a plan for people who want to afford anything they want. This is the basic plan that the richest investors in the world follow. The Rich Dad’s Power Investing Plan consists of, starting a business, investing the cash flow from the business into real estate, and then balancing your asset classes with investing your excess cash flow in paper assets.
ASSET #1: BUSINESS
Your own personal business is by far your best asset because, if successful, you can generate the most income with less work and with the least taxes.
The drawback: Of course, if you are not successful in building a profitable business, a business can be a very big liability and loss of money, which is why we often recommend starting a part-time business before quitting your daytime job.
Accelerator #1: Other People’s Money
The first accelerator in starting a business is to use other people’s money. As you become a better businessperson, this will become easier because investors like winners.
Accelerator #2: Entity Selection
Choosing the proper entity in which to hold your business is critical. You absolutely do NOT want to hold your business as a sole proprietorship or general partnership.
Review the various requirements and benefits of a C Corporation, S Corporation, Limited Liability Company (LLC), or Limited Partnership (LP) with your attorney and tax advisor to see which entity will provide the best protection for your business and result in the best tax advantages, thus maximizing your cash flow.
Accelerator #3: Other People’s Time
If you are a good business owner, you have the leverage of other people and systems doing your work. In other words, if you are a good businessperson, it is the same as earning money for nothing, once the business is up and running. Most people will have to work for money for much of their lives because they work for a business rather than work to build a business.
Accelerator #4: Tax Laws
The taxman is on your side as a business owner. Review Chapter 5 of the book Rich Dad’s Who Took My Money on how the tax laws were written to benefit business owners and investors.
Accelerator #5: Charity
My rich dad always reminded me of the saying, “Give and you shall receive.” Being generous and giving back to the community are essential elements in growing your business. You may not know how the returns on your charitable giving will be realized, but they will be. The more people you serve, the richer you will become.
ASSET #2: REAL ESTATE
Accelerator #6: Other People’s Money
My banker is on my side for investing in real estate.
Accelerator #7: Entity Selection
Entity selection is again critical in understanding the secrets and strategies that the rich have used for generations to protect their real estate assets.
Accelerator #8: Tax Laws - Depreciation and Real Estate Paper Losses
The tax man offers great accelerators in your real estate income and cash flow in the form of depreciation. You will want to get competent advice from your tax strategist, as the choice may also be important based on your state/local laws.
ASSET #3: PAPER ASSETS
Accelerator #9: Tax-Exempt
The tax man offers even greater leveraged advantages to investors who invest in projects the government needs financial assistance in.
Accelerator #10 – Hedge Funds
Hedge funds allow me to invest with insurance. They have the benefits offered by mutual funds in that they are “easy,” but without the downside risk. There are many different hedge fund strategies but their primary goal is to reduce volatility and risk while preserving their investors’ capital and delivering positive returns under all market conditions.
Accelerator #11 – Options
Investing in stock options allows me to leverage my investments in paper assets. Instead of buying the stock I can still control it through the purchase of options for a fraction of the cost.
Accelerator #12: PPMs (Private Placement Memorandums)
A private placement memorandum, however, is an offering of stock in a company that is exempt from federal registration. In March 1982, the SEC adopted Regulation D to coordinate the limited offering exemptions and to streamline the existing requirements applicable to private placements and sales of securities. Again, the documentation and legal requirements of this type of investment are critically important. You need competent securities legal advice as well as tax advice to select the funding tool appropriate for your situation.
Accelerator #13: IPOs (Initial Public Offerings)
An initial public offering (IPO) is a company’s first sale of stock to the public. Typically, an IPO involves the stock from a young, new, and not usually well known company. An IPO is highly regulated and costly to prepare, as it requires tremendous legal and accounting professional time.
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