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 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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