Most people assume that successful individuals either ignore all the fun things that life has to offer or get lucky, but that’s not the case. If you want to become successful, there are 7 THINGS RICH PEOPLE AVOID In Their Life.
Number 1 is taxes. Now, before you go out and stop paying taxes, let me clarify what I mean here. There are certain things that the IRS tax code allows you to do with your money, which allow you to legally pay less money in taxes. There’s a difference between tax avoiding and tax evading.
Tax avoiding is when you’re using the IRS tax rule book to do things legally that allow you to pay less money in taxes.
Tax evading is illegal, and you’ll go to jail.
Read More : Where Do Billionaires Store Their Wealth?
The first thing that you have to understand is that the IRS doesn’t tax you on how much money you earn, they tax you on your taxable income.
These are 2 completely different things because now you take the money that you earned and then you’re going to show all the write-offs and deductions as possible, and that is going to leave you with your taxable income.
So, the first question that successful people ask is how can I have more write-offs and more deductions legally?
Now, there’s no way for me to go over all the different ways to do that. I mean, the federal income tax code right here is over 2,000 pages long of extremely tiny font, so there’s a lot of different information here.
The best thing to do is to get a CPA, get an accountant who not only will help you file your taxes but also do tax planning because if all your CPA is doing is filing your taxes, you are leaving a lot of money on the table.
Tax planning is now where you work with the CPA, you’re working with the accountant to come up with a plan on different things that you can do with your money. That way, you can pay less money in taxes legally.
IRS TAX CODE
The big thing that I want you to understand is that the IRS tax code essentially pats you on the back if you create your own income or if you are an investor.
So, let me explain what this means.
If you are a W2 employee and all you earn income from is the job that you go to, so you get a paycheck for the work that you put in, and you are a W2 employee, then what happens is you make money from your job.
You’re going to pay taxes, and this is probably going to be automatically deducted out of your paycheck. And then you get to spend whatever is left.
So now, if you want a car, you got to spend this money after tax dollars. If you want a phone, you got to spend these after-tax dollars.
If you want to go to California, you got to spend these after-tax dollars.
If you create your own income, so if you are a business owner, you’re a 1099 worker, now you’re creating your own income.
Now it’s a little bit different. So, call this your own income.
Now you’re going to make money, whether it’s from your business or your $199 income, and then you get to spend this money.
Because now you can have qualified business expenses.
These are called ordinary and necessary expenses where now you could tell the IRS,
“Hey, I need a cell phone to run my business.
I need a laptop to run my business.
I need a car for my business.
I need to go to California to meet with some people for a business.”
Now you get to spend money and then you pay taxes on whatever is left.
That means you have a smaller taxable income because you pay the expenses first.
Now not everything is going to qualify as an expense, but you have to show that it’s ordinary and necessary, and this is where a good accountant can help with that.
That means if both of these two people were to earn the same amount of money, if both of these people both earn $100,000, they get to keep different amounts of money after their taxes because well that’s what the IRS tax code allows.
The next thing that I want you to understand about the tax code is that all income is not treated the same. Like what I said earlier, the IRS pats you on the back if you create your own income or if you’re an investor. Well, you’ll see that there are 3 general categories of income according to the IRS tax code.
You have ordinary income, this is the money you make from your job, your W2 income.
You have your portfolio income, this is essentially your investment income. If you buy a stock and sell it for a profit 2 years later, that’s considered portfolio income.
This is the income you make from a business that you passively own. This could be something like real estate, state rental income.
Do you want to know which taxable income has the highest tax rate and the lowest amount of tax deductions that you can take? Take a guess.
Well, this one right here, the money you make from a job. You’re going to pay the highest tax rates here, and you get the lowest deductions.
As you can see from the previous example:
You get more deductions when you create your own income, and those are things that you could potentially qualify under your passive income because when you own real estate rental properties, you can have that benefit of a bunch of different expenses that are ordinary and necessary for your real estate business. And then your portfolio income, this is the money made from stock market investments that you sell for a profit after a year of owning them.
Well, with these investments, you get a lower tax rate. The top tax rate with portfolio income is right around 20%. The top tax rate when it comes to your ordinary income is about double that.
The 2nd thing that wealthy people avoid is payments, especially on things that aren’t making them any money.
We live in this kind of fast-food microwave culture, when we want something, we want it now.
We don’t want to put in the work to actually be able to afford it, we just feel like we deserve it, so we should buy it now.
And now, with the help of all the financing available, buy now, pay later, credit cards, easy financing, 0% APR, it is easier than ever for people to qualify for things that they can’t afford. Just because you can buy something doesn’t mean that you can afford it. And now what are we doing?
Well, we’re justifying liabilities as assets. An asset is something that puts money in your pocket, a liability is something that takes money out of your pocket.
So now when you go out and you buy your clothes, your shoes, your vacations, or even your car, these are liabilities that are pulling money out of your pocket.
Now when you go out and you finance these liabilities, when you go and finance your clothes, you’re going to finance your shoes, you’re going to finance that GUCCI, or you’re going to finance the car, you’re paying interest on something that is losing value.
The average new car payment at the time of me recording this video is $717 a month. That doesn’t include the insurance, that doesn’t include the maintenance on your new BMW, that’s just the new car payment.
Now, if instead of taking this new car payment and using it to buy a car that’s losing value, you took this $717 a month and you just put it into the stock market, you put it into an ETF, an exchange-traded fund that’s giving you exposure to the total stock market or the S&P 500, you just put your money into there.
Now, historically, we have seen a 7 to 10% growth in the stock market a year over the long term.
Does that mean that the stock market always goes up? No, but historically, we’ve seen 7 to 10%.
Let’s assume you can get a 7% return on this money. You did this for 45 years.
So now, you start when you’re 21 and do this until you retire. Well, now instead of owning a car that’s worth less than what you bought it for, you’re going to have an investment account that’s worth over $2.6 million. Because what happens now is you are working to grow this money.
When you’re taking this money to buy a car, well, what happens is you’re going to continue to pay off this car.
As soon as you pay off the car, it’s going to feel really weird because you don’t have any car payments.
So now you’re going to trade it in and start the payment scheme all over again. And now you might be saying,
“I need a car to get to him from work.”
Yes, you need a car; you just want a BMW instead of having the $717 monthly car payment, which is the average car payment in America.
How about you go and buy a $5,000 car or $8,000 car with cash? Now you don’t have to worry about any payments.
Yeah, you might have to downgrade from your BMW to a Toyota Camry, but now at least you’ll have a decent good working conditioned car.
You won’t have to worry about the payments, and you can work on taking this money and investing it. That way, you can work to build your wealth before you make everybody else around you rich.
When you are financing things that aren’t putting money in your pocket, you’re paying interest to buy something that’s losing money. It’s a double whammy, you’re paying the bank, and you’re also losing money.
The 3rd thing that successful people avoid are time wasters.
Each one of us has 2 currencies in our life.
The first currency is money, but the second currency is time.
We’ve all heard people say that it takes money to make money, and that’s a complete lie.
It takes money to grow your money, but you don’t need money to make money.
You need one of these 2 currencies time & money.
if you want to make money or both.
If you don’t have money, then you got to sacrifice your time to make more money.
That means you got to use your time to learn how to make more money, and you got to use your time in a way that’s creative. That way, you can earn more money.
Once you can earn more money from your time, well, then you have more money that you can work to grow by investing this money. But right now, you got to focus on increasing the value out of the time that you have.
Each one of us has 24 hours in a day. What are you doing in your 24 hours that will allow you to get the most output out of your 24 hours?
If you’re scrolling on Tik Tok all day, and all you see on Tik Tok are people dancing and cat videos, how much value is that really adding to your life? But now, if you’re scrolling through Tik Tok and you’re seeing financial videos, you’re seeing entrepreneurial tips, you’re seeing business tips, now you’re getting a completely different value out of your Tik Tok.
My friend has trained his TikTok algorithms to show him things that are providing him with value.
So when he’s going through TikTok, he’s not going there to waste time, he’s going there to learn.
You have to train the algorithms in your life to give you the best return on your time. What I like to say is the best ROI, return on investment, that the average American can make is cancelling their Netflix subscription.
And it’s not because you’ll save an extra $10 to $15 a month, it’s because you’re going to save 2 hours a day.
If you’re spending every evening binging a couple Netflix shows, watching a Netflix movie, that is time that is being thrown away.
That’s not adding any value to your life. Instead of watching those Netflix shows, how about you go and watch some YouTube videos on financial education? How about you read some books?
How about you work on a business idea? How about you start a side hustle idea? How about you learn something that can increase your income? How you grow your money?
Now if you do that for 6 months I guarantee you are going to learn so much more than you would have if you continued with the Netflix subscription.
So now it’s what are you doing with this time? That way now you can actually do something to increase your income and increase how you grow your money.
If you do that, you will be in a completely different place in 6 months, 12 months, and 18 months. But it requires you to make a sacrifice.
The 4th thing that all successful people avoid is overspending, and I kind of hinted at this a second ago. But there’s a difference between a need and a want.
You need a car, you just want a BMW.
You need clothes, you just want the Gucci.
You need a home to live in, you just want a mansion. There’s a difference between something that we need to buy and something that we want to buy.
And what we end up doing is we justify our needs as wants, that way we can go out and spend money we don’t have on something we don’t really need. But if you’re really working to build your wealth, you can’t keep spending your money because that means you have less money to invest in yourself.
And this could be in your own education, this could be into the stock market, this could be into the real estate market, this could be into business, this could be into something else where you want to put this money that will actually grow.
Your Gucci isn’t going to make you any money, but your business idea can.
Your BMW isn’t going to make you rich, but your investments might. And this is where you have to flip the script and stop overspending on the things that aren’t making you any money, that way you can overspend on the things that will make you money.
Overspend right now on your investments, that way you can spend whatever you want on the liabilities, that way you can spend whatever you want on the cars, the trips, the vacations, and everything else when you can afford it.
And the way that you can do that right now is by following my simple rule of five which says if you cannot buy 5 of them, you cannot afford one of them.
This is a simple rule of thumb that you can start using. That way, before you go to the store and buy the $100 pair of shoes when you only have $100 in your account, you know that just because you can buy something, you can’t afford it.
This is where now you have to understand that there’s a difference between being able to afford and being able to buy, and what will help you get there is by differentiating needs vs wants.
Number 5, avoid toxic things. We are products of our environment, and if your environment right now is toxic, if everybody is bringing you down, if everybody’s trying to get you to spend money on things that you don’t want to spend money on, if everyone is trying to get you to go into debt, if everyone’s making fun of you for trying to work on your financial future, if everybody is really draining you emotionally, you’ve got to find a different environment for you to live in and to thrive in.
Now you might not be able to go and find a whole new group of friends right away, but now you can find digital groups to hang out with. Find YouTube communities, find Discord channels, find different places where you can hang out online, that way you can make friends and network with people who have a similar mindset as you.
Because when you start your financial education journey, everyone’s going to think you lost your mind when you stop spending money with everybody else, when you stop going to the club, when you stop partying, when you stop traveling, and you start spending money on yourself.
People will not understand and they’ll tell you that you changed and they won’t like it. But you are trying to grow, you’re trying to achieve something that you’ve never had, you’re trying to give your family something that they’ve never had.
And that’s going to require you to make sacrifices and make changes. And if everybody’s trying to bring you down or if people are draining you emotionally, if you are in a bad relationship, if you’re in a place where people are really bringing you down, you have to find a way to get out of that toxic environment.
Long Term Wants
The 6 thing that wealthy people avoid is they avoid letting their short-term desires get in the way of their long-term wants.
The best example of this was a story or something that I read years ago when I was trying to get in shape was somebody was talking about how when you want to eat that chocolate bar or you want to eat the bag of chips, you want to eat something unhealthy, tell yourself this: that you’ve been wanting this bag of chips for 15 minutes, but you’ve been wanting the 6-pack for 15 years.
So don’t let that thing that you’ve been wanting for 15 minutes overcome what you’ve been wanting for 15 years.
And this is really developing the long-term mindset and this is especially important when it comes to your money because when you’re investing your money to build wealth, you’re investing for the long term.
And the biggest criticism that I hear when people talk about investing their money to become wealthy is :
“I don’t want to wait 10, 20, 30, 40 years until the time I’m wealthy. I want to enjoy my money today so YOLO, let me go out and spend my money, go into debt, and enjoy my life today.”
Well guess what? 10 years from now, that time is going to go by and if you haven’t started putting the plan into action, you’re going to be older and in a deeper financial hole.
20 years from now, you’re going to be even older and in an even bigger financial hole.
So you need to start preparing today, that way when you do get older, that you can be more wealthy. But this requires you to stop being so focused on that short-term gratification and start focusing on the long-term gratification, working for something bigger than you, working for something bigger over in the future.
Finally, the 7th thing that successful people avoid are distractions. When you’re trying to get in shape, the best thing that I say is out of sight, out of mind. If you want to get in shape, get the cookies out of the house, get the brownies out of the house.
Now when it’s not there, you can’t eat this stuff. Just like that, when it comes to your finances, you’ve got to get the distractions out of mind. This is why I say cancel the Netflix subscription, even if it’s for 6 months. That way, now you’re forcing yourself to do something that’s a little bit more productive.
You’re forcing yourself to go and read, you’re forcing yourself to go and watch YouTube videos, educational videos, that way now you can work and start investing in your own education. You have to get away from the distractions.
If your friends are constantly making you spend money on things that you don’t want to spend money on, stop hanging out with your friends, at least for a little while. That way you can get your finances in order.
If your parents are always making you feel bad for the car that you‘re driving, don’t go and see your parents for a while, talk to them on the phone, do whatever you got to do to get out of those distractions for a little while, that way you can get yourself in order or at least so you can build your confidence.
That way now you can be confident in what you’re doing for your finances because you know you’re working for something bigger.
And if everybody is draining you of your energy, if everybody’s draining you of your drive and your momentum, you’ve got to get away from that stuff, get away from the distractions, stop spending money on the things that aren’t adding any value to your life, that way you can start working on your own life and build that confidence, that way you know that you’re going to build your wealth and nobody else can bring you down from that.