Book Summary: Tax-Free Wealth: How to Build Massive Wealth by Tom Wheelwright
As a child I was fortunate to have my father as a business mentor. When the time came and I entered the business world, I couldn’t lean on him as he passed away young. The Rich Dad / Poor Dad books were my salvation when it came to financial education. Several of the concepts that I knew from my father, but the advanced strategies and the “how”, really came from the Rich Dad books. Tom is a Rich Dad advisor.
Why is this important to me?
I am not doing this summary to waste your time. My vision is to provide concise action steps that you can take right now to improve your financial life and career. If you want to continually improve, you have to be committed to continuous learning. Take advantage of continuous learning with the right partnerships and you will be successful in your career.
The cash flow quadrant really sums up the essence of financial success. If you focus on the left side of the quadrant then you can make a good income, but if you focus on the right side then you can get rich. Robert Kiyosaki points out in Rich Dad / Poor Dad that on the left side of the quadrant people make money, pay taxes, and then spend it. On the right side of the quadrant, people earn money, spend it, and then pay their taxes. This is a big difference and can be the biggest lever for success in your financial arsenal.
Tax-Free Wealth lists 24 tax strategies you can use on your way to tax-free wealth. For the sake of time, I will point out a few along with a few comments on each.
1. Rule # 1 – It’s your money, not the governments. People tend to run scared when it comes to taxes. Remember that you are the one who creates the value and makes the business work, be smart and use tax strategies to minimize taxes and maximize your investment. The key here is tax evasion, NOT tax evasion. Every concept in this book is fully legal and recommended by the IRS.
2. Rule # 2 – The Tax Law is written to permanently reduce your taxes. All financial plans need a solid foundation. This is why you simply CANNOT focus on the rate of return alone. You can get a huge rate of return, but if you can lose it due to a lawsuit or if 50% is consumed in taxes, you will lose in the long run. 99% of the tax code is written as incentives to encourage people to start businesses. The reason the government does this is because businesses create jobs and that is the main economic engine.
3. Rule # 3 – The fastest way to put money in your pocket is to reduce your taxes. Businesses require investment. That investment is a business expense along with R&D, travel, and other business-related expenses. You can legitimately combine vacation and work and write it off as a business expense. If you travel and sell items, make sales calls in the vacation area. If you are a real estate investor, travel where you can invest.
4. 4. Rule # 24 – Generate massive passive income through your tax savings. This is the strongest wealth builder in the book because it increases compound interest, speed of money, and leverage. If you use these three vehicles in conjunction with investment stacking, you will be rich. The goal is to build your business and make money there and turn it into passive income and then park the additional money in cash flow investments like real estate. You want your money to work harder than you. You don’t want to trade hours for dollars. Let me give you an example.
In our software company there are two ways to generate wealth and it is through intellectual property and maintenance agreements. These two things used together will build a business that can be sold for 2-4 times the revenue. Now, to encourage that investment with leverage, I use the “concept of infinite banking” to lend money to the company through “my own bank.” Now the money the company returns to me as investment income, which means lower taxes. New revenue from additional maintenance contracts encourages new contracts. The next step is to use “good debt” to take advantage of our coverage and acquire more income from maintenance contracts with our software platform.
In short, you make money in your business and keep it in passive, income-generating assets using good leverage, money velocity, and compound interest.
Tax Free Wealth is a great resource that I encourage you to read. If you dive into these concepts, financial security and true wealth can be yours.
I hope this short summary has been helpful to you. The key to any new idea is to incorporate it into your daily routine until it becomes a habit. Habits are formed in just 21 days. One thing you can take away from this book is to boost your financial education. If you take control of your education and schedule 30 minutes a day dedicated to this, you will get results. You cannot put your financial future in someone else’s hands. Take responsibility and good things will happen.