

Social media allows you to compete alot more evenly with bigger corporations and businesses because you can reach your consumers directly. Sure it might take you a lot longer to develop such a large userbase, but that’s the only advantage they have.

You might spend hours obsessing about the layout of your store, but what about your online presence?

How are you going to build an audience, convert customers and keep engaging with these customers in the digital space? A good starting point to help you think about this are the online insights tools that you can find for free on the internet.

Whether your business is online OR offline, the most valuable thing to you are customers. Before you even think about beginning, you need to think about HOW you’re going to get customers and secondly, HOW you’ll be converting them.

5. Don’t give up

Not everyone will have as much faith in your business as you will.

There’s an old saying that says “Don’t listen to what anyone has to say about how silly your business idea is. Because right now, there’s some millionaire walking around who invented the pool noodle”.

And how true is this??

While it’s always important to heed the advice of others, (your critics can actually be the most helpful) if you think it’s a brilliant idea then you can make it work. What ever the mind can believe and concieve, it can achieve.

Success is about the journey, NOT the destination, and their are plenty of other routes available for you to take. If you find one road’s closed, then simply take another.

Success is about learning and consistently improving and growing. You’ll definitely get setbacks, but prepare yourself for them.

Source: http://thesuccesssoup.com/startups/start-your-own-business

Why does Warren Buffett avoid technology stocks?

• Warren Buffett prefers to invest in companies which operate in fairly stable and certain environments. Technology sector is the last place to look for certainty.
• He values certainty of returns more than the potentially huge but risky returns.
• He believes predicting the economics of the fast paced technology sector is far beyond his competency, probably a strong reason for his avoidance of the sector.

Warren Buffett has often been in the news for avoiding investments in the technology sector, which has been viewed by many investors as a highly lucrative sector. The Oracle of Omaha has his reasons for this approach. We look into reasons for his avoidance of the hot stocks.

Warren Buffett has historically preferred investments in sectors or companies which are unlikely to experience major changes. In his 1996 letter to shareholders he stated,

“We are searching for operations that we believe are virtually certain to possess enormous competitive strength ten or twenty years from now.  A fast-changing industry environment may offer the chance for huge wins, but it precludes the certainty we seek.”

Warren Buffett loves to have certain but stable returns over potentially huge but risky returns.  In the same letter he also states:

“Obviously many companies in high-tech businesses or embryonic industries will grow much faster in percentage terms than will the inevitables.  But I would rather be certain of a good result than hopeful of a great one.”

It shouldn’t be assumed that Mr. Buffett despises change. He is only averse to change when evaluating as an investor. In his own words:

“Charlie and I welcome change: Fresh ideas, new products, innovative processes and the like cause our country's standard of living to rise, and that's clearly good.  As investors, however, our reaction to a fermenting industry is much like our attitude toward space exploration:  We applaud the endeavor but prefer to skip the ride.”

In his 1999 letter to Shareholder’s Mr. Buffett highlights the fact that he and his partner Charlie prefer to operate within their level of competence and identifying a durable competitive advantage in the technology space is beyond their combined expertise. In Buffett’s words,

“Our problem -- which we can't solve by studying up -- is that we have no insights into which participants in the tech field possess a truly durable competitive advantage. Our lack of tech insights, we should add, does not distress us. After all, there are a great many business areas in which Charlie and I have no special capital-allocation expertise.  If we have a strength, it is in recognizing when we are operating well within our circle of competence and when we are approaching the perimeter. Predicting the long-term economics of companies that operate in fast-changing industries is simply far beyond our perimeter.”

Has Warren Buffett’s stay out of the technology sector impacted the returns of his investments? Well let’s look at the numbers over the last two decades.  The chart below compares the 20 year CAGR of the S&P 500, Berkshire Hathway’s (NYSE:BRK.A) book value per share and Berkshire Hathway’s Market value per share.

20 year CAGR in S&P 500 and Berkshire Hathaway share price and book value

Berkshire’s book value per share has grown at a CAGR of 14.6% over the last 20 years (1993-2013) while the Market price per share has grown at a CAGR of 12.7%. This growth has solidly beaten the S&P 500’s 20 year CAGR of 7.1%. It is clearly seen that Buffett’s decision to stay away from the technology world hasn’t hindered the performance of his investments. And what is the secret of the Oracle of Omaha?

Warren Buffett has this great quality which investors often call ‘Discipline.’ It is clearly evident in his avoidance of the technology sector, even during the boom of late 1990’s, when every other person was investing to set up a business which had something to do with internet. Though in hindsight Buffett had the last laugh, non-entry into what appeared to be a highly lucrative sector is a proof of the Oracle’s discipline. There are notable exceptions in the technology world, where stocks like Apple & Google have created tremendous value and returns for shareholders. Apple stock price has grown at a 10 year CAGR of 36.7% while Google stock has grown at a 10 year CAGR of 27%. While critics could view these as Buffett’s big misses, we view it as a proof of his disciplined approach to investing. Sticking to your rules is hard to do and that is something every wannabe successful investor needs to learn from the Oracle of Omaha.

In conclusion, Warren Buffett side stepped the tech boom for the following reasons: Buffett was uncomfortable investing in companies operating in rapidly changing environments; He could never find the competitive edge in any technology companies that he felt was durable; and as he admitted, forecasting the long term business economics of internet companies was beyond his competency.

We at Amigobulls live in the exciting world of technology stocks. While we salute the Oracle of Omaha for his discipline and wisdom, we will continue to make our humble attempts to apply his principles in the technology sector and pick value stocks from this sector. We invite our readers to let us know their experiences with technology stocks. Happy investing with Amigobulls.

Source: http://amigobulls.com/articles/why-does-warren-buffett-avoid-technology-stocks

The Importance of Being a Genuine Person In Real Estate

Real Estate investing is a numbers game. For anyone that has ever thought about purchasing just one property, all it takes is a few quick calculations and you’ll begin to see the dollar signs $$$.

It’s pretty simple math too. I don’t know anyone that doesn’t enjoy cashing checks each month and really feeling their investments pay off. Just like with any investment vehicle, you need to weigh the risk and the more money you invest the higher the potential return!

People ask me all the time “How do you find such great deals? I also want to buy similar properties.” For this I ask “What are you looking to achieve and what is your end goal?” I mean, if all you want is a check each month there are many other investment opportunities that can provide just that. So many see Real Estate investing as an easy alternative to other financial products, for anyone who thinks this, I give a word of caution.

Warning!

Yes, it is simple math. Yes, you can make a lot of money.

Yes, it is the best thing I have ever done in my life and so rewarding AND I have made a lot of money. I emphatically ask: Do you like people? Not just people, but strangers? Are you committed to developing long term relationships? Do you enjoy being fully responsible (well mostly) for the conditions in which another family will be living? Would you get yourself out of bed at 2am to go fix someone else’s broken toilet only to find that they caused the problem and not even get a “Thank you”?

I have met so many investors that got into Real Estate only looking at the numbers and completely ignoring the people factor. Folks, people are responsible for making those numbers work. They pay each month so we can feel good about cashing the checks. Many of the great deals I find come from those same investors that didn’t think about building relationships with their tenants and where only focused on the figures. They couldn’t stand the interpersonal aspect side of the business. They provided little communication and where unresponsive to maintenance issues because they just didn’t care about the tenants, only the “return.”

When you have a property and accept a tenant you are assisting those individuals to provide for their basic need; shelter. Now don’t get me wrong, this IS a business and if they stop paying, you need to be firm and find the best solution for all parties. You’ll need to check your emotions at the door for some of the similar heart wrenching personal issues I have dealt with over the years, but even at those times you can only do so much.

In Conclusion

I have learned that the majority of people respect themselves and are prideful of their residence, even if they don’t own it, they pay up every month as long as you keep your end of the bargain. Part of that agreement is being able to communicate with them, at times help them out, and even sparing a few moments to share a laugh.

In Real Estate, you’re not required to be friends however, you are rewarded if you’re friendly! Above all, YOU MUST LIKE PEOPLE to build a sound and sustainable investment portfolio. A property is just a building, the people pay the rent.

Are you a people person? Do you focus on building trust and relationships?

I’d like to hear your comments below and thanks for reading!

Source: http://www.biggerpockets.com/renewsblog/2014/08/22/importance-genuine-person-real-estate

2 hours to make websites generate over $5,000 a month on autopilot...

It’s always refreshing to see new strategies to make money online. However, the majority of the time I’m pretty disappointed with the results.

When I was recommended to buy Google Sniper 2.0, I thought it would be another system that just left me disappointed, but the proof and success stories tipped me to buy it. A quick Google search for testimonials and by watching the sales video it was clear that this system has worked wonders for other people, and it’s actually generated the most online success stories than any other system/course to date. It was a no brainer to give it a shot personally.

At the time in my Internet marketing journey, I was pretty lost as to what road to head down. Google Sniper 2.0 really outlays the basics, from picking a niche, choosing keywords, buying a domain to setting up a wordpress website which will generate passive income online. It’s an extensive guide, but it’s easy to pick up (the walkthrough videos by George help also).

I studied the strategy pretty extensively to start with, and created my first “Sniper” site the next day. I was pretty excited due to the success stories, but still had that common doubt that it would be another blowout. I made my first bit of commission two weeks later after setting up the site completely. It wasn’t a huge amount but it was something, and that was the trigger to skim through the course once more to see if I could improve my site in anyway. The site in question started to generate me a tidy amount of commission, and still generates on average $375 a month (on autopilot).

As I’ve been recommended many times before, “if something works duplicate it...” And that’s what I did. I now have about 10 sniper sites, all generating commission each month. Each site differs in the amount of money I’m making, but I can’t squabble as I’m on the hunt for more...

The best thing about this course is alongside earning a nice income each month from this system on autopilot with no traffic generation, it’s also an extensive guide into niche research, finding products to promote and how to set up your own website. Yes, it may need to be read through a few times, but believe me... It’s worth it.

Check out Google Sniper 2.0 here

How To Flip Houses Like Steve Covey

Steven Covey is a well known self-improvement guru famous for writing “7 Habits of Highly Effective People”. He gave us seven simple principles that we can use to achieve success in life and business. Is it possible to apply his principles to house flipping?

His seven core habits are applicable to house flipping but one of these habits particularly stands out; “begin with the end in mind”. 

How The Begin With The End In Mind Habit Applies

It’s common knowledge that making a profit on house flipping is not easy but when you know exactly what it is you want to accomplish, you eventually end up having a laser-like focus that eventually concludes with you making a profit.

Numbers can break or make your house flips. Knowing how to do the math is not the hard part; the hard part is determining the correct numbers to use. In order for you to be able to accomplish this, you need to do a fair amount of research and assistance from your house flipping team.

The moment you learn how to flip houses with the end in mind, you will start making profits.

Is What You Pay For The House Important The Most Important Number In House Flipping?

While this is a very important number, what you pay for the house is not the most important number. Rehab costs are also not the most important.

The most important number is the After Repair Value (ARV) which drives all the other numbers. The After Repair Value is “the end” you should have in mind and you should use it to drive everything you do in house flipping.

Almost all the projections that you will make during the house flipping process will be based on the ARV. If the ARV is right, then every other single projection will also be right and your profit margin will be great.

Here’s How You Begin With The End In Mind In House Flipping

1. Find A Great Real Estate Agent

A great and qualified real estate agent can do a comprehensive market analysis and give you a more accurate ARV. Since we have already established that ARV is the most important number, you need to find a real estate agent that is good at their job.

A good real estate agent will look at properties in the area that have already been sold and not the ones that are for sale. This is because properties that have already been sold will help them determine how much your property can sell for.

2. Communicate Your Plans To Your Agent

Communication is important because it ensures everyone is rowing in the same direction. Finding a good agent is not good enough if you do not communicate effectively with them. They have to be 100% with you on the same page. Your house flipping team has to also be on the same page with you.

Don’t sit behind a computer and send out emails or communicate via phone alone. Get out there and talk to your house flipping team.

Other Tips On ARV

It Doesn’t Hurt To Get A Third Opinion

It doesn’t hurt to get a second or even third opinion from another agent. You can never be too careful when determining ARV.

Hire A Paid Appraiser

You might think this is another added expense but it doesn’t compare to the cost that you will incur when you gauge all your projection off a wrong ARV.

Research

Make Google your best friend and use it to double check after repair values. It’s not advisable to determine your final ARV off internet information but you can use it to double check. In addition, you can conduct a comparative market analysis.

Conclusion

Be wary of the broker who tries to inflate the ARV just to get your business. This is why it is important to get a second opinion from another expert broker. If you begin your house flipping process with the end in mind, you will be setting yourself up for success. If you use the above tips, you will have a highly successful house flipping career.

Source: http://houseflippingschool.com/flip-houses-like-steve-covey

How to Get Higher Rents, the Hard Way!

If you are like most landlords or property managers, you are always looking for the highest rents, after all, no one I know shoots for the lowest rents.

But there comes an amount where the rent exceeds the value of the property.  Once that happens, you would think that you would not be able to find a renter.  This is not the case.

Economic theory states that as prices go up, demand decreases.  This is true.  If you do not believe it, cut your rent prices in half and see what happens.  You will have people lined up around the block to take your rental.

Solid renters know what they want in a rental.  They know what buildings in the area they want to live, and what amenities they want.  They will know the walk score of a place, how close it is to their work, how much arts and culture are close by.

Quality Renters Know Value

A solid renter picks their home based on location, and also on value.

The value is based on what they can afford, and the ‘substitution theory’ in that paying more or less will substitute different features and amenities.  Nowhere in their equation is any thought to the fact that their application for housing might get rejected.  They know they can throw a dart at the map and choose the closet apartment if they wanted to.

I define a solid renter as someone with at least 3.5x the rent in income.  This is someone with at least an average credit score, somewhere north of ~650.  Their last 10 years on the criminal side will only have a couple of parking tickets, and likely not even that.  They will not have any evictions.  All past landlord references, for what they are worth, are positive.

Low Quality Renters Have Less Choice

The low quality renter has a completely different attitude.

They need to live where they can.  They do not care about amenities; they care about move in date.  Something is making them move, and it is not their job, or the lack of an art gallery close by.  They need to move because they are probably being forced out.

As a landlord, you can specialize on these renters.  They are in a tight spot, just as many sellers are when investors scoop up foreclosure properties.  These are distressed renters.  They need to move, and say they are willing to pay.

Their criminal backgrounds might not be as good as you would like, and their credit score less than par, but they are not choosy.  They need a place, and generally need it fast.  They will move into a place that is not maintained, or cleaned.

Make no mistake; these are high risk class C or D tenants.  Like any investment, you need to get a return based on the extra risk these tenants present.  You need a higher rent than a typical class A or B tenant.  Even if your rent is 100% paid by a government authority, you are taking on more risk.

Does Higher Rent Mean More Profit?

A class C or D tenant will be more work, and you should get at least an additional 10% higher rent with them.

On a $1,000 a month rental, that’s an extra $100 that goes right to the bottom line.  All of your other expenses stay the same, except possibly maintenance and legal fees.

If you are looking to sell, higher rents mean a higher sales price.  Whether or not you will be more profitable is the $64,000 question.  Low quality tenants generally mean less profit.  Can you cover your increased maintenance costs and added expenses with the higher rent?

If you have a property manager, the lower quality renter is more wok for the PM.  It is more calls, more chasing down rent, more work to turn the unit.  But it is a higher commission for the PM. I often think that people hire a PM have so much trouble with renters because of this very reason.  The PM is maximizing their own revenue and getting a lower qualified renter to move in. It is more work to find the ‘sweet spot’ of the correct rental price than take in a less that qualified renter.  They make more, and you are probably making less.

So, if you really want higher rents and are OK with a higher risk for higher returns, raise your rents.  If you want the slow, steady and boring approach to profits, make sure your rents are aligned with the market, and you hold out for quality tenants.

Have you ever raised your rent too high, and saw a decline in tenant quality?  Have you ever seen a rental you wonder how the owner ever rented a dump like that?

Be sure to leave your comments below!

Source: http://www.biggerpockets.com/renewsblog/2014/08/17/get-higher-rents-hard-way

Network marketing 101: How much time does it take to build a successful business?

When I started my network marketing business in 2009, I had hardly any “extra time” left in my schedule. I was working 40+ hours per week in a cubicle for my public relations job and I was also engaged to be married, so we were planning our wedding. The last thing I thought I had time for was a side business.

What I realized, however, was that most successful network marketers started their networking careers alongside another full-time gig. The beauty of network marketing is that it’s a very social business. You might also call it “lifestyle marketing” because a lot of the “work” takes place throughout your normal day – as you strike up a conversation in line at the bank, as you’re reconnecting with a former co-worker over lunch, while you’re speaking with another parent at your child’s soccer game.

If you can find 5-10 hours or so per week of social time in your schedule, then you absolutely have time to build a successful network marketing business. It’s not so much about the hours of time you put towards it, but how you spend that time. For example, you will have WAY more success spending 5 hours per week meeting people over lunch or reconnecting over the phone than you would spending 10 hours per week organizing your office or replying to emails.

The core of success in the network marketing industry is engaging in conversation with people and sharing about your business/product. You get paid for presenting and sharing, NOT for racking up hours on a timesheet.

If you’re new to network marketing, focus on the windows of time you have in your schedule and maximize those with revenue producing activity. And also keep in mind, this is NOT an overnight success business. Just like the athletes you see competing in the Olympics, there’s a TON of behind the scenes preparation (and often failure) that takes place!

Taking on any new skill set or career path is going to require learning. Most people don’t achieve success in network marketing because they quit too soon. Robert Kiyosaki (author of Rich Dad, Poor Dad) says to give your network marketing business a minimum of 5 years before you quit. Of course, there are exceptions to every rule. Some network marketers will skyrocket within 1-2 years and others it may take 6-8 years…the key is consistency and remembering that everyone’s journey is different.

Network marketing has positively impacted my life in so many ways. It’s allowed me to pursue a calling that I’m crazy passionate about and not be “stuck in a job”.

Success will be defined differently by each person you speak with. Some desire an extra $200 per month alongside another career they love. Others desire $3,500 per month to replace a job that no longer fulfills them. Others are seeking $20,000 per month so they can give generously and change the lives of those around them.

Whatever your definition of success is…you can find it in network marketing.

Whatever your schedule looks like…you can find the time to be successful in this industry. Decide, do and don’t quit.  

Source: http://kristadial.com/2014/07/network-marketing-101-much-time-take-build-successful-business

Are You Playing to Win...or Not to Lose?

If you have a habit of not finishing what you start, you may have attributed your lack of results to disorganization or a lack of focus. For some individuals, however, this habit is signs of an underlying psychological pattern of playing not to lose.

Stuart Emery, author of Life is Not a Dress Rehearsal and Success Built to Last, noted that where most people tackle situations with a goal of winning, others approach life with a goal of avoiding losing. Somewhere in life, they decided that they were incapable of winning and have lowered their expectations to merely not coming in last.

The groundwork for this pattern is often laid in childhood. For example, if a father raves over his young daughter’s drawing, she may have next colored on the wall, not recognizing that the wall is not an appropriate place to express artwork. After repeated incidents of getting in trouble in such a way, she may have drawn the conclusion that she couldn’t win. She didn’t like the pain of not winning, so she unconsciously adopted the strategy of trying not to lose in the future.

Not finishing what you start is one of many habits you fall back on when playing to not lose. The reason this has worked for you in the past is that if something is incomplete, it cannot be judged as not good enough. You can just say that it’s not “finished.”

Other ways we ‘play not to lose” include:

•     Playing the Judge.  By being the judge, you never have to be the participant. By pointing out how imperfectly others are dancing, for instance, you get to avoid dancing yourself, which could open the door to you failing at the task.
•     Being perfect. With this approach, you attempt to not lose by doing everything as perfectly as you can… or at least by presenting a front that you are “perfect.” You never really relax or let your guard down. Instead, you overdo everything instead.
•     Becoming a “problem.” If you take on the role of the identified problem, others will need to stop and take care of you. This is a form of sabotage. Because others are directing their time and energy into helping you and are less likely to win themselves.

If you recognize that you’ve been playing not to lose, it’s time to shift the behavior.

Embrace Feedback

Your decision to stop playing to win was most likely unconscious. You received feedback that you interpreted as being a condemnation of your abilities and who you are.

An important step in shifting this pattern will be recognizing feedback for what it is: Information that tells you whether you are on course or off course.

When you get negative feedback – such as lack of results, little or no money, criticism, poor evaluation, inner conflict, and unhappiness – it’s a sign that you are moving away from your intended goal.  Evaluate what you’re doing and make a course correction.

When you receive positive feedback, such as praise, happiness, money and results, you’ll know that you are back on course.

Sharpen Your Focus

Another thing you can do, particularly if you’ve developed a habit of not completing what you start, is to train yourself to sharpen your focus.

In the Achievers Focusing System, Les Hewitt, author of The Power of Focus, teaches his clients to focus their attention only on what they want to accomplish in the next three months. They select one goal in each area of their lives during that period.

Then, each week, they identify the three most important things that must be accomplished during that 7-day period to move them closer to their goals. A weekly check-in with your accountability partner helps to keep you accountable for achieving these tasks.

To download a free copy of the Achievers Focusing System 3-month planner, click here. (For your convenience, we’ve also posted a filled-in version of the form so that you can see what type of information should be entered in each field.)

Chunk It Down

The final word of advice: As you begin to build a new habit of completing what you start, you may feel overwhelmed and lost about what to do next when you look at your list of goals. The best approach is to chunk down your goals into small, manageable steps.

Interview people who have already accomplished what you want to do and ask them to share all of the steps they took. If you can find a book or manual that guides you through the process, even better. Another approach is to imagine that it’s the future and you’ve already accomplished your goal. Start at the end and look backward. Notice what you had to do to get to where you are.

Capture all of these steps in a list or mind map. Then convert all of your to-do items into daily action items that can be plugged into your calendar. Start with the first item on your list, and when it’s finished, cross it off and tackle the next item. Before you know it, you’ll be completing projects and well on your way to playing to win.

Playing not to lose may protect you from the potential pain of negative feedback. But the cost is steep. Every time you fail to live up to the commitments you make to yourself and others, you undermine your self-confidence. Use the steps outlined in this article to identify why you’ve settled for simply not losing and to take the corrective action you need to complete what you start.

Source: http://womenentrepreneursecrets.blogspot.co.uk/2014/08/are-you-playing-to-winor-not-to-lose.html

3 Reasons To Love Investing In Real Estate.

There are many reasons to invest in real estate. I’ve been investing in cash flow properties for about 10 years now and wanted to share my personal 3 Reasons Why I Love Investing in Real Estate:

1. Invest Locally

Every time you buy a single family home, duplex or apartment complex -  you are investing in your local area. You are improving your local city and neighborhoods one house at a time and providing housing solutions for the people in your local market.

2. Cash Flow

Cash flow is my personal favorite reason for investing in rental homes and apartments. Investing in hard assets that produce income is a huge benefit of buying and holding investment property. Your tenants pay your mortgages and your cash left over after all your expenses is your net cash flow.

Imagine making $300 per month in net cash flow and not having to work much to produce it.  If you invest in 15 houses, you could create $4,500 of monthly cash flow while enjoying all the other benefits of single-family homes.

3. Multiple Exit Strategies

A number of exit strategies can produce great results.  You can be a landlord and enjoy rental income; you can use lease options as your exit strategy; you can sell with seller financing and enjoy income from your note, or you can sell the house outright to a new buyer (flip it).

I can personally say that it’s been very rewarding and profitable investing in various types of rental real estate deals. I think the flexibility that it affords me to be home with my kids is the best reason of them all- for me!

How about you? What are your top reasons for investing in real estate?

Source: http://www.reiclub.com/realestateblog/3-reasons-to-love-investing-in-real-estate

4 Ways Income Investors May Get it Wrong

For decades, there has been a grand debate afoot in the investing world between “total return” and “income” investors. The truly educated don't worry about it much because they realize there isn't a lot to it. Your goal should be to avoid an extremist or absolutist position on the matter.

Income investing

The basic idea behind income investing is that you only spend the income from your investments. Seems like a great idea, right? It's easy to know when you have enough to retire—when the income from your investments replaces the income from your job (or at least your living expenses). Plus, you know you'll never run out of money if you're only spending the income.

Unfortunately, if you become an extremist in this camp, you may get burned by several issues. There are really 4 ways that income investors get it wrong when compared to a "total return" investor.

1. Income investors are likely to underspend

Safe withdrawal rate studies, such as the Trinity Study, have demonstrated it is quite safe (although not perfectly safe) for you to spend about 4% of a traditional portfolio each year and expect your portfolio to keep up with inflation throughout a 30-year retirement.

However, these days most traditional investments have a yield much less than 4%. The Vanguard Total Stock Market Fund yields just 1.8% and the Total Bond Market Fund is only slightly higher at 2.1%. CDs, "high-yield" savings accounts, short-term bond funds and most muni and Treasury bond funds are even worse. Even value stocks and REITs have yields much less than that.

If you're only going to be spending the yield on these investments, you're going to be spending much less than 4% per year. That means you will need to do one of 3 things: have a higher savings rate, work longer, or spend less in retirement. Since you are spending less, you are also likely to leave a lot more money behind at death.

In short, you'll spend less than you could have if you were willing to spend some principal.

2. Income investors may not hold the best portfolio

An income investor is far more likely than a total return investor to chase yield, since every little bit of extra yield increases his or her lifestyle. However, there are many investments with a high yield whose total return may not be what you would hope. The classic example is junk bonds, and the junkiest of junk bonds these days are peer-to-peer loans.

A portfolio of peer-to-peer loans may yield 20%, while only having a total return of 10% due to a high rate of default. If you're spending 20%, that portfolio isn't going to last long. That doesn't mean there isn't room for higher yielding investments in your portfolio, but you want to make sure you are holding a diversified portfolio with excellent long-term, risk-adjusted returns. Such a portfolio almost surely will include some assets that have a low-yield.

Never forget that a yield of 8% is not the same as a total return of 8%. While it feels good to have an 8% dividend in hand, if the investment actually lost 25% in value, you’re not making much progress financially.

Investment real estate is a particularly attractive asset class for income investors because a significant portion of the return comes from income, often 5% to 7% of a 7% to 10% return. This yield is much higher than anything available in the "paper market" outside of low-quality bonds.

While income property can form a significant portion of your portfolio, a portfolio of 100% real estate doesn't pass the sniff test when it comes to diversification. In addition, real estate possesses significant downsides as an asset class including significant maintenance and transaction costs, aspects of a second job, and an inefficient market requiring expertise and experience to get solid returns.

3. Income investors may pay too much in taxes

As a general rule, income tends not to be very tax efficient. There are exceptions, of course, as muni bonds are usually federal, and sometimes state, income tax free and some of the income from real estate can be shielded by depreciation, especially early on in the life of a property.

Bond dividends, REIT dividends, and CD interest is taxed at your regular marginal tax rates instead of the lower dividend and capital gains rates available with stocks. To make matters worse, you have to pay those taxes even if you didn't really want to spend that income yet. There is no way to defer the income until you actually want it in the future.

However, a total return investor can often "declare his own dividend" by selling some of his investment—for instance, a few shares of stock. The tax bill on that money (which spends just as well as CD interest) may be very low when you consider the ability to sell high-basis shares, harvest tax losses, and take advantage of the lower long-term capital gains rates, especially in the lower brackets.

4. Income investors may get burned by inflation

 
Higher yielding investments, such as CDs and bonds, tend not to keep up with inflation nearly as well as traditional lower yielding investments such as stocks.

If you focus too much just on income, you may forget that your real opponent in the investing game is your personal rate of inflation. If your income is steady, or only increasing slowly, and your expenses are increasing at a moderate rate, it won't take long before you will be faced with an unsavory choice: cut your lifestyle or sell your investments.

A total return investor spending 4% of his portfolio each year has an inflation adjustment built in to his plan. An income investor needs not only to make sure his investment income is greater than his spending, but also needs to make sure it will stay that way as the years go by.

The solution

 
Rather than focusing only on your investment yield, first build a reasonable, diversified, low-cost portfolio without considering the yield. Then, when it comes time to spend from that portfolio, use a combination of income and tax-efficient selling of assets to fund your retirement-spending needs.

Avoid an extreme position on income in order to develop a successful investing plan.

 

Source: http://www.hcplive.com/physicians-money-digest/personal-finance/Dahle-4-Ways-Income-Investors-May-Get-it-Wrong

10 Things to Look Out for When Buying an Older Home

Older homes possess an allure that cannot be found in a new home. The mesmerizing architecture of an older home and its distinctive character may appeal to you at first sight, but do not forget that not only are older homes reminiscent of the years gone by, but they also bear the brunt of time. Older homes need careful inspection and maintenance – a task which may not suit all buyers.

The first step to successfully buying an older home is to weigh your options and decide what features could potentially turn out to be deal-breakers. What do you look for in a house? What purpose would your house serve and what kind of furnishings do you intend to use? Answering questions like these will help clear up any confusion and give you strong points for or against buying any home.  Deal-breakers could vary from excess expenditure in repairs to the location of the house. Bear in mind that the level of commitment required to own an older home can be greater than owning a newer home and being a “renaissance man” may come in handy.

1. Careful inspection of the disclosure

Buying a home involves a lot of communication between the buyer and the realtor or seller. If you have a realtor to represent your interests, it does not mean that you have no part in the dealings or communication. A realtor would help narrow down prospects that best suit your requirement. However, careful research on your part is a must and could save you a lot of money and time.

To start off, you should be a well-informed buyer so be sure to ask lots of questions regarding the condition and history of the property. Understanding and inspecting previous repairs and replacements could help you come to a decision on whether the major concerns are manageable or feasible. Disclosure statements from sellers are an obligation and should be carefully inspected to make sure that you are completely aware of the issues and problems which could affect your purchase.

2. Cost of homeowners insurance

Insurance is essential to safeguard your home against damages that result from accidents. Additional policies could be added to insure the house against damages resulting from natural calamities. There are several forms of insurance which covers various levels of protection to suit the interests of the owner. Insurance agencies may be skeptical when it comes to insuring an old house and you may end up paying more than you expect. Have a candid conversation with your insurance agent about the home so you can be certain of the cost of insurance before buying the house and avoid any surprises down the road.

3. Foundation

Older homes are more likely to have problems when it comes to the foundation. A clear inspection of the basement will reveal possible cracks and shifts in the frame. Cracks are a bad sign and may indicate permanent, serious damage to the structural integrity of the home. Old houses are known for their strong foundation, but with time they may have suffered serious wear and tear. A thorough inspection should reveal serious troubles with the foundation – a definite deal-breaker.

4. Electrical wiring

Older homes may need updated wiring, especially considering the high demands of our electronics hungry society, and rewiring an entire house may turn out to be painfully expensive no matter how much you love the beautiful wood work and ornamental designs. The cost and effort of rewiring the house should be considered before you finalize the deal. If a house has three-pronged plugs, it hints at a modern grounding. Presence of other modern safety upgrades such as reset buttons on outlets could also mean upgraded wiring. However there are many problems that may go unseen and hence, do not forget to have a professional inspection done.

5. Plumbing

If the house has original plumbing, then depending on how old it is, there is a good chance that it’s outdated and will require work down the road. In case of previous repairs or replacement, the installations should be inspected. Leaks and clogging are a common problem with old houses. Just because the plumbing has been upgraded, it does not guarantee that it is functional or won’t pose future problems.

6. Heating and cooling systems

If you are accustomed to central air and an even temperature throughout your home, you may be in for a surprise. Replacing the HVAC in an older home can not only be expensive but it may also not deliver the immediate changes to heating and cooling that you are familiar with in newer homes. Older fixtures may also cost you a lot in terms of utility bills. Older homes can come with radiators which require fuel oil and may not be practical in the long run. It’s also a good idea to see a years’ worth of utility bills

Older homes may very well have a properly working furnace but make sure the person you choose to inspect your home before the sale has experience with older homes and heating and cooling systems.

7. Roof

If the roof has been previously worked upon, then it is a must to check for signs of leakage and make sure that any changes to the roof line have the proper structure under the roof. Moldy wood, drips and water stains are a clear indication of trouble. If the original roof is still in place, then there is a good chance that some work will be required before long – which translates to more time and expenses.

8. Windows.

Old homes come with old windows which may offer poor insulation. If a previous reconstruction has widened window frames, then the quality of the work must be assessed. Improper extensions and tampering might cause problems such as rigid windows and collapsing of the frame under severe circumstances. Also look for any leaks around the windows, both original and/or replacement windows.

Keep in mind that replacing all the windows in a 3,000 square foot home will cost in the 10s of thousands of dollars.

9. Extensive repair work

If the house requires extensive repair work, it is going to drain a lot of your money and time. The return on investment may or may not be worth the money (remember the movie “The Money Pit” ;). Is it really practical to take on such a huge responsibility? If you’re handy with tools and love working on projects, this may be a great opportunity for you but if you’re more like me, not the handiest guy in the world, this home that you love my be the end of you or at least your marriage J. You may feel an emotional connection to the house, but is it going to be worth the effort?

10. Compatibility between the house and your existing fixtures and appliances

Household items were different back in the day and definitely less demanding of the house. To ensure that you do not have to invest in a brand new set of furniture and appliances, make sure that your existing sets are compatible with the house in terms of size, proposed utility of appliances etc.

In spite of the hurdles and anomalies, older homes are often worth the effort. They are unique and elegant with a personality of their own that will add a lot to your pride of ownership!

Source: http://mlsmaps.com/mls-listings-info/index.php/10-things-to-look-out-for-when-buying-an-older-home

Protecting your real estate assets

Estate planning and asset protection go hand in hand. After all, planning for the distribution of wealth is useless if you have no wealth to distribute.

But, asset protection for real estate is particularly challenging, because it’s the only asset that can’t be moved. Many asset protection strategies involve relocating assets to domestic or foreign jurisdictions that offer greater creditor protection. But unlike other assets — such as cash, bank and brokerage accounts, stocks and bonds, cars, boats, jewelry, art and other collectibles — real estate can’t be removed from the jurisdiction in which it’s located. Let’s take a closer look at several strategies for protecting your real estate assets.

Giving gifts

One of the most effective ways to protect real estate from creditors is to give it to your children or other family members, either outright or via a trust. Doing so places the real estate beyond the reach of your creditors and may also reduce your estate tax liability. The disadvantage of this strategy, however, is that you’ll lose all economic interest in and control over the real estate.

Further, although transferring assets may protect you from your creditors, the assets would now be subject to the claims against the person or entity to whom the assets were transferred. Keep in mind that gifting real estate — as well as the other asset protection strategies discussed later — won’t protect you from your existing creditors if a transfer constitutes a “fraudulent conveyance.” A fraudulent conveyance is a transfer of property made with the intent to hinder, delay or defraud creditors. The best way to avoid a fraudulent conveyance claim is to transfer property as early as possible, before any creditor claims arise.

Protecting your home

There are three strategies that can protect your home against creditors:

Tenancy by the entirety. About half the states allow married couples to hold title to their principal residence as tenants by the entirety. Similar to joint tenancy, tenancy by the entirety also protects the residence during the marriage against claims by a creditor of one of the spouses. It doesn’t protect the residence against a couple’s joint liabilities.

Homestead exemptions. A few states offer unlimited homestead exemptions, which protect a principal residence from creditors regardless of whether it’s owned by a couple or a single person.

Qualified personal residence trust (QPRT). A QPRT allows you to transfer a principal residence or vacation home to an irrevocable trust — thereby placing it beyond the reach of creditors. Unlike an outright gift or transfer to a regular trust, however, you retain the right to live in the home during the trust term. At the end of the term, the property is transferred to your children or other beneficiaries. QPRTs can also be used to reduce gift and estate taxes.

Protecting other real estate

For business and investment real estate, an effective asset protection strategy is to transfer title to a limited liability company (LLC) or limited partnership (LP). So long as the transfer isn’t a fraudulent conveyance and the LLC or LP is structured and operated properly, the entity shields the real estate from creditors’ claims.

A creditor with a judgment against an individual owner (a member or limited partner) can’t satisfy that judgment against the entity’s assets. Generally (but not in all cases), the creditor’s only remedy is to seek a “charging order,” which permits the creditor to intercept any distributions made by the LLC or LP to the debtor. So long as the entity doesn’t distribute the real estate or other assets to the debtor, the creditor’s efforts to collect are frustrated.

Plan early

If you’re exposed to significant liability risks — either personally or professionally — it’s a good idea to have an asset protection plan. And the earlier you implement your plan, the more likely it is to succeed.

Source: http://www.jdsupra.com/legalnews/protecting-your-real-estate-assets-03666

Cash is not an investment

If you have an expectation of growth in your investment, forget cash! I am referring to cash investments such as money market accounts, interest bearing checking accounts, savings and certificates of deposits. It is merely a parking space for short term savings! Investing is expending money with the expectation of achieving a profit or material result by putting it into financial schemes, shares, or property or by using it to develop a commercial venture. Where is your cash?


Savings accounts

I am not suggesting to stop saving! Saving was my strategy to success. Savings is the portion of disposable income not spent on consumption of consumer goods, but accumulated or invested directly in capital equipment or in paying off a home mortgage or indirectly through purchase of securities. More simply, money put aside for the purpose of future use. Most financial bloggers are always suggesting emergency savings for those unplanned or unexpected expenses.
Emergency savings usually is six (6) to eighteen (18 months of expenses. If I use fifty (50) thousand dollars as average earnings, your emergency funds should range anywhere from twenty (20) thousand dollars to sixty (60) thousand dollars in emergency savings. That is a lot of money to keep accessible for an emergency. Do you really need all of it to be accessible? The key word is accessible! How much do you really need accessible and how much could be working for you in the stock market or elsewhere?
How much money do you really need for emergencies?  The rest could be laddered in CD’s and eventually in longer term investments. My savings (cash/interest checking account) is just a few hundred dollars. More specifically, the portion of my earnings not set aside for my monthly expenses. My emergency funds are minimized because of a great deal of planning and access to laddered assets. I can use my credit cards for sudden expenses which will give me thirty (30) or more days to solve the problem.

Rethink your savings! 

Most rich people have their money working for them all the time. I want to have my money working too. I can use my (low interest rate) line of credit so I do not incur (14-188% interest) credit card. Last, I can sell stock to take care of the emergency. There are enough safety nets that I feel comfortable with this strategy. In addition, part of my budgeting process is planning for emergencies. Most emergencies are known if planned properly. If you drive an old car, you should expect unplanned repairs.
As you accumulate more and more assets, you need to do the planning to protect them. It may be insurance, savings or planning. In business, we call this risk management. Risk management is the forecasting and evaluation of financial risks together with the identification of procedures to avoid or minimize their impact. I often apply business strategies to my personal finances because it makes sense! I do not want my business or my personal finances to go bankrupt!

What can you do?

Where should you put your savings? Your first step is to figure out how much you need accessible immediately or within thirty (30) to forty (40) days. It is sort of the planning you should do when you figure out how much life insurance you need. If I died suddenly, my wife would need sufficient money to pay the mortgage and other expenses until she received the insurance check. The same planning is necessary for your emergency savings number.
The rest of your savings will have different priorities or maturity dates. You may need two (2) or three (3) thousand dollars in a savings account, but access to much more over time for those unplanned emergencies. What are your circumstances? Do you have a lot of assets or access to cash if you need it? Is your job/career stable? Is your debt low or under control? If you lost your job tomorrow, do you have a plan or are you one paycheck away from bankruptcy? These answers determine what you do!
Similar to any savings you may need in five (5) year or less, you should be more conservative with the investments. For example, I would not invest fifty (50) thousand dollars in a volatile stock or fund because I want to be assured I will have those funds in five (5) years. I would hold these investments in a brokerage account where there are no penalties for withdrawal early. The exact choice of investment is based on your personal risk tolerance and need priority.
If you have several layers of safety, a secure job and a solid plan, you still want to assess the investment risks. I set up a brokerage account seventeen (17) years ago and never needed to liquidate the investment. In the meantime, it has more than quadrupled in value. The stock market is not the only choice, but certainly the most liquid. You can sell your stock and have cash within just a few days. Homes, businesses, collectibles, etc are not as liquid.

Final thoughts

I tried to offer a different perspective on a long standing personal finance rule. I hope I am stimulating thinking and discussion. I have spent a lifetime trying to reach my financial goals. I managed to achieve it early (38 years old) and now I want to share my strategies and insight to help others achieve it too. Rich successful people keep their money working and growing. What are you doing with your savings? Do you consider cash an investment?

Source: http://www.krantcents.com/cash-is-not-an-investment

Surprising Secrets of Entrepreneurs

Business success can mean accepting what others deny.

There are a lot of pieces of advice or information that a lot of us have heard.  In fact, certain bits of conventional wisdom are repeated many times over, readily available in dozens of business books.  But the biggest piece of information for an entrepreneur is to leave no stone unturned—look for and find ways to succeed that most people never would.  This can mean bucking conventional wisdom and doing things that are nearly the opposite.  Or, it can mean just being able to embrace certain strategies or methids that might seem too risky or even undesirable to less adventurous types.
In particular, certain things that not everyone is quick to admit about the world we live in can lead to success as an entrepreneur.  Aiming your business and your products and services to satisfy certain conditions is the key to success.  Here are those conditions.

1. Lack of Drive and Energy

Consider the person who conceived of the Snooze button on an alarm clock.  This is based on the idea that people shouldn’t decide between getting up and just lying there with music on, but that they should be able to have both: nice, quiet sleep for five more minutes (since they set their alarm for five minutes before they really wanted to get up).
Ultimately, if you don’t want to hear the annoying music, you can get up (which is what the alarm clock is there for in the first place) and turn it off and get the day started.  But how well do alarm clocks with no Snooze fair in the marketplace?  Thus, designing your products, effectively, around the laziness of your potential customers, may be a good idea.

2. Learn as You Go

You’ll hear a lot about the business plan and the blue print.  Some people make it seem as though if you don’t have the next fifteen or twenty-five years of your business mapped out meticulously, you’ll fail as a result.  However, it’s great minds that succeed, not always great ideas.  That’s because the first several versions of whatever product you put out will need tweaking and recover spontaneity on your part.  How good you are at rolling with the punches will determine your success.

3. Names and Logos are Important

It may be the case that your customers have a certain intelligence or savvy that you’d be good to honor.  But they’ll exercise a lot of that actually using your product.  Your first have to pull them in, and this is best done with a simple name and simple logo.  Don’t try to dazzle customers with some arcane or overly-clever brand.
An article on the subject from Entrepreneur.com counsels starter-uppers to “resist the urge to name the company after the mythical Greek God of fast service or the Latin phrase for “We’re number one!”

4. Success Consumes Time

One mistake business starters make is to not realize how many hours they have to put in.  If you work really hard but not insanely hard, and still can’t make ends meet, you really just need to put more time in.  In other words, you have the option of trading some of your time for what it takes to bring in revenue exceeding expenses.
Perhaps this means doing—up to a point—some of the work you’d otherwise pay for, etc.
It’s absolutely true that it’s best to have a work-life balance, and it’s best not to run yourself into the ground or risk your sanity.  But if doing so, short term, is what it takes to turn that crucial corner, then you have little choice.  Don’t let your business go down because you don’t realize how much of your time it takes.
The secrets to successful entrepreneurship come at us from all directions. It’s all about figuring out all aspects and coming up with the best way of looking at each individual problem.

Source: http://frugalentrepreneur.com/2014/08/surprising-secrets-of-entrepreneurs

Building Wealth Across the Generations

Families are awesome, especially when they can work together toward common goals. In fact, the ability for generations to work together can be a true wealth-producing machine. It requires a very long-term view, excellent family dynamics, and a little bit of education and “starter wealth,” but if done properly, can be far more powerful than any other personal finance concept. If generations are willing to “cover” each other, they can increase their ability to take risk, decrease their need for expensive insurance-based solutions, and decrease interest paid. Let me give you a few examples.

Youth BackStopping Retirement Savings

In decades past, there was no such thing as retirement. People worked until they no longer could, and then their kids took care of them until they died. Or until they took them out on the ice to die. Or whatever. Now that it is apparently a sin to rely on your children, people put a lot more effort into supporting themselves in their retirement years. But because they have to be self-sufficient, they cannot afford to take risks that they otherwise could. Instead of investing in risky assets with a high expected return, like stocks or real estate, the elderly are forced to diversify into bonds, CDs, and immediate annuities to ensure they don’t run out of money. However, if their children could provide the “insurance” against them running out of money, the elderly could not only have a higher withdrawal rate, but could also afford to take more market risk with their portfolio. How do the kids provide that insurance? Simply by being willing to let the elderly live with them or help with their living expenses from their current earnings. Another way to help would be by allowing the elderly to delay taking Social Security until age 70 by helping with living expenses until that time.

Paying For College/Homes

Now, let’s look at a way the older generation can help the younger generation. One of life’s most expensive decades is the 20s. You have very little earning ability but lots of needs including an automobile, a college education, perhaps a wedding, and most importantly, a first home. Due to a lack of cash and earning ability, young people end up borrowing a great deal of money for these things, and not always at the best possible terms. The more of this stuff that the older generation can pay for, the better off the family as a whole will be. In fact, it’s even possible that the debt for one generation could be the income for another. There are IRS rules about how much interest must be charged, but when combined with gifting allowances, it’s relatively easy to provide excellent terms on family loans.
Imagine being debt-free at 30. No student loans. No car loans. No credit card loans. No mortgage. You come into your peak earnings years and can immediately start saving for retirement and your own children’s college. Instead of the family paying interest, the family is earning interest.

Taking Advantage of the Step-up In Basis

One of the greatest gifts from the IRS is the step-up in basis that your heirs get on your assets upon your death. A great deal of estate planning can be done around this simple rule. Many times, if two (or three) generations work together, a family can avoid realizing a capital gain and allow that step-up to occur. For example, if grandpa needs some money, and the only way to get it is to sell the family farm, but that sale will generate a $2 Million capital gain, it would be far better for the kids to provide grandpa the money he needs out of their own earnings or savings and wait for him to keel over to sell the farm. More money for everyone. The same thing can be done with stock portfolios, the family home, or the lake cabin.

Gifting Rules

The gifting rule is a fantastic way to avoid paying estate taxes. In fact, it seems silly for anybody beyond the ridiculously wealthy to ever pay federal estate taxes when it is so easy to avoid them. Imagine an elderly couple with an estate tax problem (a growing portfolio > $10 Million). They want to pass as much of that portfolio on to their heirs as possible. Well, how much can they pass each year? They can pass $14K each to each of their heirs. So let’s assume they have 4 married children, each of whom has 4 married children each of whom has 4 unmarried children. That’s a total of 104 heirs. $14K*2*104= $2.9 Million per year that can be legally moved from the portfolio to the heirs, estate and income tax free.

What About the Generation Skipping Tax?

If you keep the annual gifts to $14K or less, the estate tax exemption ($5.34M per person in 2014) also applies to generation skipping taxes. Just use annual gifts to reduce the size of the estate. In general, if there is no estate tax due, there should be no generation skipping tax due. However, keep in mind the portability of the estate tax exemption between spouses does not extend to the generation skipping tax, so if a couple is in the $5-10M range, meet with an estate planning attorney in your state for some special planning.

Stretch Roth IRAs

One of the greatest gifts you can be left is a Roth IRA. It’s even better if that gift is left to someone quite young because the required minimum distributions are based on the age of the heir. It’s possible for a Roth IRA to allow tax-free compounding for over 150 years if done properly. In order to maximize family wealth, it’s best to leave these valuable assets to the youngest person possible. While a stretch traditional IRA isn’t quite as nice (since taxes are due on the withdrawals) it can still allow tax-protected growth for many additional decades if left to the right heir.

Paying for Education

Just like it’s best for the high earner to claim his college student as a dependent on his taxes, so is it best for the tax deductions to be concentrated in those who are earning the most. Education credits are far more valuable that way. Thus, the rich generation should pay the tuition bill. If they’re not able to truly cover it, the younger generation can gift them the difference. Likewise, parents may not be able to max out 529 contributions upon the birth of a child, but the grandparents might be able to- extending the period of time that assets grow in a tax protected way. Result- less taxes for everyone.

Estate Planning

There are many other great ways to pass money from the older to younger generations, including irrevocable trusts, spendthrift trusts etc. It would be an estate planner’s dream to have multiple generations of people who all get along with each other walk into his office and ask him how best they can maximize their assets by working together.

Asset Protection

Assets can also be protected from creditors by moving them from those with the highest risk to those with lower risks. Many docs already do something similar by titling the cars, boat, and house in their spouse’s name.  Why don’t more people do this? Because they don’t trust each other. Overcome that hurdle and all kinds of things are possible.

Reduced Insurance Costs

The faster the next generation becomes wealthy, the sooner they can stop paying for unneeded disability and life insurance. Longevity insurance and long-term care insurance premiums can also be saved, further building family wealth.

Teaching financial principles

The most important thing that multiple generations can do in order to maximize family wealth is to pass along the knowledge and values that allowed that wealth to accumulate in the first place. Most of us enter our 20s armed only with the financial knowledge taught to us by our parents’ examples. Dedicated time spent teaching financial principles, both by example and more formal methods, can pay incredible dividends. Teach your children to work, earn, save, invest, spend, and give wisely and you will have done much to increase and protect the family nest egg. If each generation views themselves as stewards of the family wealth, charged with preserving and growing it for the next generation, only good can come of it.
What do you think? What has your family done to maximize wealth through the generations? Comment below!

Source: http://whitecoatinvestor.com/building-wealth-across-the-generations