Today I’m going to talk about the three layers of wealth creation.
Number one, when looking to build any type of wealth, you need to first create a very strong foundation. What do I mean by that?
You need to surround yourself with some very good people, for a start. One of the first things I did, was get myself a really good accountant and a really good solicitor. I decided to have an accountant because once you start to make a lot of money, you want to make sure that you’re not giving the money away to places or people that you shouldn’t be.
The ATO is an example. Structure your taxes effectively, because there’s no point in earning all this money, creating all this money, and then having to give it away to the State Revenue Office or the IRS or the Australian Tax Office if you don’t need to. Be very clever, but be very legal. Look at how your affairs are structured in relation to tax.
Set yourself up with a really good accountant. Not just any accountant, but an accountant that is actually doing what they’re looking to do. Someone who is on your team that can actually advise you as well, as opposed to just doing a tax return. If you’re looking to build wealth, you need more than an accountant who just prepares your tax returns. Tax returns are the minimum requirement for any accountant that you consider.
You’re looking for business planning, you’re looking for tax structuring and effective planning. It’s a bonus if your accountant is doing extremely well financially, is in the property market, invests in shares and real estate, or is a developer or builder. That’s a bonus, because you can then start to get advice in those areas in terms of how to structure your affairs.
It’s very important that you set yourself up with a good accountant. Next, you need to make sure you have a really good lawyer. One of the things you need to understand, is that when you start to build wealth, you need to be able to protect your assets. You need to be able to protect your wealth. You need to be able to move your wealth around and you need to be able to then pass it on, later on down the generations.
Having a really good lawyer in place is extremely important. Setting up things like wills, trusts, powers of attorney and all of that planning. This is looking at the big picture. You don’t just jump into wealth overnight, you have to set it up properly.
It’s like building a house. You need to first have a really strong foundation, or else the house is going to collapse once you start to put the bricks, flooring and the second and third levels on top. If your foundation is weak, it’s going to collapse. Wealth creation is the same. If you have a very weak foundation, it will collapse.
Put yourself in touch with a really good solicitor, a really good accountant, a very good financial planner, mortgage broker, quantity surveyor and builder. You need a really good team of advisors around you. These people are there to support you. They’re not there to steer the ship. You are the captain of your ship, but these people are here to make sure that you don’t run into an iceberg. You need a very good team of people around you, it’s critical.
The next thing you need to do as part of your foundation is set up some structures. That could be corporations, that could be trust structures, discretionary trusts or fixed trusts. They’re nothing more than purchasing entities or holding entities that give you very good treatment with regards to asset protection, tax structuring, minimising any losses and flowing money in a way that means you don’t get hit too hard when it comes to tax.
Set up your right purchasing entities; self-managed super funds, partnerships and tenants in common. You need to understand what entities you’re going to purchase in. It may be different for every asset that you acquire, based on your position at the time. It will be different based on whether you have a family. It will be different based on whether you want to actually negative yield your assets.
You need to have some really good purchasing entities in place, such as Australian Business Numbers and Australian Company Numbers. Again, a very good accountant can advise you about all of that.
Have your purchasing entities in place, have your mastermind team in place and have a plan in place. This is all part of the foundation. You don’t build a house without a plan. You don’t just show up to a builder and say, ‘build me a house.’ The first thing the builder will say is, ‘show me the plans.’
Wealth creation is exactly the same. Make sure you have a plan. It’s nothing more than a way to help you achieve your financial goals. The steps you’re going to take, in the correct sequential order, help you achieve your goals.
Set up a really good foundation. Don’t take forever on this, but make sure that you have a really good team of people around you. Everybody on your team should be doing better than you. If you’re the smartest person on your team, that’s not cool.
Everybody on your team should be doing better than you, or else what the hell are you going to learn from them. Yes, you’re going to have to spend some money to acquire these people. But you know what? Every adviser I have on my team has made me a ton more money than I’ve actually had to pay them. If an accountant charges you $10,000 and makes you $100,000, do you really care?
It’s very important that you surround yourself with a really good team of people. Set up a really good foundation of structures, purchasing entities, holding entities and make sure you understand the laws. Once you purchase something, it’s very expensive to change the entity that you’ve purchased it in.
That’s the foundation layer. Make sure it’s strong, make sure that it’s stable; make sure that if things happen, it doesn’t collapse. You need it to protect you. Make it super strong and super efficient.
Number two is the accumulation phase. There are three phases to wealth. We talked about the foundation phase and now we’re going to talk about the accumulation phase. This is where you now start to accumulate your assets on top of the foundation that you’ve built.
It works like a pyramid. If you think of it like a pyramid, the foundation is down at the bottom and the next layer is your accumulation phase. This is where you start to stack the assets, accumulate the assets in line with your plan until you hit your financial goal. This could take a number of years, depending on what your financial goal is.
This will be along the lines of investing in real estate, building a share portfolio, managed funds, gold and silver and different asset classes that give you a combination of capital growth. This will provide capital appreciation and strong cash flow. I’ll get into this more another time. For the purposes of this article, the most important thing is that you understand the three phases. First comes the foundation phase, and then you start to stack the assets on top of your very strong, rock solid foundation.
How much do you accumulate? You accumulate until you’ve hit your financial goal. You’ll know, as part of your plan, when you’ve hit your financial goal.
The third phase of wealth creation is what we call the preservation phase. This is where you hold your position, this is where you start to consolidate. You know you’ve hit your financial goal. Now, that’s not to say that you don’t continue to build wealth, but make sure you have a goal.
Once you’ve hit your financial goal, you start to consolidate. That may mean that you hold onto your position. You have a great foundation, your assets are working for you, they’re appreciating in value, you’re getting very good cash flow, now you want to start to consolidate your position.
Part of consolidating your position is to make sure that you have a very good debt reduction or debt elimination strategy in place. At that point in time, if you’ve followed your plan, gone through the steps correctly, set up a good foundation and accumulated the right assets, you will consolidate your position and wait for the end game; the timeframe you gave yourself to eventuate.
Done correctly, you should have a portfolio of assets that have no debt, that give you a very strong combination of capital appreciations that are increasing in value every year, and enough cash flow to fund the lifestyle of your dreams. Once you’ve achieved that position, congratulations, you are now financially free.
I hope you enjoyed this.
To Your Success