Why You Need to Increase Your Financial IQ

The average American today works for six months to pay taxes. This is a very long time. The more one work, the more she pays the government.

In this article, we’ll take a look at how taxes work in favor of corporations and the rich, and then discuss the power and advantages of corporations.

When the poor and middle class try to punish the rich, the rich do not bow down and react. Because they have money, power, and are determined to change things. They don’t just sit around and agree to pay taxes. They look for ways to reduce their tax burden, recruit skilled lawyers and accountants and persuade politicians to change laws and create legal loopholes. They have the opportunity to change the rules.

For example, the US tax law provides some possibilities to avoid paying taxes. Many people cannot access these opportunities because they are busy with their own work. These legal loopholes are details only the rich can see. For example, “1031” means the section numbered 1031 of the State Revenue Law. It allows the seller to delay tax on real estate sold to be exchanged for a more expensive property for the purpose of capital increase.

Real estate can offer great tax benefits. If you are not selling for disposal, you will not pay tax on your earnings as long as you trade them to increase their value. People who do not take advantage of the tax savings made possible by law miss the opportunity to grow their assets.

A high Financial IQ is required to be aware of and benefit from these opportunities. And raising Financial IQ only takes four areas of expertise:

  1. Accounting. We can also call this financial knowledge. This skill is a must to build an empire. The more money one takes the responsibility, the more careful one has to be. Otherwise everything will be ruined. Details matter. Financial knowledge is reading and understanding bank statements. This skill allows to identify the strengths and weaknesses of any organization.
  2. Investment. The science of making money. Strategies and equations are important for making the right investments. This skill is linked to creative intelligence.
  3. Understanding Markets. It requires knowledge of supply and demand. It is necessary to know the “technical” aspects of the markets. Whether an investment is right or not depends on current market conditions.
  4. Laws. A company with technical skills related to accounting, investment and the market grows rapidly. But a person who knows the tax law and is under a corporate shield can get rich much faster than someone working for someone else or just someone who owns a small business. This is like the difference between walking and getting on a plane. The difference is huge when it comes to long-term wealth.

Employees earn and pay taxes, and live with the rest. The company earns and spends money and pays taxes on the remaining amount. This is one of the biggest legal tax loopholes benefited by the rich.

This is easy to do if you have investments that generate good cash flow. For example, you can turn your vacation trips into board meetings in Hawaii. Automobile payments, insurance, repair expenses turn into company expenses. You can show your sports club membership fee as company expense. You can add most of the restaurant expenses to company expenses. There are many more advantages like this, but they should be done before paying tax.

The rich hide most of their wealth. They use companies or foundations to protect their assets from creditors. When someone sues a wealthy person, they face a legal protection shield, and often that wealthy person “has no property”. The rich keep control of everything, but they have no property. The poor and middle class try to own everything and lose them to either the state or other people.

In short, if you have legal assets, find out as soon as possible the benefits and protection shield a company can offer you. You will find many books written on the subject. Even if you look at the company establishment stages, you will get detailed information on this subject. The power of sole proprietorships is well described in Napoleon Hill’s book Think and Grow Rich.

Financial IQ is actually a synergy of many skills and abilities. But I think the combination of the four technical skills I listed above forms the basis of financial intelligence. If you have a desire to make a great fortune, then the combination of these skills becomes even more important.

As part of your overall financial strategy, my suggestion is to have your own company equipped with assets.


Please let me know what you think below.

Keep reading with WHY ACCOUNTING KNOWLEDGE IS NEEDED.

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The Difference Between Your Work and Your Business

The education system focuses on finding good jobs for young people by developing their knowledge-based skills. It shapes the lives around the salaries. After young people develop their interest-based skills, they move up the stages of education to improve their professional abilities. They are trained to be engineers, scientists, cooks, police officers, doctors, artists, writers etc. The skills they acquire allow them to join the workforce to earn money.

If you study cooking, you will become a chef. If you study law, you will become a lawyer, if you study medicine, you will become a doctor. The misconception of working in the same branch is that people forget to look after their own business. They spend their lives working in someone else’s job and making that person rich.

There is a big distinction between your job and your business. Everyone should have their own business.

To be financially secure, one has to look after his own business. Unlike your income column, your business revolves around your active column. As mentioned earlier, the first rule is to know the difference between active and passive and have active funds. While everyone cares about their income accounts, the rich pay their attention to their active column.

That’s why we hear them all too often: “I need time.”, “Oh, if I were promoted…”, “I need to work overtime.”, “Maybe I’ll get a second job.”, “I’ll quit for up to two weeks. I found a higher paid job. ”…

These ideas still related to the income column. A person provide financial security only if she uses her additional money to acquire income generating assets.

The main reason why the poor and the majority of the middle class are financially conservative and do not want to take any risks is that they do not have financial knowledge. They have to stick to their jobs. They tend to take firm steps.

For this reason, people with low income put themselves in serious financial difficulties. They sell their assets to avoid cash shortages. They start by selling their personal possessions, but the money they get in return is lower than what is written on their personal balance sheet. If they make a profit, then they pay the tax. Thus, the state gets its share of the earnings, which reduces the amount that will save them from debt. That is why the person’s net profit may be ‘lower’ than he thinks.

Start your own business. Keep working full time, but also avoid passives or personal items that lose their true value when you bring them home. Buy real active assets. A new car loses 25 percent of the price you pay as soon as you start driving. Even if your banker says your car is your number one asset, the car is not a correct asset. A trendy $ 400 basketball shoe equates to $ 150 at the first game.

Adults need to keep their spending low, decrease their passives and patiently create active funds. Parents should teach adolescents the difference between active and passive. Before teens leave home, get married, buy a home, have children, and buy everything on credit, they must begin to have active funds. Such as stocks, bonds, income generating real estates or copyrights from intellectual works like music, writings, patents and anything else that has value, generates income, or is ready to market and increases its value…

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Don’t Work Too Hard -Work for Yourself

The mentality of considering home as investment and seeing wage growth as a resource to buy a larger house or spend more is the foundation of today’s debt-based society. Most people move up to higher positions in their jobs over time and receive regular salary increases. However, due to the increase in expenses, many families are under greater debt day by day and face more financial uncertainties.

If you are an employee,

  1. You work for someone: Most wage earners enrich the boss or shareholder. Your efforts and success contribute to the success and retirement of the boss.
  2. You work for the state: The state gets its share before you get your salary. By working harder, you increase the amount of tax charged by the state. Most government officials work from January to May only for enriching the state.
  3. You work for the bank: After taxes, your biggest expense is deductions and credit card debt.

The problem with hard work is that each of these three stages gets their share thanks to your increased efforts. What needs to be learned is how to translate increased efforts directly for the benefit of you and your family.

Most people have to rely on their salary to pursue their profession and receive income-generating active funds. So how do they measure the extent of their success as their actives grow? How does one realize that he or she is rich or has wealth? In this regard, besides the definition of active and passive, the definition of wealth is also important. Let’s look at what R. Buckminster Fuller said. Although what he says seems quite complicated, it begins to make sense after reading it thoroughly:

“Wealth is a person’s ability to survive so many numbers of days forward … or if I stopped working today, how long could I survive.”

R. Buckminster Fuller

Wealth is the measure of cash flow from comparing the expenditure column to the asset column. If it sounds a bit complicated, let’s explain it with an example:

Let’s say you have $ 1000 a month of cash flow from the active column. Your monthly expense is 2000 thousand dollars. How much is your wealth?

Let’s return to Buckminster Fuller’s definition. How many more days of financial power do you have according to Fuller? Only half a month’s cash flow.

If the cash flow from your assets reaches $ 2000 a month, then you are rich.

So, you are not rich yet, but you are wealthy. Every month, you have income generated by active funds that fully cover their monthly expenses. If you want to increase your spending, you must first increase the cash from your assets to maintain this level of wealth. Remember that you are no longer dependent on your salary. You are successful in building your active columns that gives you financial independence. Even if you quit your job today, you can meet your monthly expenses with net income from your assets.

The next target will be to transfer the surplus cash flow from active funds back to the active column. The more coins enter the active column, the larger the column gets. The larger your active funds, the greater your cash flow and net income. As long as you keep your expenses less than the cash flow from your assets, you will get richer, you will have income other than resources from your physical effort.

As this reinvestment process continues, you take firm steps towards getting rich.

Few people have enough money to survive today. There are even people who do not have enough money to live for a month. Many Americans have less than $ 400 in savings. A more shocking statistic in 2016, the GOBankingRates found that 34% of Americans had no savings at all. Few people can survive for a long time without a paycheck or government aid.

Lastly, let’s keep in that in mind:

The rich buy the active funds. The poor have only expenses. The middle class buys passives that they think are active.

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You Need To Save Money

“The sun that shines today was shining on the day your father was born, and will continue to shine as your last grandchild moves into the darkness of the other world.”

George S. Clason

Throughout history, people have been able to get rich by using various opportunities. Although these opportunities come across all of us, most of us don’t realize them. But there is one thing we can all be aware of. Anyone can achieve this: Saving. It is one of the golden rules of getting rich. By making savings, we keep some of our earnings with us. This leads us to wealth.

We pay for all the goods and services we receive. If we save a tenth of our earnings instead of constantly paying others, we will have a year’s earnings ten years later.

We should know that savings cannot be made from the remaining money. We must set aside the amount we will save before we start spending our income. This amount is actually the payment we make to ourselves.

But only saving money is not enough. Also, every single dollar we save must make money for us. Getting rich is only possible if savings continue to grow on their own. Thus, we can achieve the abundance we want. No matter how little we earn, the amount we save should not be less than one tenth. We can save even more. But we have to be careful not being too hard on ourselves.

So how does our accumulated money increase on its own?

We must either learn to take advantage of the opportunities that come to us or consult with informed and experienced people in investment. If we consult someone, we should choose these people well. If we trust the wrong people, we may have to pay this mistake with our savings.

We should consult wise people. We must seek advice from the experts. A small safe investment is always preferable to risk. High interest rates sound nice, but they are dangerous. We must be careful.

This whole process teaches us first to live with less than we earn, then make the right investments and run our savings.

I urge you to dedicate some of your earnings to yourself. Think about this. Even think constantly. So, you get yourself used to this idea. The second step you will take will be to decide the amount you will regularly set aside. Make sure that this amount is not less than a tenth of your income.

Your savings will gradually make you feel rich. As your savings grow, your motivation will increase and you will be more eager to increase your money.

You have to think about your future. Remember that one day you will grow old too. You must ensure your old age income.

And be careful not to force yourself too hard to save. If you can only save a tenth of what you earn, be satisfied with that. Do not be stingy to your present self for your future self.

Life is really beautiful. Enjoy it.

Keep reading: THE FIRST RULE OF GETTING RICH

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Taxes and Credit Debts

All over the world, taxes are rising steadily. Because the social demands in return for the tax charge require an increase in the value of wealth, income and sales taxes. Higher incomes cause taxpayers to enter even higher tax brackets. Thus, tax rates increase gradually to meet social services. Today, governments face serious problems with social service programs such as Social Security and State Health Insurance for the elderly. As a result, they cannot pay their debts.

For most people, taxes are the biggest expense item. Most people consider these taxes are income taxes. However, for most developed countries like America, the highest tax is the premium paid to social security. Employees pay roughly 7-8% tax on social security contributions and health care. However, this rate is actually 15% since the employer pays the social insurances to complement this rate. This is the amount that the employer cannot pay the worker. Moreover, the employee also pays the income tax of social security contributions deducted from her salary. In fact, this is an income that she never received since it goes directly to social insurances.

Let’s explain this subject with a simple example. Imagine a newly married couple. This educated young couple rented a small flat. They start making some restrictions to make a living. After a while, they realize that they are spending as little as they did before they got married. So, they save some money.

But one day, the flat they rented starts to seem too small for them.

They want to buy a bigger house to have children. Now, they want to save more money. They start working more.

Their income gradually increases.

As their income increases, so does their expenses.

When they think they have enough money, they buy their dream house. Meanwhile, they learn about a new tax called property tax. Over time, they buy furniture for their new home. They also buy a new car . They suddenly realize that their column of passive funds is now filled with mortgage debt and credit card debt.

They finally have a child. The couple work harder. The same process repeats. The more they earn, the more taxes they pay. They get new credit cards. Their debt increases gradually and becomes equal to the value of their homes.

A company that provide loans to the couple recommends “debt consolidation” while the couple’s credit ratings are high. The company also states that the best thing to do is to pay off their credit card debts and high interest consumer loan debts. Besides, interest on home loan will be deducted from tax. They accept and pay high interest credit card debts. They feel a little relieved. Credit card debts are over. Now they have added their consumer loan debt to the house mortgage debt. Loan installments decreased because they extended the repayment for another 30 years.

Discounts begin in various stores and markets. The couple do not intend to buy anything, they just want to go and walk around. But they also take their credit cards in case they see something necessary…

We often meet this young couple. Their names are different, but their financial dilemmas are the same. They all look for an answer to “How can I make more money?” question.

The real reason for their financial problems is that they don’t know how to spend their money. They don’t have financial knowledge; they do not understand the difference between active and passive funds.

Let me say it again: Earning more money is often not the solution to financial problems. The solution is to act wisely. There is a famous quote for those floating in debt:

“If you find yourself in a hole, stop digging.”

Will Rogers

We must be aware of three powers: The power of the sword, the jewel, and the mirror. The sword symbolizes the power of weapons. America has reached this position by spending millions of dollars on weapons. Jewelry is the power of money. Whoever has money sets the rules. The mirror symbolizes the power of self-knowledge. Self-knowledge is the most valuable of these three, according to Japanese legend.

The lower and middle classes are willing to let the power of money control them. They shoot theirselves in the foot by getting out of bed and working hard, not asking themselves what they are doing. Many who do not understand money, surrender to the power of money. The power of money is used against them…

You can continue reading with THE ROBIN HOOD IDEAL.

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The First Rule of Getting Rich

In the previous post, it is explained that the first step to getting rich is to have accounting knowledge. In this article, I will tell you the first rule of simple accounting.

The first and foremost rule to get rich is to always invest money in active funds.

If we really want to get rich, this information is enough for us. This rule may sound very simple. It is so simple that it is often overlooked. Most people live without realizing how important this is. They always suffer financially because they don’t know the difference between active and passive investing.

If we adopt this rule, we will have a financial plan and will not suffer economically throughout our lives.

Now we must know the difference between active and passive.

While active funds make us money, passives take the money away from us. That’s all. If we want to get rich, we must buy actives for our lifetime. Thus, we can increase our wealth exponentially. If we want to be from the middle or poor class, we must constantly invest our money in passives.

The major cause of financial suffering in the world is due to not knowing the difference between these actives and passives.

Lack of knowledge is the main reason for financial confusion. Whether ignorance is about words or numbers. If people are in financial difficulties, there is something they cannot read about words or numbers. There must be something they cannot understand. The rich people get rich because they know how to manage their money. If we want to get rich and increase our wealth, we have to learn financial knowledge. In the language of both words and numbers.

Numbers alone may not make much sense. So are words. The important thing is the story of these together. This is the story of where the cash flows. We read that story in financial statements. The histories of four-fifths of families tell us that their financial history is hard work. It is not because these families work hard that they cannot earn money. They had to work hard all the time because they invested in passives.

It is not enough to have money. The point is not to get rich, but to sustain wealth. Therefore, we need to ask “How to maintain wealth?” question rather than asking “How to get rich?”.

It is obvious that, getting the money doesn’t solve the financial problems we have. Even it complicates the existing problems. Money often reveals our flaws. It reveals our unfamiliar sides.

Generally, the person who gets unexpected money gets relief for a short time, but soon starts to have financial difficulties again. Sometimes they even have worse financial difficulties. If the person with increased income tends to invest in passives, his expenses will also increase.

As we mentioned in previous posts, we take education to learn professional knowledge. We earn money thanks to our profession. But we don’t get financial skills at school. Therefore, our education cannot guarantee us a prosperous life. Even if we are very successful in our profession, we may have to deal with financial difficulties. Working more can’t solve this problem. Because the knowledge of how to spend the money in our education is lacking.

In fact, learning to manage money is more effective in getting rich than choosing a high-income profession.

Knowing how to manage money is a financial skill. People generally do not know the root cause of their financial problems. Because they do not know the cash flow and do not have financial skills. In this case, people cannot operate the money for their own benefit and they work too much and get tired.

Shortly, the active and passive investment issue is actually much simpler than it seems, and everyone should know about it. Cash flow is the story of how people use money. Active funds gradually make us money, and passive funds take the money out of our pockets.

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Why Accounting Knowledge Is Needed

In 1923, a group of great leaders and wealthiest businessmen held a meeting at the Edgewater Beach Hotel in Chicago. Head of the largest steel company Charles Schwab, president of the world’s largest utility company Samuel Insull, president of the world’s largest gas distribution company Howard Hopson, chairman of the board of International Match Company Ivar Kreuger, president of the Bank of International Settlements Leon Fraizer, president of the New York Stock Exchange Richard Whitney, also two prominent stock market speculators Arthur Cotton and Jesse Livermore, and lastly Albert Fall who is a member of the President Harding cabinet were among the participants.

In twenty-five years, these nine participants somehow came to an end. Schwab died penniless after five years of debt. Insull passed away totally broke, somewhere far from his homeland. Hopson lost his mind and eventually went mad. Whitney and Albert Fall had just gotten out of prison. Fraizer and Livermore committed suicide.

Does anyone know what really happened to these guys? The conditions that prepared the Great Depression and the collapse of the markets must have disastrously affected the lives of these people. However nowadays, we are going through much greater and faster changes. Probably 20-25 years from now, we will see explosions and ruptures parallel to their ups and downs. The real wealth is education, not money. Unfortunately, many people focus on money instead. If these people were open to learning, their wealth would gradually increase as long as they were informed and open to innovations. It is always knowledge that produces money. Money flies away without financial knowledge.

What matters is not how much is earned, but how much money is kept. Most people fail to understand this. Sometimes we hear that a poor person suddenly becomes rich when he wins the lottery, but soon he returns to his poor days. He has millions of dollars, but after a while he returns where he started. Or let’s look at the life stories of professional athletes. Some make millions of dollars in a year by the age of twenty-four. However, when they reach their thirties, we read that they sleep under the bridges.

There is a story of a football player at social media these days. He was making millions of dollars until a few years ago. Now, his friends, wife, lawyer and accountant allegedly took all of his assets. He is living in the basement of an old friend’s house. He is only thirty-seven. He asked help from his old clubs, then his story was featured in media.

In the late 1990s, many people suddenly became rich. Just like the 1920s. People are getting richer, and as they get richer, their greed increases. On the other hand, the poor live more and more miserable.

We hear these questions often: “Where do we start?” or “How can I get rich in a short time?”. Instead of looking for answers to these questions, people should have financial knowledge or basic accounting knowledge to get rich.

If we’re going to build the Empire State Building, the first thing we need to do is dig a deep hole and lay a strong foundation. If we are going to build a house, a 15 cm thick foundation will be sufficient. While most people are on their way to getting rich, they try to build the Empire State Building with 15 cm thick concrete.

Our school system argues that there may still be house construction without foundations. That’s why the floors of the houses are still soil. Hence, when students graduate from school, they lack financial basis. Finally, living paycheck to paycheck, they decide that the only way to find a solution to their financial problems is to get rich as soon as possible.

Skyscraper construction begins. Construction progresses rapidly. Soon a curved tower appears, not the Empire State Building. Sleepless nights come back then.

Accounting is perhaps the world’s most boring subject. It can also be called very confusing. However, if we want to get rich and keep it for a long time, the most important issue is accounting. The point is how to learn this boring and confusing topic. The answer is that; with simplifying.

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