Wealth Creation

the power of compounding

The Power of Compounding – Study Done by Market Logic

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In order to emphasize the importance of time in the power of compounding, I am including this extraordinary study done by Market Logic, of Ft. Lauderdale, FL 33306.

In this study we assume that investor B opens an IRA at age 19. For seven consecutive periods, he puts $2,000 in his IRA at an average growth rate of 10% (7% interest plus growth). After seven years, this fellow makes NO MORE contributions—he’s finished.

A second investor, A, makes no contributions until age 26 (this is the age when investor B was finished with his contributions). Then A continues faithfully to contribute $2,000 every year till he turns 65 (at the same theoretical 10% rate).

Now study these incredible results: B, who started investing at an earlier age and who made only seven contributions, ends up with MORE money than A, who made 40 contributions but at a LATER TIME. The difference in the two is that B had seven additional years of compounding than A; those seven early years were worth more than all of A’s 33 supplementary contributions.

I exhort you to introduce this study to your kids. It reiterates the fact that the earlier you start, the richer you will be.

INVESTOR A INVESTOR B
Age Contribution Year-End Value Contribution Year-End Value
8 0 0 0 0
9 0 0 0 0
10 0 0 0 0
11 0 0 0 0
12 0 0 0 0
13 0 0 0 0
14 0 0 0 0
15 0 0 0 0
16 0 0 0 0
17 0 0 0 0
18 0 0 0 0
19 0 0 2,000 2,200
20 0 0 2,000 4,620
21 0 0 2,000 7,282
22 0 0 2,000 10,210
23 0 0 2,000 13,431
24 0 0 2,000 16,974
25 0 0 2,000 20,872
26 2,000 2,200 0 22,959
27 2,000 4,620 0 25,255
28 2,000 7,282 0 27,780
29 2,000 10,210 0 30,558
30 2,000 13,431 0 33,614
31 2,000 16,974 0 36,976
32 2,000 20,872 0 40,673
33 2,000 25,139 0 44,741
34 2,000 29,875 0 49,215
35 2,000 35,062 0 54,136
36 2,000 40,769 0 59,550
37 2,000 47,045 0 65,505
38 2,000 53,950 0 72,055
39 2,000 61,545 0 79,261
40 2,000 69,899 0 87,187
41 2,000 79,089 0 95,905
42 2,000 89,198 0 105,496
43 2,000 100,318 0 116,045
44 2,000 112,550 0 127,650
45 2,000 126,005 0 140,415
46 2,000 140,805 0 154,456
47 2,000 157,086 0 169,902
48 2,000 174,995 0 186,892
49 2,000 194,694 0 205,581
50 2,000 216,364 0 226,140
51 2,000 240,200 0 248,754
52 2,000 266,420 0 273,629
53 2,000 295,262 0 300,992
54 2,000 326,988 0 331,091
55 2,000 361,887 0 364,200
56 2,000 400,276 0 400,620
57 2,000 442,503 0 440,682
58 2,000 488,953 0 484,750
59 2,000 540,049 0 533,225
60 2,000 596,254 0 586,548
61 2,000 658,079 0 645,203
62 2,000 726,087 0 709,723
63 2,000 800,896 0 780,695
64 2,000 883,185 0 858,765
65 2,000 973,704 0 944,641
Less Total Invested: 80,000   14,000
Equal Net Earnings: 893,704   930,641
Money Grew: 11-fold   66-fold

 


Remember that as time passes, the power of compounding accelerates dramatically. If you’re a young person, all you need to know is that you must start early to stay ahead in the game of compounding and wealth creation. The best time to plant a seed was twenty years ago; now is your second opportunity to do the same. Do not waste a day!

business owner

How to avoid Pitfalls of a Business Owner?

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A business owner has huge rewards but problems as well.

Cash Management

business owner cash managementA business owner, probably, will be making more money but it will not be enough. One of the byproducts of growth is the shortage of cash. To grow, you will need more and more cash. Cash management becomes crucial to your success. You will also need organizational changes, build systems and leadership within your organization.

Employees

As your business grows, you will hire more employees. There is a saying, “employees cause more headaches than machines.” You will be let down time and again if you do not hire properly qualified manpower and train them for their tasks, unfortunately, instead of relaxing, your problems will grow exponentially and you will find yourself working harder and longer hours.

Hiring a Manager

At times, the situation becomes so stressful that an owner wants to hire a manager as you have money to do so and run away from all the problematic issues. If this is done pre-maturely, it can cause a company to collapse. You will need to place systems, checks and balances in place before you can think of handing over your business to someone else and retire.

Handing Over Control of Business

On the other hand, there are owners who find it extremely difficult to hand over managerial control of a company they have worked so hard to build—it is their baby, after all! They think that no one can do a better job than them.

To succeed at this level, you must first find someone who is perhaps as smart as or better than you to run your business. Once you have found such a person, you have to develop the mindset to let go – it may sound simple but is very difficult as you have been the hands-on person all your life.

You should trust the person you have appointed to run your business and refrain from interfering daily in running of the business. You are now an owner/leader and no longer the hands-on person … it is time for you to now relax and work towards a strategic view of your business and growth.

Finding New Investments and Growth Opportunities

Your focus now should be on finding new investments and increasing the profitability of your business. Maintaining a healthy cash flow is the responsibility of your manager. Although you are not involved in running your business on day-to-day basis, you must keep a tab on your business from monthly/ quarterly or through annual reports. You should intervene only when things are not progressing as planned.

Once you reach this stage, you no longer have to perform any physical activity in running your business. Your income from the business becomes passive—this is where the fun begins. You will be devoid of any daily pressures of running a business. This will give you time freedom to read, meet people, grow your business network and prepare yourself to next step of financial growth and challenges.

At this stage, your focus should be on building capital to invest in other businesses. This is important if you wish to become rich and wealthy. After this stage, you simply become an investor. You buy assets that will give you even more passive cash flow.

leveraging

Why Leveraging can Destroy Your Wealth and How to Avoid the Problem?

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Leveraging is a great way of creating accelerated wealth but it comes with a warning: if leveraging is applied incorrectly it can destroy your wealth equally fast.

The higher the leverage, the greater is the risk to your investment and business. At the same time, there is greater potential for profits. Leverage works both ways; it is a double edged sword.

Before applying leverage, you have to understand some basic truths about leveraging or things could go dramatically wrong and you can get yourself hurt and go bankrupt.

State of Knowledge

The financial crisis of 2008 was caused when excessive greed led people to use leverage without proper understanding of risks involved. The most important factor for using leverage correctly is your state of knowledge.

For instance, if you lack knowledge about finances or the business/investment you wish to start, there is no point in rushing to get a 100% finance in order to try making a no-money-down deal. Similarly, if you lack the knowledge of systems and how to set them up, there is no point in rushing to fully automate your operations. Same is true for any form of leveraging.

You should make a correct assessment of your financial, emotional and spiritual intelligence in any given situation before applying leverage as an instrument for accelerated wealth creation. Greed is the product of a lacking emotional and spiritual intelligence. Leverage driven by greed is the worst enemy of wealth creation.

Leverage is like a power tool that can make your job of wealth creation very easy but its improper use, without adequate knowledge or precautions, can cause you tremendous hurt.

There is a saying that, ‘It is never the investment that is wrong. It is always the investor who is wrong’. So, take the time and trouble to learn about the business or investment before jumping onto the bandwagon of leveraging for quick gains.

Market Conditions

In uncertain market conditions, when the outcome is not known or when the market is moving downwards, the amount of leverage should be reduced.

You could increase the leverage as you gain confidence, and when the market forces are moving in a positive direction.

leveraging

For example, in property investment, it is extremely easy to do ‘no money down deals’ if you have the right knowledge and the market is moving up. This is because even if you make a mistake, the rise in price of the property will cover your error. On the other hand, doing a low equity deal when the property cycle is moving southward then even a small error in your judgment will wipe out your equity.

If you are using leverage for accelerated financial returns, then you have to be very alert towards changing market conditions. If the market conditions deteriorate, then you have to take measures to reduce your leverage in time. People go bankrupt when they hesitate to act or foresee a developing situation. Reducing your leverage by selling some of your assets is no shame. You can always buy assets and increase your leverage when favorable market conditions return.

Age Factor

The amount of leverage to apply is also dependent your age. When you are young, you can risk applying high levels of leverage. This is because even if things go wrong, you have the time to recover and start all over again.

As you grow older, it is wise to reduce leverage even if you have become more proficient at applying leverage with experience. The last remark will, no doubt, be debated because there are many elderly people who are still young at heart and ready to take all kinds of risks in life. I, unfortunately, speak for the majority.

Risk Appetite

Before applying leverage, you have to access your risk appetite. This is because if things go wrong, then people with less risk appetite will start to panic and make incorrect decisions that can set them back by years in their financial growth and planning.

Greed

Greed is the biggest enemy of leverage. It is greed which makes us blind to applying leverage without appropriate knowledge, skills and timing. Before applying leverage, one has to develop checks and balances provided by spiritual, financial and emotional intelligence.

 

 

starting a business

12 Characteristics of a Great Business Idea

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If you are thinking of buying or starting a business then this is a must read article. Most people get fired up with a business idea and jump into it only to realize at a later date full implications of the business they have entered.

Before starting a business it is important to understand what constitutes a great business. There is no point in putting your hard earned money and effort at risk without fully understanding implications of the business you are starting.

You must consider following important issues before deciding on the business idea you wish to pursue.

Competition or Monopoly

Competition indicates that there is demand for the product or service. However, competition also means reduced market share and profits. In a fair capitalistic system, competition reduces profits to zero or it will force non competing firms to go bust thereby increasing chances of business failure.

starting a business

Entering a monopoly business is good because profit margins are assured. However, you will need to do market research to ensure that there is demand for the product or why no one else has entered the market space. Creating monopoly may also need deeper pockets in order to create demand for a new product.

You can also create monopoly by providing great value to the customers that other businesses are not doing. Another method to create monopoly is by creating differentiation with other product and services to stand out in the market space.

Starting a business in an area where demand exceeds supply is a great idea. This will reduce your marketing costs and ensure profit margins. Entering a low competitive market and creating monopoly by value addition is a great strategy for new business start-ups.

If possible start a business that is hard to copy and protect your intellectual property right. This can also be achieved by entering the market aggressively and creating brand recognition.

Understanding the Business Cycle

Every business has a lifespan – some have longer lifespans whilst others have relatively shorter lives. Eventually every business will die. Businesses like education, health, hospitality, energy have longer lifespan when compared to technology companies. In the past 70 years, we have witnessed transition of the music industry from records, LPs, tape recorders, CDs to downloadable music on your iPhone and iPad. Even iPods, after their short glory, have become extinct.

Remember Kodak. They had the highest market share selling film rolls. Advent of digital cameras and smart phones made them go bankrupt.

High-tech companies have shorter lifespans but have higher profitability margins. Are you looking for short term profits or sustainable wealth over generations? Do you want to start a high profit company and sell for windfall cashflow or are you looking to build a business for long term? Do you enjoy the challenge of starting new companies every few years or will like to run with a sustainable business idea for longer duration?

Both business models have their plus points. You have to decide what is right for you. 

Timing in the Industry

Timing in the industry is the key to your success. As explained earlier each industry has a business cycle. Always enter a business during the growth phase of the industry.  There will be lesser competition and higher profit margin.  Your business will have a longer life span. Entering a business that has peaked or is in declining phase will only bring grief.

For example oil industry is in declining phase as against solar energy which is the new hope of renewal energy. Will you buy service station that are likely to go extinct in the next decade because most countries are phasing out fossil fuel cars. Remember the demise of video libraries that were doing thriving business only a decade back.

Filling Need Gap

The business you enter must fill a need gap in the market. It should solve problem in an intuitive way that no one else is solving. Your profits will be proportional to level of problem you are solving. Greater the pain point and the solutions you provide higher will be viability and profits of your business.

Before starting a business look for problems facing other businesses and people and build your business around solving that problem.

Scalability

Always start small focussed on a small niche and scale upwards. Facebook started as social website for a college and grew from there. Amazon started their business selling eBook’s and today they are the world’s largest online retailer.

You may be starting out small but have a vision for the future growth of your business. Look at the scalability of the business model at the time of evaluating ideas for the business you wish to start.

It can be argued that it is possible to scale up any business.  However, certain types of business are much simpler to scale up than others. For instance it will be relatively hard to scale up a dairy shop or a farming business. It is easier to scale up internet based businesses like Uber and Airbnb when compared to a physical goods company.

Franchising is another method of scalability. It is also a great source of generating passive income. Here again it is not easy to franchise every business.  Look at future possibility of franchising the business when evaluating business opportunities.

Business with a Real Estate Backbone

Real Estate has created more millionaires than any business or investment. Therefore a business that has a real estate backbone to it gives it strength and sustainability. Industries like hospitality, business ideaeducation or heath generally have some element of real estate investment in the background that ensures long term wealth as long as the business can sustain operating profits.

A word of caution. Starting or buying a business as a freehold going concern reduces cashflow as part of the money generated from business goes into servicing the loan for the property you own. This should be taken into account when drawing up the business plan and making cashflow projections.

There are creative ways to overcome the problem of cashflow as was done by McDonald to fund their growth.

Ray Croc founder of McDonalds found that banks won’t fund his expansion plans because he did not own any assets. He started buying land in key locations and built McDonalds. After running the business for few months he put a lease on the property and sold the business franchise. In doing so he created two sources of passive income from the rent of the property and franchise of the business. New long term lease to the tenant greatly increased valuation of his property.  In doing so he created cashflow and equity. Banks were happy and leant him even more money to expand his business. He continued repeating the process and rest is history..

Financeable

The business you buy should be financeable. Most people think that once they have business idea venture capitalists and banks will be waiting in the wings to the fund the business. The reality kicks in when they start making rounds of financial institutions. They find that funders are super conservative in what they finance. They either want some kind of security as collateral which in most cases is real estate or ask for very high percentage of equity that you may or may not be willing to give.

This is why starting small within your resources and scaling up is a better option. Start a business that has very low start-up cost. Asking for additional funding for a profitable running business is much easier as lenders have more faith in your capability and your business idea.

There are some creative ways to generate cashflow to fund your business or buy businesses with no money down but these are beyond the scope of this blog post. 

Leveraging

Leveraging time and effort is a very important part of any successful business enterprise.

In certain types of businesses like real estate it is easier to apply financial leverage because banks are eager to fund the business as property is considered low risk.

Other businesses are more suited to human or technology leverage. There is a saying that humans create more problems than machines. Labour laws in respect to wages, hiring and firing, health and safety are complex in most countries. It requires great effort and human skills to manage labour intensive businesses when compared to tech companies. Technology leverage requires higher knowledge skill set but is cheaper and easier to manage.

The most important leverage you have is your knowledge. Most businesses fail not because the business opportunity or timing is wrong but because of lack of knowledge, time management and personal discipline of the entrepreneur behind the business.

When you are starting a business you have to be aware of your capabilities and opportunities your environment offers. These include not only knowledge about the product and services you are marketing but also your management, marketing, business development and financial skills. No person has all the knowledge or skills needed to be successful in business. The gaps have to be filled by taking advice from professionals in various fields or partnering  with people who have the skills that you lack.

Before starting or buying a business you have to be clear in your mind the type of leverage suited to your business. What type of business systems you can apply to run the business more efficiently. 

Start Up and Maintenance Costs

Businesses have a start-up and maintenance cost to run a business in terms of finance and effort. It may not always be possible to have a low start-up and maintenance cost business. If there is choice go for low maintenance business. Your time is the most precious commodity. Look for lifestyle business opportunities that free up your time and effort. You will be rewarded in terms of better family life and health.

Start a business that has low fixed costs that include interest on loans, rents, salaries and utility bills. By using existing resources and hiring part time or virtual assistants you can keep your bills down. Some of the biggest companies like Microsoft, Apple and Amazon started in garages with no rents and virtually no employees.

Risk Management and Exit Strategy

Every business opportunity comes with some element of risk. This should not deter you from starting a business. Excitement and passion are important when starting a business but one should not be carried away by emotions.

Businesses offering high rewards generally carry higher risk. The risks can be from outsiders like creditors or within the business enterprise due to injury and health issues. It is important to analyse elements of risk in every business opportunity and study ways and means to mitigate that risk. These include setting correct business structures and insuring damage to business, property and income.

It is also important to have an exit strategy in place in case things go wrong and not according to plan. Even the best executed plans can go awry. Avoid businesses wherein exiting the business can be a problem.

Deposit Recycle Time

Deposit recycle time is the period within which you take out your initial investment from the business. Once your initial investment is out then the business becomes risk free to you. It is important to remember that you still carry responsibility towards your investors, creditors and employees.

In a good business opportunity you should be able to recover your initial investment within 12 to 24 months. There are smart business people who start a business with no money of their own or recover their initial investment with 3 to 6 months.

 

Final Thoughts

There are conflicting requirements when starting a business. For instance buying underlying freehold property is a great strategy for wealth creation but can reduce profits and put pressure on cashflow to run a business successfully. Similarly trying to make business risk free by insuring everything will cut into profitability of your business.

Prudence and balance is the key to running a successful business.  No two situations are alike. However understanding the principles and applying them to the maximum possible effect will translate your business idea into successful reality.

 

 

stock market

How to Beat the Stock Market?

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Fundamental & Technical Investing in the Stock Market

With the advent of online trading many investors have become ‘day traders’ operating from the comfort of their home office. They buy and sell shares by using various types of software available in the market. Most of these people are engaged in technical investing. Though ‘day trading’ strictly cannot be termed as investing, if the aim is to create passive income. It is good for generating cash flow if done properly.

A truly knowledgeable and sophisticated investor takes investment decisions after doing both fundamental and technical analysis of an asset.

Fundamental Analysis

This involves careful analysis of the following:

  • Financials and future earning potential of a company
  • Economic outlook with especial focus on country and state where the company is located
  • Economic outlook of the specific industry in which the company is involved
  • Direction of interest rate movement

Technical Analysis

These days, markets fluctuate wildly because news travels at lightning speed and gets amplified through multitude of news outlets. This affects the market sentiments of both buyers and sellers. It is because of this more people are turning towards technical analysis. They prefer short-term trades as against investing for long-term. Technical analysis involves the following:

  • Analysis of emotions of the market
  • Supply and demand of company stock
  • Look for discounted prices of a stock based on sentiment
  • Study of pattern of share price movement
  • Study volume trends of sales and purchases of a stock

Fundamental analysis is a must if you wish to invest for long-term. This is what Warren Buffet does best to create long-term wealth. Technical analysis, on the other hand, is more suited for short-term trading. Whether you are long-term investor or a short-term trader it is advisable to use both the analysis methods. This will not only maximize investment returns but also reduce risk.

Outside and Inside Investors

Most people are outside investors. They make their investment decisions based on financial reports released to the public as a part fiduciary responsibility of a corporation.

stock market

An inside investor is the one who has some degree of management control of a company. He has greater knowledge regarding the future plans and problems within a company. This knowledge is extremely important to reduce risks and increase returns.

You can become an insider either by building your own company or buying controlling interest in a company.

Being an inside investor should not be confused with SEC definition of an “insider”. According the law “insider trading” is illegal if one profits from company information that is not public.

The difference is that an inside investor has control over direction and operations of a company. An outside investor does not and is therefore limited in his capacity to change things.

Concentration Vs Diversification

Study the two statements below carefully:

“Do not put all your eggs in one basket.” -Proverb

“Diversification is a protection against ignorance. It makes very little sense for those who know what they’re doing.” Warren Buffet

This is why investing can be so confusing for many investors. Your fund manager will advise you to diversify by investing into mutual funds and Warren Buffet will give exactly the opposite council to focus only on few investments. Both advices are true depending on your circumstance.

“Wide diversification is only required when investors do not understand what they are doing.” Warren Buffet

If you lack the knowledge of investing or do not have the time, then it is best to diversify by buying into mutual funds. It is best to seek advice from competent fund managers or better still invest on a monthly plan into an index fund.

“By periodically investing in an index fund, the know-nothing investors can actually outperform most investment professionals.” –Warren Buffet

Index funds are those that track share prices and are better because they have no loading costs. It has also been found that they perform better than most fund managers.

On the other hand, if you are a knowledgeable investor with limited funds at your disposal and wish to embark on path of accelerated wealth creation then it is best for you to focus on one or maximum two wealth creation strategies at a time. You can truly master only one of the two things at a time. You also greatly reduce risk by concentrating on few holdings.

Once you have mastered an investment technique, it takes very little of your time to repeat the process to maximize your profit. Building wealth can be a boring repetitive process once you have mastered a technique. Unfortunately, the human mind needs excitement and most people tend to lose focus as they want to try out new things. There is nothing wrong in exploring new ideas but one should not lose focus on things that are getting results.

Once your wealth grows, it is important to diversify to preserve your wealth. Concentration builds your wealth whereas diversification preserves your wealth.

We do a full circle from diversification in the initial stages when we lack knowledge, to concentration for accelerated wealth creation as we become more knowledgeable and finally go back to diversification to preserve wealth.

Analyzing Investments

If you wish to become a knowledgeable investor whether it is real estate, stocks or businesses you have master the following:

  • Financial Statements -Become an expert in reading and understanding Financial Statements such as balance sheets, profit and loss statements. These are important to understand financial health of a company and risks involved in investing in a company.
  • Investment formulas – These help in calculating profitability and risks involved in an investment. There are software programs and calculators that help you with the calculations but you still need to understand what they mean in relation to an investment you are analyzing.
  • Investment Vocabulary – Mastering investment vocabulary will help you in discussions with experts when analyzing an investment.

 

 

wealth creation

Understanding Triggers of Wealth Creation

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There are principally two triggers that work the mind when it comes to wealth creation. There may be slight variations but fundamentally there are only two triggers.

It is important to understand these triggers because all wealth is generated due to these two triggers. You will need to understand and use these triggers skillfully in order to create wealth. The two triggers are the ‘pain’ and the ‘pleasure’ triggers.

Pain and Pleasure

Pain comes from deprivation of basic human needs like food, shelter and love. Even the very thought of pain and deprivation can become great motivators that can get us started towards the process of wealth creation.

Pleasure, on the other hand, is fulfillment of desire unsatisfied.

wealth creation

Even the thought of pleasure can get our minds excited with all kinds of possibilities and is an equally great motivator to get us started.

Pain pushes us whilst pleasure attracts us towards acquisition of riches. You have to understand what trigger drives you—it can be a bit of both. A little bit of meditation and awareness will help you identify triggers that work your mind. Meditation is nothing else but consciously observing your thoughts without judgement. Once you understand the inner thought process, you will be able to make sound choices in the present and not be driven by programming from the past.

In my case it was extreme poverty that drove me into the arms of spiritual quest to find the answers to my miserable state. For some reason, I bypassed the material stage only to realize at a much later date that my development was incomplete. This realization set me on the path towards attaining material success.

In some ways, I am happy that I understood the spiritual values before embarking on the wealth creation process even though it set me back by a couple of decades. Money has given me great satisfaction- to educate my two children in the best of colleges that money could buy. It enabled our family travels around the world and expanded our horizons.

Importance of Money

The greatest thing about money is the freedom it provides. It gives the freedom of time to explore relationships. Freedom of movement, to explore new places, and spiritual freedom to discover and develop unique genius. To become an enlightened wealth creator is to have freedom to do what you desire as long as it hurts no one and helps others.

Charity means to help others grow and make them stand on their feet so that they can hold their heads in dignity. Knowledge, education and health are the keys.

Education and the pursuit of knowledge has been the only difference between me and the poor village in India from where I emerged. I hope to acquire all the riches in the world and go back someday to set up an educational system that will empower others to do better than me.

My triggers of pain and pleasure may be different as compared to yours because your circumstances and experience of life are different. Your triggers and dreams are equally worthy. Take time to find them and focus on them.

Sowing the Seed of Wealth Creation 

Do not run after the fruit without sowing the seed of wealth creation first. In doubt- read a little, reflect a little, meditate a little and become aware of the power of the money in your life and the triggers that drive you.

The seed will engender the tree and the fruits, and not the other way around. You are destined to great riches. Being wealthy is your right—you may or may not realize this fact. The world is moving towards materialistic progression. Sooner you understand this fact about money, faster the manifestation of affluence and power will happen in your life.

Make a decision at this very moment that: “I will be rich and enlightened,” and you shall be rich and enlightened. Your journey to financial freedom will begin as soon as you sow the seed of prosperity and becoming rich in your mind. It is as simple as that.

Even if one understands the importance of money, it is fear of the unknown and the risky that holds us back. No one has ever succeeded in life or created wealth without taking risks. Whether it is the decision to get married, start a business, invest in a property or choose a career; there are anticipation of the unknown. A sports person or an artist has to decide if they have sufficient talent to pursue their dreams, or join the rest of mankind by taking a less risky option.

There is ‘fog of war’ in every decision in life. No one has a crystal ball to see the future. The worst thing in life is to freeze because of that fear of the unknown. When it comes to money and our financial future, this fear becomes irrational. Understanding the triggers of wealth creation like pain and pleasure, fear and greed are fundamental to your success.

active investor

What Skills Are Needed to Become a Knowledgeable Active Investor?

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Many active investors make huge loses because they lack financial skills or do not have adequate control over their investments. To become a sophisticated investor, you have to master the following skills:

Knowledge of Taxes

Taxes can make or break an investment. An otherwise attractive investment opportunity may have a huge downside after taking account its tax implications. It can erode the bottom-line.

You must have knowledge or seek advice on the tax implications of an investment. This will differ from person to person depending upon the financial situation. A knowledgeable investor can gain higher returns with low risk after studying the implications of tax law, corporate law, securities law, capital gains tax, stamp duty etc.

Management of Investment

When making an investment you must take into account on how you will manage the investment.

active investor

Some investments are messy and very difficult to manage even though they may promise very high returns.

For instance, it may be very attractive to buy a property or business overseas as it shows excellent cash flow and growth prospects. Your financial analysis may be right but before making such investments, you should take into account travel and administrative costs to manage the investment.

You will need to create legal entities in a foreign country, hire a tax accountant and managers to look after your asset. You have to understand time and management cost of an investment before rushing to make a decision.

Brokerage

High brokerage fee can sometime make an otherwise good investment into an average one. There are many investments that have re-occurring brokerage fees. Many times, it is only the broker who makes a profit and not you. An example of this is when you buy a property in an area that does not have stable tenancies. Re-leasing cost will dramatically reduce the net return from your investment.

Control Over Income and Expense

A good investment is when you can exercise control over income and expense of your investment. Investing in hotel units on profit share basis may sound very attractive especially when you can live in them for 2 to 4 weeks each year. Unfortunately, in such investments you neither have control over the income or expense. In most cases, returns from such investments are extremely poor.

Information

Information is the key to making sound investment decision. If you do not have adequate or transparent information about an investment, refrain from buying it. Always cross check the information provided to you for its authenticity.

Don’t get duped by slick salesmen who appeal to your greed and put you under time pressure into making decisions with incomplete facts about an investment. Warren Buffet says that secret to his success is that he spends 80% of his time reading financial reports.

Terms and Condition of Agreements

It can be tedious reading through fine print in most agreements. This is especially true for agreements drafted by crafty lawyers of big corporations to be signed by small-time unsuspecting investors.

Most novice investors sign agreements without knowledge of the implications of certain clauses in the agreement. These can come to haunt you when you least expect. Ask anyone who has gone through an insurance claim.

If you are not sure about a clause, seek legal advice. It may cost you a little in the beginning but save you considerable amount of distress later. Best situation is if you have the control of setting your own terms and condition of an agreement.

Buying and Selling

You should have control over buying and selling an investment. There are investments that have long lock-in periods. It is best to avoid them.

By having control over buying and selling, exiting an investment if things go wrong becomes possible. It can also give you much needed liquidity in times of distress or if you wish to invest in a better opportunity. Remember there will always be a time when you will need to sell a long-term investment to maximize your profit.

Management Control

This may not be possible for small-time investors but when you make major investments then always endeavor to have some management control. This will give you inside information regarding your investment.

While starting out, you may not be able to gain control in large corporations. It may be better for you to investment in small and medium size companies depending upon your budget. Better still, start your own company that gives you total control over your investment.


Business Entity

A knowledgeable investor creates entities not only to take advantage of taxes but also to protect the asset. These include forming Corporations, Limited Liability Companies, Trading Trusts and Family Trusts. It is best to seek legal advice as this will depend upon your situation, country you live in or location of your investment as laws differ for each country and sometimes states.

how to transcend wealth

Why and How to Transcend Wealth?

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Most enlightened wealth creators understand that wealth flows, and nobody can block its flow. We are mere custodians of money for a short span of time. It invariably passes through our hands to others. No one has been able to take their wealth with them.

We pass it to our loved ones or give it to charity. Some fools try and guard it closely only to leave legacy of legal battles when they die.

how to transcend wealth

Wealth continues to flow whether we like it or not.

What we do with the wealth when we are custodians for a limited period of time is what matters. Wealth is a privilege and a great responsibility. It takes much lesser effort and knowledge to make money than spend it wisely. It needs great wisdom to use the power of wealth correctly.

When used with restraint and wisdom, wealth can help us to become greater than ourselves. Acts of giving and kindness help us to connect with large suffering humanity and in the process, raise our consciousness. 

“Giving frees us from the familiar territory of our own needs by opening our mind to the unexplained worlds occupied by the needs of others.”  –Barbara Bush

What benefactors like Warren Buffet and Bill Gates are trying to do is transcend wealth itself. They are not consumers of wealth; they lead very modest lifestyles in comparison to their wealth. They understand the transcendental nature of wealth and simply choose to give it away willingly. In the process, they become larger than themselves and will outlive their wealth. Their legacy will continue long after their wealth has vanished. They will live in the hearts of men, women and children whom they have helped.

“What we do for ourselves dies with us. What we do for others and the world remains and is immortal” —Albert Pine

Some will ask as to why we should make an effort to create wealth if the end purpose is to give it away. The answer to that question is: the process of wealth creation evolves you as a human being. It normally starts with a selfish motive but in the end, it transforms you into something bigger than your narrow self.

It transforms your family and other human beings who come in your contact. You understand its transitional nature once you possess it – its possession gives you freedom to explore and understand new things, and the chance to help others and in the process, help yourself.

Wealth is never an end in itself: it is a means towards the greater good. Some unfortunate people lose sight of the real purpose of wealth and get consumed by greed. Ultimately, such people get destroyed by their greed. Wealth built on foundation of greed never lasts.

It does not matter how much you give—it is the principle of giving that is important. The very act of sacrifice in order to help others who are in more need than you are is trans-formative. It sets into motion laws of karma that will open the universe of riches to you. Act of giving is a necessity and not a luxury if you want to be truly successful in life.

Enlightened people are those who create wealth the right way, preserve wealth the right way and ultimately, use their wealth for the greater good of humanity. This process leads to seeking of a higher purpose in life and its fulfillment.

 

financial success

Why Leveraging Systems is Important to Your Financial Success?

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Achieve Financial Success through Leveraging Systems

The ultimate aim of any income stream and achieving financial success is to make it work on autopilot or with minimal supervision from you. This can only be achieved by putting proper systems in place so that it can function without your intervention. This is the ultimate leverage that will free up your time and effort to devote to other important things in life such as family, travel, leisure, creativity or other ventures that will create new sources of wealth for you.

When I was in the Navy, we had a saying that it was a system designed by a genius to be run by fools. All the procedures were laid out for us to the last detail. We knew what action to take in an emergency, what logs and forms to fill up, how to demand stores, etc. When an order was given to ‘dive’ or ‘surface,’ every crew member who was on-board the submarine knew exactly what action to take. Nothing was left to chance.

Buy a System

A well-run income stream or business should be run in a similar manner. The problem is that most of us know how to work within a system designed by others, but are clueless when it comes to designing a system for our own work or business.

The answer to this problem is to buy into a system that is very closely related to your work and adapt them to your requirement. An alternate solution is to work with an expert who has the skills to design and set up systems.

To leverage our time and effort, we have to be on a constant lookout for setting up systems to free our effort and time. These can be very straightforward things like: setting up automatic online payments for our bills or more sophisticated automated systems to put our business in auto pilot. There may be some cost and effort involved to initially set up the systems, but once they are in place, they free up your energy to do more creative work. The aim of any good system is to take care of the routine work thereby leveraging time and effort for creative work.

To become rich you need to have proper systems in place–QED. Without SYTEMS, you are doomed to failure. Research has shown that 94% of the failures are not due to the assumption that people don’t do a good job, but because either they are using the wrong business systems or have no systems in place to start with.

For the ease of understanding, the right acronym for systems is:

Save Your Self Time Energy Money

If you want to make money, then search and find a money-making vehicle that has successful systems. You will save time, energy and money if you have systems in place before you embark on money-making ventures.

If you don’t have the skills to set up systems, then buy into business/ investment ventures that have systems in place. Every enlightened wealth creator knows this simple truth. They buy into time-tested predictable systems that will do the job for them. That is why when initially starting your own business, it may be wiser to buy into a franchisee that has strong systems rather than building your own from scratch.  Chances of failure will thus be reduced. As you gain experience, you can develop your own system.

Once you have systems in place, the system will churn out money for you. All the work is done upfront to set up the system. You will only need to fine-tune it, once in operation, to make it work optimally.

center of influence networking

How to Become Center of Influence in Your Network

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Always remember that you are the center of influence in your network.

center of influence networking

Even if you have a great dream-team, you remain the leader of your team that will exert the key influence in creating your network.

Personality Traits

You have to develop the traits that help influence your network: you have to make yourself immensely likable and radiate positive energy, and your personality and eye contact should radiate warmth and friendliness. Develop a personality that is always looking to help others grow in whatever their endeavor or goal may be in life, and always be willing to give and add value without any hope of reciprocity—that will make your influence grow.

Integrity

Integrity, integrity, integrity. There is no substitute for integrity. Never promote an idea, service or goods to your network that you are not using or have doubts about. You cannot fake and build a network. Be yourself and act honestly. You will attract the right kind of people into your network, which will help you grow in leaps and bounds with their support.

Be Ethical

Ethical leverage is essential in networking. You have to use your contacts wisely. If you try and use your contacts without thought of return on everyone’s time and effort, then you may succeed in lifting your load, but your strategy, in the long run, will fail. Your network will collapse.

I get hundreds of emails every month from internet marketers trying to promote affiliate products. It is very easy to find out a fake promotion coming from a person who has never used a product or has very little knowledge about it. I immediately unsubscribe from the list of those who try and promote such products. On the other hand, I continue to be on the list of those who email me information that is of value to me and, at times, buy products on their recommendation.

Fundamental Rules of Networking

The power of leverage comes from using your networking skills wisely. There are two fundamental rules to networking:

  • Pay It Forward- Assist 3 people to succeed and in return of what you do for them, request them to help 3 others. This is leverage.
  • Share the Rewards- Share the rewards of your success and prosperity with all those who are involved in your network.

If you are honest, genuine and helpful your sphere of influence and network will grow. Your network, if built correctly, will, without a doubt, make you rich.

 

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