Throughout the past couple weeks I have been blogging to all of you my viewers on the importance of financial literacy. Now with the foundation I have provided for you, we are able to take it to the next step. What do you really need to know when starting a business? Well first you need to decided what type of business you would like to run here are the following types:
Sole Proprietorship : This form of business is usually deemed the "simplest form." Having a sole proprietorship is saying that you and the buisness are one of the same entity, meaning that all your personal assets and or liabilities are all of the same with the business. There are no legal distinctions between the two. If the owner dies, so does the business with them.
General Partnership: This form of business is usually two or more parties creating a buisness in order to generate profit. You can have a silent partner of the business of which they are usually just a cash flow, or a general partner which would share the liabilities and assets with you as a whole. Like a sole proprietorship both partners in a partnership are one with the business there is no legal distinction. When one of the partners die, so does the business.
Corporation: A corporation is different from both sole proprietorship and general partnership, because a corporation is a seperate legal entitity , it is a business made up of shareholders. Having an incorperated business would mean that your personal assets and liabilities are none of the same with your business. A corporation has unlimited life, and its own assets. If the company were to be sued , you yourself would not be personally liable but the company as a whole.
A corportaion is usually broken down into two types of stocks:
Common Stocks: Investment into a company with voting rights in relation to the board of directors
Preferred Stocks: Investment into a company with no voting rights , most have divedend rates while common stocks do not.
I would like to leave you all with the idea of how can you generate income for your business? Once you have decided what and how your going to create your business, the next step is always the cash flow, think of some ways you can generate cash flow for your business.
Showing posts with label finance. Show all posts
Showing posts with label finance. Show all posts
Friday, March 1, 2013
Saturday, February 23, 2013
The idea of being penniless on paper
Last post I left you with a question , using the prior example how could we make ourselves appear penniless on paper? The idea of making ourselves penniless on paper is one great key to financial success, because I have mentioned numerous times the market is not safe, investing is risky and if your not willing to take the risk your not on the path to becomming a successful investor. A great investor will have plans for each market, whether the economy is doing great or poor, they have a plan to make it work for them. Which brings me to my point of being penniless on paper. You always see people become instant millionaires from a great idea, facebook is a prime example. But what happens to a lot of these instant millionaires, they have never learnt to invest their money like the rich do, so they loose it they go bankrupt. Whether it be over a lawsuit or over spending of money. This is because they did not properly secure their assets to make themself look poor, but their business rich.
When owning a corporation you and your business are seperate legal entities, anyone owning a sole propriotorship or partnership, if the business fails one or both partners is legally endebted to any liabilities, which can be paid off with personal assets like your home and cars if the partners defaulted. I believe that a corporation is the best choice because it is the most secure for the founder.
The idea of being penniless on paper is transfering all your assets into your business. Make your business earn the money , not you. When your business is the one earning all the money, one paper you can recieve many tax incentives, and breaks as well as keeping yourself secure incase of a lawsuit towards you it cannot directly harm your business or a lawsuit towards your buisness cannot directly effect you. Knowing how to harvest the idea of being penniless on paper will reward you greatly in your future endvaours.
When owning a corporation you and your business are seperate legal entities, anyone owning a sole propriotorship or partnership, if the business fails one or both partners is legally endebted to any liabilities, which can be paid off with personal assets like your home and cars if the partners defaulted. I believe that a corporation is the best choice because it is the most secure for the founder.
The idea of being penniless on paper is transfering all your assets into your business. Make your business earn the money , not you. When your business is the one earning all the money, one paper you can recieve many tax incentives, and breaks as well as keeping yourself secure incase of a lawsuit towards you it cannot directly harm your business or a lawsuit towards your buisness cannot directly effect you. Knowing how to harvest the idea of being penniless on paper will reward you greatly in your future endvaours.
Three Types of Income
Throughput the weeks I have touched upon the subject of creating more than one plan for yourself in order to be successful you must always have a plan no matter the situation, lets refer back to the three types of lifestyles : Secure, Comfortable and Rich. Just as I had said in order to prepare for being rich, you must prepare for being secure and comfortable as well, I cannot stress enough that one willing to take these steps must create each portfolio for themself. Today I would like to introduce to you the Three types of Income :
2. Passive income
This type of income is usually derived from many different entities. One may earn a passive income from license agreements, or patents to a product, or even through real estate. Real estate is a major factor in creating your passive income. This type of income has many tax benefits.
3. Portfolio income
This type of income is what we will call "Paper Assets." Paper assets such as : Stocks, Bonds and Mutual funds. On an investment stand point this portfolio income is by far the most popular, this is because of new technology, everything as I mentioned is paper assets, it is far easier to maintain and track tons of investments because it is all generated online through markets.
From the diagram drawn above , this is the direct corrolation between the three types on income. Simple really, you want your ordinary income, to convert into passive and portfolio income. Like I mentioned earlier the difference between the rich, and the middle class/poor is that the rich focus on their portfolio and passive income, where the poor and middle class focus on their ordinary income. Let me give you an example :
Say you have landed yourself a job at a local bank, the job seems secure enough good pay so you keep it, you are generating an ordinary income. With these wages you tell yourself its a good time to invest in the real estate market, so you buy a house worth $80,000 for $60,000 on a forclosure auction. You now have generated $20,000 profit for simply investing in the porperty, you find a new couple who would like to rent out the home for $1400 a month, now your simple investment has made you a profit of $20,000 and is also generating you a passive income because you now earn a monthly $1400 for rent. With this new found cash you go to your financial advisor and say you want to invest in some stocks, mutual funds and or bonds. Remember investing is risky and does not always have a positive output, but a great investor knows how to invest in a good and bad market, but for this case we will say you made a profit of $30,000 on your initial investment. You can see through this example that your Ordinary income generated a Passive Income which then generated a Portfolio income. This brings back into play your assets paying off your assets creating strict profit for yourself, for further explination for any new followers to this blog please refer to earlier blog postings to get up to speed.
I want to leave you with the idea of creating your three types of income, and stump you with a question. From the example listed above, how can one create a profit but seem penniless on paper?
Monday, February 18, 2013
90/10
I would like to start off this post with a blank Income Statement and Balance Sheet.
(This image was taken from Rich Dad's Poor Dad's Guide to Investing by Robert. T Kioysaki)
The 90/10 rule is " 10 percent of the investors makes 90 percent of the money."(Kiyosaki,2013)
This concept is extremely important, because there is no wrong answer. It takes a lot of education and experience in becomming a investor, but it is the way an investor thinks that will differ oneself from being part of that 10 percent who makes all the money. The trick of investing is not luck, you may find a lucky investment once, but how will you keep it a float? Investing is all about creating an investment from something, another investor cannot see.
Let me give you an example: For many people building their own business is a dream, so we will use that concept. Your business you've created it, you never purchased your business it was your own idea that you put together and turned into an Asset. Your buisness now , whatever it may be has bloomed off, not enough to make you rich but enough to keep you comfortable. (As a side note, please remember the difference between Secure, Rich and Comfortable, and why it is important to set yourself up for all three plans.) This business is now generating an income, you have done what is needed to do, you have hired trusting employee's so the business does not demand so much of your Time another valuable asset. Now that your busines is creating an income it is paying off yourself while putting money in your income statement. Asset--> Income . Now with the business generating enough excess cash, you have done some research on a piece of land you wanted to invest in for years, you've done your fair amount of research and you pay for it with your business line of credit. The land ends up being a worthy investment like you believed, and you build a motel on it, which one day generates enough income to become a hotel, then a resort. This example would take tons of time, but it is just one way that you can use an asset to pay for another asset, you never had to take the money out yourself, you never had to pay for it yourself. You simple used your buisness, made your business pay it off, and created a new business within it that eventuall put you in the 10 percent making 90 percent of the money.
The concept I would like to leave you with today is how would you fill your asset colum? Think outside the box, think of ways you can earn money without spending money, using your assets to generate a cash flow to pay other assets off ultimately creating a rich life for yourself.
The 90/10 rule is " 10 percent of the investors makes 90 percent of the money."(Kiyosaki,2013)
Why is this? What is the difference between one investor and another , in order for only 10 percent of them to make 90 percent of the money.
The answer is how you look at the picture above, and fill those colums. The question to ask yourself is how do you fill your asset colum, without ever having to purchase that asset? In my earlier postings I enduldged you in the concept that your assests pay off your assests which is why we studied the Three E's , and our goal of accumulating Excess cash was only possible because at that time our assests were paying eachother off , ultimately gereating more income, while having a stable excess cash flow. But how does someone manage to create excess cash , and fill one's asset colum up without paying for the asset, how can you start with nothing and end with something?
This concept is extremely important, because there is no wrong answer. It takes a lot of education and experience in becomming a investor, but it is the way an investor thinks that will differ oneself from being part of that 10 percent who makes all the money. The trick of investing is not luck, you may find a lucky investment once, but how will you keep it a float? Investing is all about creating an investment from something, another investor cannot see.
Let me give you an example: For many people building their own business is a dream, so we will use that concept. Your business you've created it, you never purchased your business it was your own idea that you put together and turned into an Asset. Your buisness now , whatever it may be has bloomed off, not enough to make you rich but enough to keep you comfortable. (As a side note, please remember the difference between Secure, Rich and Comfortable, and why it is important to set yourself up for all three plans.) This business is now generating an income, you have done what is needed to do, you have hired trusting employee's so the business does not demand so much of your Time another valuable asset. Now that your busines is creating an income it is paying off yourself while putting money in your income statement. Asset--> Income . Now with the business generating enough excess cash, you have done some research on a piece of land you wanted to invest in for years, you've done your fair amount of research and you pay for it with your business line of credit. The land ends up being a worthy investment like you believed, and you build a motel on it, which one day generates enough income to become a hotel, then a resort. This example would take tons of time, but it is just one way that you can use an asset to pay for another asset, you never had to take the money out yourself, you never had to pay for it yourself. You simple used your buisness, made your business pay it off, and created a new business within it that eventuall put you in the 10 percent making 90 percent of the money.
The concept I would like to leave you with today is how would you fill your asset colum? Think outside the box, think of ways you can earn money without spending money, using your assets to generate a cash flow to pay other assets off ultimately creating a rich life for yourself.
Education, Experience , Excess Cash
The concept I left you with prior to this blog post was the Three E's : Education, Experience , Excess Cash. I would like to further your knowledge on why these three E's are extremely essential in your journey towards becomming rich, in the exact order they are placed in. We will start with :
Education : In life education is the key. Whether we would like to become great at something, or we would just like to further our knowledge about a subject , we do this by educating ourselves. "A Man willing to learn his whole life, will be the richest man."(Kiyosaki, 2013) Lets think of this logically, if you as a person are willing to never stop learning throughout the course of your life, do you believe that education can simply make you rich? No. It is how you use this education that will determine your success, this is where Experience comes in.
Experience: Now that you have based yourself with all the education needed to start your journey, well you must now put it to use. The easiest way to grasp the 3 E's is to put it in terms of your educational map. For all those who have went, plan to go or who are currently in post-secondary schooling, many of your programs may offer a co-op. Think of the three E's in terms of your program, first you need the Education so you have chosen your program, and are willing to educated yourself through it. Now that you have accomplished your first year and have furthered your knowledge it is time for your Experience this would be your co-op. Your school has set you up for success by using the three E's whether they knew it or not. Finally, once your co-op is done, your schooling is up, you've gotten all the Education and Experience you need, you have now set yourself up for the process of creating Excess Cash.
Excess Cash : Now we look at excess cash in the view of an investor, because in order to become a rich investor you need to have your assets pay off eachother, while your income your Excess Cash is exactly what it needs to be Excess. This is the money that when it comes in you can throw down on a worth investment , one that may take some risk , so this excess cash is money that can be lost, and it wont be needed to recover, because you've already bought assests that now pay eachother off and accumulate an income, where your excess cash generates its own income on its own.
I have laid out the three basics to further someones life in becomming rich. Now it is said that there is a rule called the 90/10 . This rule states that for every 90 Citizens only 10 will become rich. Why is that? If everyone knows the basics on becomming rich, learns the three E's , lives by them, what makes someone move from that 90 to the 10 % of those who become rich? I would like to encourage some feedback, on what you believe seperates someone between the 90/10 rule.
Education : In life education is the key. Whether we would like to become great at something, or we would just like to further our knowledge about a subject , we do this by educating ourselves. "A Man willing to learn his whole life, will be the richest man."(Kiyosaki, 2013) Lets think of this logically, if you as a person are willing to never stop learning throughout the course of your life, do you believe that education can simply make you rich? No. It is how you use this education that will determine your success, this is where Experience comes in.
Experience: Now that you have based yourself with all the education needed to start your journey, well you must now put it to use. The easiest way to grasp the 3 E's is to put it in terms of your educational map. For all those who have went, plan to go or who are currently in post-secondary schooling, many of your programs may offer a co-op. Think of the three E's in terms of your program, first you need the Education so you have chosen your program, and are willing to educated yourself through it. Now that you have accomplished your first year and have furthered your knowledge it is time for your Experience this would be your co-op. Your school has set you up for success by using the three E's whether they knew it or not. Finally, once your co-op is done, your schooling is up, you've gotten all the Education and Experience you need, you have now set yourself up for the process of creating Excess Cash.
Excess Cash : Now we look at excess cash in the view of an investor, because in order to become a rich investor you need to have your assets pay off eachother, while your income your Excess Cash is exactly what it needs to be Excess. This is the money that when it comes in you can throw down on a worth investment , one that may take some risk , so this excess cash is money that can be lost, and it wont be needed to recover, because you've already bought assests that now pay eachother off and accumulate an income, where your excess cash generates its own income on its own.
I have laid out the three basics to further someones life in becomming rich. Now it is said that there is a rule called the 90/10 . This rule states that for every 90 Citizens only 10 will become rich. Why is that? If everyone knows the basics on becomming rich, learns the three E's , lives by them, what makes someone move from that 90 to the 10 % of those who become rich? I would like to encourage some feedback, on what you believe seperates someone between the 90/10 rule.
Wednesday, February 13, 2013
Is your time and asset or a liability?
In earlier discussions we discussed the difference between and asset and liability. Today I would like to ask you : Is your time your most valuable asset, or is it your worst liability? Many would argue that time is a liability because you cannot gain more time, we are not promised time, so why would time be considered an asset, would it not be a liability? Time is determined on how you use it. To me time would be my most valuable asset, why? Time is not given to us, time gives me a dealine , time will give you the opportunity to set a goal and to do whatever it takes to accomplish that goal by your deadline. Time can be your most valuable asset, but your worst enemy. I touched upon the topic in my previous post that most people want to become rich, but almost none of them are willing to put the time and effort in , to succeed.
Let me ask you this, are you willing to put your time in to become rich and successful? Would you attend classes to further your education?
I want to leave you with the concept deprived from the book : Rich Dad's guide to Investing by: Robert T. Kiyosaki, the Three E's To Success:
Let me ask you this, are you willing to put your time in to become rich and successful? Would you attend classes to further your education?
I want to leave you with the concept deprived from the book : Rich Dad's guide to Investing by: Robert T. Kiyosaki, the Three E's To Success:
- Education
- Excess Cash
- Experience
I encourage readers to tell me what they believe these three E's have to do with success? What do you believe is the most valuble of the three?
I will touch more about this concept in my later posting.
Monday, February 11, 2013
What is a real asset?
Most people today want to be rich, but no one is willing to learn. Like I have constantly stressed , the importance of financial literacy is more than knowing the definition of a word, but to understand the meaning. Many people want to become a rich investor, but many do not know the simple difference between an asset and a liability. An asset in the simplest terms is something that puts money into your pocket , where a liability is something that takes money out of it. The distinction between the two can be shown the examples below for further understanding.
(Image taken from Rich Dad's Guide to Investing By: Robert T. Kiyosaki)
Please Note an asset puts money into your income, on your income statement.
(Image taken from Rich Dad's Guide to Investing By: Robert T. Kiyosaki)
Whereas a liability will put money into your expense colum, in other words taking money from your pocket.
A viewer of this blog asked me a question "Why is it so important to be able to know the difference between being : Rich, Comfortable or Secure; the reason being can be deprived from the examples above. A Secure investor would have a balance sheet that is leveled between assets and liabilities. So although they may not be poor, they are also not in a situation to become rich.
(Image taken from Rich Dad's Guide to Investing By: Robert T. Kiyosaki)
Please Note an asset puts money into your income, on your income statement.
(Image taken from Rich Dad's Guide to Investing By: Robert T. Kiyosaki)
Whereas a liability will put money into your expense colum, in other words taking money from your pocket.
A viewer of this blog asked me a question "Why is it so important to be able to know the difference between being : Rich, Comfortable or Secure; the reason being can be deprived from the examples above. A Secure investor would have a balance sheet that is leveled between assets and liabilities. So although they may not be poor, they are also not in a situation to become rich.
A comfortable lifestyle would be the same as the "Average Joe" in regards to the balance sheet and income statement someone who is comfortable would show a minimal amount of assets while having a liability colum full.
A rich investor would have his assests pay off eachother as well as provide income for further investments as well as personal net income. I will go more into depth of what it takes to become a rich investor in my following blogs. For now I would like all readers to adapt and understand the basic meaning between an asset and a liability , it is crucial for any type of success in the financial industry.
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