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Retiring Rich

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Follow these simple tips, and you’ll be well on your way to sipping margaritas on the beach!

retiringrichInvesting is an art form, not a knee-jerk reaction. To retire rich, one must diversify in residual income-producing assets — something that not only has cash value but that also provides income. Getting rich is not simple; if it were, the average annual household income would be dramatically higher than $50,000. As you make money, it becomes progressively easier because your money is working for you. A number of assets derive their value from their capacity to generate cash flow to their owners. It either creates income or can be traded for cash. At first, it may seem a bit difficult to get started because the cash generators only produce a trickle. But if you have your “end game” in mind, over time, that trickle will become a cash flow stream.

It is imperative to resist the urge of the common financial advisor, who encourages you to put all of your eggs in one basket — your 401K. They may advise that this is the premier strategy of the rich, but this couldn’t be further from the truth. The key to retiring rich is having multiple streams of revenue. Always surround yourself with the experts in every unfamiliar business venture to ensure a wise and profitable outcome.

Capital generators break down into roughly five categories: real estate; intellectual property and rights; fixed income and cash equivalents; stocks and securities; and private businesses. The majority of the world’s population (98 percent) wasn’t born into financial privilege, nor does this group receive any substantial inheritance, so most of us must start our professional careers by selling our time.

Some people work very hard to get a better rate by rising to the top of their professional field, allowing them to charge much higher rates for each unit of time sold. But there comes a point when it becomes necessary to generate capital by spending less than you earn and creating income that can be rented in lieu of your time. Otherwise, you’ll be doomed to be at the mercy of an employer, the economy, and your ability and willingness to continue working until retirement becomes a realistic option.

Before you start budgeting a portion of your income to acquire cash-producing assets, get out of debt before anything else. Before you start thinking about ways to advance your savings and investment portfolio, it is imperative to eliminate all debt. Credit-card debt is the first item that should be dispelled. Credit cards come in handy for certain situations, but, if you are carrying a high balance, you are giving your money away each and every month to high interest rates.

The best tip to eliminating your credit-card bills is to begin to consolidate your balances. Transfer all high-interest-rate balances to low-interest accounts. Pay the minimum balances due on the low-interest-rate cards, and devote whatever else you can afford each month to the high-interest-rate cards. It will take awhile to free yourself from the debt, but, once it’s gone, you’ll be able to use that money to acquire assets.

It’s also important to be cognizant of where your money is going. We have all experienced the dreadful sensation of peeking at our bank-account balance and being struck with bewilderment by the lack of money. Where did it all go? As of late, most if not all of our bills are being automatically deducted from our accounts. Many of us haven’t the slightest clue of where the money is going each month. Keeping track of what is coming in and going out is simpler than it may seem; it’s as easy as keeping a journal or creating a spreadsheet to log the specifics of your money. Do this vigilantly, and you will be pleased to find places where excess is being spent. When it comes to saving for the future and building wealth, knowledge is power, and until you get a grasp on where your money is currently being spent, you will never have the knowledge you need to start putting a little aside each month to reach your “end game.”

Another tip is to maximize your retirement allocations. Be sure to take full advantage of a 401K or individual retirement account program, if offered by your employer. It may not seem important to contribute to your 401K, especially when you are younger, but this will serve as one of the biggest benefits of your adult life. Your 401K contributions come directly out of your salary, which qualifies as pre-tax dollars. This is the main reason to contribute the maximum amount possible each and every year as it lowers your tax bill in addition to reinforcing your savings.

In many situations your employer will even match your contribution up to a certain equivalent. You should definitely take advantage of this opportunity by contributing the absolute maximum amount possible. This is free money, and, nine times out of 10, it is more than you can expect to earn in the market during any given year. It is important to never give in to the urge to cash out of your 401K early — unless you plan on buying an established business, in which case the money can be tax- and penalty-free, but that’s another subject entirely. Emergencies and unforeseen situations are inevitable, but turning to your 401K should be a last resort. If and when you decide to leave your current job, do not take a check from your employer for your 401K balances. If possible, simply roll it over to your new job’s 401K; otherwise roll it into an IRA in order to avoid penalties.

The main goal of retiring rich is being able to relax on a gorgeous beach somewhere far away, while your investments work for you. The best way to do this is by diversification of assets and having multiple stakes in as many successful businesses as possible. Jay Abraham, an American business executive and multimillionaire who owns shares in more than 4,000 businesses, is a great example to follow. Remember, diversification is the key to retiring rich!

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A Closer Look at Cash Generators

1. Real Estate
You can partner or individually purchase real estate, such as houses, apartment buildings, office space, retail space, etc., and rent it out. You can also make money from the appreciation, assuming that real estate prices rise while you own the property.

2. Intellectual Property and Rights
Intellectual property refers to creations of the mind, such as inventions, literary and artistic works, designs and symbols, and names and images used in commerce. Income is acquired passively — most commonly through licensing agreements.

3. Fixed Income and Cash Equivalents
The term fixed income generally refers to bonds and other investments where you give a bank, corporation, government or government agency the use of your money for a period of time. In return, you receive interest. Because of the promise to pay interest, fixed-income investments are generally thought to be less risky than other alternatives.

4. Stocks and Securities
In general, the role of stocks is to provide long-term growth potential; the role of bonds is to provide an income stream.

5. Private Businesses (My Personal Favorite)
This category includes any income that is realized as a result of business activity. Business income is a type of earned income, and it is classified as ordinary income for tax purposes.