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THE FIVE STEPS
"First, I want to go through the first five steps of wealth creation," I said as I began my first meeting with Ted and Ellen. "And there is good news-you've already handled some of the steps. Plus, even better news-you have the opportunity to maximize what you already have going for you by identifying what you're doing right and learning from that when we go through the first five steps.
"We're going to go through some basic fact-finding questionnaires and review your past tax returns," I continued. "I must warn you, some of this may be uncomfortable. But it's important that you're honest with yourself because that is the only way to truly make a positive change."
The three of us then reviewed the STEPS program that we use in my CPA firm. The acronym STEPS stands for five different parts of the program. Following is the information we provide to new clients.
Five STEPS to Financial Freedom Program
Success leaves a trail. One of the easiest ways to have your own success is to follow where others have gone before. We all have different goals and come from different circumstances, but there are five basic steps that will ensure the best possible results for everyone, no matter where you are now. These five STEPS are:
S Starting Point
P Plan and Path
S Starting Point (reevaluation)
S IS FOR STARTING POINT
First, you need to know where you are. It's like having to get on the scales before you start a new diet. You might not want to really know what the numbers say. But you do need to know your starting point. That's just how it is for your financial plan. Your best results will come when you can take a realistic look at where you are financially-without excuses, blame, or justifications. Find out where you are, so you can plot an accurate course to where you want to be!
T IS FOR TEAM
After you have a good idea of where you are, you will need to start to think about the members you need for your financial team. Most likely, the main members of your team initially will be advisors, educators, and mentors. But your team can also include customers, clients, vendors, business alliances, and friends, among others. You can make conscious choices about the members of your team. You can learn how to evaluate what you need and how these people will fit into your plan. Finally, you can recognize the hidden influences they have on decisions you have made and will make in the future.
E IS FOR EVALUATION/STRATEGY
After you know where you are and begin to assemble your team, it is time to call on your advisors to help you evaluate where you are and design a personalized strategy for you to achieve your goals. No one team member-your tax strategist, bookkeeper, legal counsel, or financial planner-will make all of the decisions. It is through the cooperative work of your whole team that you will receive the best advice and plan creation.
P IS FOR PLAN AND PATH
After S, T, and E, you now need to move forward on the path and implement the strategy designed. This can be the hardest part as you move into previously unknown financial waters. You will want to make sure that the team you have in place has experience in the necessary areas and can give you good advice based on their own personal education, experience, and special skills.
S IS FOR STARTING POINT (REEVALUATION)
You've taken the first four steps and now you need to again evaluate where you are. Just like a rocket going to the moon needs continual calculations to keep it on its path, you must constantly evaluate where you are and where you are going to ensure that you reach your goals.
By taking the time to thoughtfully consider where you are and where you've come from, you put yourself in a position to achieve the optimum results.
These five STEPS to financial freedom can start you and your family on the path to financial freedom today.
What Would Financial Freedom Mean to You?
After you go through the first five STEPS, you are ready to go on to the Three Step Tax Formula. This is actually a very easy formula used to calculate taxes, and you will learn how to control each aspect. You will learn how to pick the right business structure for you, the secrets of tax planning E-T-C, the traps of C corporations (and how to avoid them), advanced tax strategies, and, perhaps most importantly, how to protect what you have.
Upon hearing this brief outline, Ted and Ellen enthusiastically made a commitment to the program and we agreed to meet every month to examine their progress.
S Is for Starting Point
"The first letter S stands for Starting Point," I began our first program meeting. "In other words, realistically speaking, where are you financially right now? This can be the most difficult step you take in pursuing your financial dreams. You must have true courage to face the reality of what the numbers will say about where you are right now. In many ways, your financial statement is the report card for your financial life. Remember that this is a necessary first step and its only purpose is to determine the starting point. It doesn't have to be a portent for the rest of your life. To change, though, you must first know where you are.
"Through many years of working with clients, I have realized that it is easy to put off the work you need to do to pull together your first financial statement. There are always emergencies to deal with-and many of them are financial in nature. To avoid having to constantly deal with those financial emergencies, you must change how you view your finances. To do that, you need to be able to step back and truly see where you are. If you care about better results for you and your family, this is the most important step you can take."
T Is for Team
"Only after you have a good idea of where you are and where you are going, can you start putting together your plan for your team. Most likely, the main members of your team initially will be advisors, educators, and mentors. But team members can also include customers, clients, vendors, business alliances, and friends, among others. It also includes family members. Now, there are some limits to how much you decide to change your team. I don't know how practical it would be to try to find a new family," I said, as Ted and Ellen chuckled.
"But it is good to recognize the hidden influences they had into decisions you have made and will make in the future. The most important part of Team is the conscious choices you will be able to make about the type of advisors, educators, and mentors you need. You will learn how to evaluate what you need and how they will fit into your plan."
"I know that people around us have a lot of influence," interjected Ellen.
"I never thought about consciously choosing who they would be."
"Ellen, the most important part to remember is that the members of your team will help you or harm you as you follow your own financial path. It is vital that you look at them and their prospective role with wide open eyes," I said.
E Is for Evaluation/Strategy
"The most accomplished navigators know that you need two crucial facts- where you are and where you want to be-to know how to set a course," I continued explaining to Ted and Ellen. "In financial matters, it can become more complicated, as it might not be clear what you need to do to get from point A to point B. You have to be able to evaluate the various tools, methods, and advisors to determine how they will work to help you achieve your personal goals. This program will teach the difference between merely buying a financial-planning product, and designing a strategy and then determining which financial-planning products to buy. With the knowledge of how you are going to move from where you are to where you want to be, you can make intelligent, thoughtful decisions about the best products to buy, the best advisors to add to your team-and, thus, reach your goals much more quickly."
"Wait a minute!" exclaimed Ted. "That's what I want you for-to tell me what to do and then I'll just go do it."
"I understand, Ted. In fact, all of this information and preparation can seem overwhelming. The best way I can explain it is by telling a story I first heard told by Stephen Covey.
"The story begins with a group of workers deep in the jungle given the task of forming a pathway. They organize and make good progress. At some point, one of the leaders dispatches a man up a tree to determine how much farther they need to go. The lookout climbs up a tall tree-higher and higher-until he can see over the jungle canopy. He looks from side to side clinging to his precarious perch. Meanwhile, the men below keep working assiduously at clearing the brush. The lookout's voice pierces down through the canopy to the men below. He yells, 'Stop! Wait a minute!' The men keep working under the urging of their leader. The lookout again calls out, 'Stop!'
"Finally, the leader shouts back, 'Be quiet! We're making great progress!'
"The lookout's voice then calls out, 'Wrong jungle!'"
As Ted and Ellen smiled, I explained, "The point is you need to know where you are and where you're going. Plus, you need to have the strategy mapped out. Otherwise, your hard work may be taking you in the wrong direction.
"When you know where you are and where you want to be, you can design the pathway that is right for you. You can get help along the way, but no one will ever know your own unique situation as well as you do and, frankly, no one will ever care as much as you do. Do you really want to turn over the planning of your life to someone else?" I asked.
"I guess I see your point," said Ted. "But we just have so little time now. How can we make enough time to do all this planning?"
"That's the one piece of good news that I can give you," I assured him.
"Our firm has done this for a lot of years and has streamlined the process. The Five STEPS to Financial Freedom are admittedly harder the first time through, but then it becomes second nature to you. And, in fact, it will be exciting to you as you achieve good results."
P Is for Plan and Path
"None of this means a thing without taking action to implement the strategy," I went on. "This is probably the second biggest stumbling block, behind failing to first get a strategy, that I see clients run into. It's scary to try something new and, in addition, there is a point where you might have a lot of great ideas but not have a clue about where to start. That's a large distinction between our firm and others-we specialize in implementation (action). We'll go through the steps necessary to put your plan into place.
"But no matter who you choose to have on your team, this is the point where you need to rely on your advisors. They need to understand your goals and have the experience of achieving the same goals for other clients.
You will be moving into uncharted waters for you. Make sure you have an experienced guide along for the ride!"
S Is for Starting Point-Again (Reevaluation)
"Finally, reevaluation is necessary to determine where you are now after you have designed and implemented your own Evaluation/Strategy and Plan and Path. I have a view of the world that I call the bumper car analogy.
Remember when you used to go the fair and ride on the bumper cars?" I asked Ted and Ellen. They quickly nodded their heads.
"You never quite knew when someone was going to run into you or where they were going to come from. They might be specifically targeting you or they might just be trying to follow their own path and you happened to get in their way. Well, that's how I choose to view the world. There are six billion people in bumper cars and most of them are going somewhere. They may not have a specific goal in place. They may just be traveling in circles.
And there are some that decide they are going to target you. But the fact is that you are going to collide with many of these six billion bumper cars as you are trying to follow your own path. You are going to get knocked off your path. That means that you can't continue on the same line you had drawn originally. You need to constantly be reevaluating where you are. Plus, you might find as you move toward your goal that it is no longer exactly what you want. So, point B (your destination) can change. As your goals change, your strategy and your team need to adapt. You may need to make changes in your team. Therefore, it is necessary to again look at the first four steps. The quicker you can reevaluate, and do it without regrets, blame, or justification, the faster and better your results will be.
"Well, that's the initial phase of the plan. What do you th-?" I hadn't even finished the question before both Ted and Ellen jumped in with enthusiastic responses.
Copyright (c) 2001 by Diane Kennedy, C.P.A.
|Introduction: The Rules Have Changed||xxv|
|Part I||The Five Steps to Financial Freedom|
|Chapter 1||The Five Steps||3|
|Chapter 2||Starting Point||11|
|Chapter 5||Plan and Path||75|
|Chapter 6||Starting Point (Reevaluation)||79|
|Part II||The Three Step Tax Formula|
|Chapter 7||The Three Step Tax Formula||89|
|Part III||Picking the Right Business Structure|
|Chapter 11||Business Structures||135|
|Chapter 12||The Right Business Structure for Tax Planning||143|
|Chapter 13||The Right Business Structure for Money In and Money Out||151|
|Chapter 14||The Right Business Structure for Asset Protection||161|
|Chapter 15||How to Identify Your Best Business Structure||169|
|Part IV||Tax Planning E-T-C|
|Chapter 16||Tax Planning E-T-C||179|
|Chapter 17||Entity Selection||181|
|Part V||C Corporations|
|Chapter 20||Special Rules for C Corporations||197|
|Chapter 21||Getting Your Money Out of a C Corporation||217|
|Chapter 22||Use of Nevada Corporations||221|
|Chapter 23||Traps of C Corporations||229|
|Chapter 24||Double Taxation||233|
|Chapter 25||Controlled Group||239|
|Chapter 26||Personal Service Corporation||245|
|Chapter 27||Personal Holding Company||251|
|Chapter 28||Accumulated Earnings Tax||255|
|Part VI||Keeping It Legal and Safe|
|Chapter 29||Protect What You Have||263|
|Chapter 30||How to Reduce Risk of an IRS Audit||271|
|Chapter 31||How to Reduce Risk from an IRS Audit||275|
|Appendix A||IRS Principal Business and Professional Activity Codes||285|
|Appendix B||300+ Business Deductions||304|
|Appendix C||Tax Strategy Examples for Multilevel Marketing Business Owners||318|
|Appendix D||Sample Forms||326|
|Worksheet: Brother-Sister Controlled Group Test||327|
|Worksheet: Tax Calculation for Members of a Controlled Group||328|
|Certified Copy of Resolutions to Liquidate the Corporation||329|
|Educational Assistance Program Forms||330|
|Suggested Record Retention List||335|
|Medical Reimbursement Plan||336|
Posted November 28, 2002
WHERE SOME OF ROBERT KIYOSAKI'S BOOKS ARE SHORT ON SHOW-AND-TELL, THIS ONE IS GREAT ON BOTH COUNTS. MAYBE THAT'S BECAUSE IT WAS NOT WRITTEN BY HIM. IF YOU ARE IN BUSINESS AND WANT TO UNDERSTAND AND ENHANCE YOUR UNDERSTANDING OF BUSINESS STRUCTURE AND TAX IMPLICATION YOU NEED TO READ THIS BOOK-AGAIN AND AGAIN.Was this review helpful? Yes NoThank you for your feedback. Report this reviewThank you, this review has been flagged.
Posted August 16, 2002
Think only the rich get money off on their taxes? Perhaps you don't even know what a loophole really is! Well if you pay taxes at all, you must read this book. Taxes are the single largest expense that you have (add them all up for yourself and see) and this book clearly explains what you can do to reduce that burden. All those money saving things that you have been doing (from clipping coupons, driving farther to get cheaper gas, finding the best deals on business supplies, etc., etc., etc.) will be unneccesary once you've read this book. It's not just about how much you make, it's about how much you actually get to keep. I highly recommend this book. It will really open your eyes to taxes, how they work, and what you can legally do about them. It will really change your mind about where your money saving priorities should REALLY lie. I only wish I had read it 10 years ago!Was this review helpful? Yes NoThank you for your feedback. Report this reviewThank you, this review has been flagged.
Posted November 13, 2001
Posted June 28, 2001
Review Summary: The hardest thing for you to find is simple advice about which financial structure to use for self-employment and small business activities and how to balance cutting taxes, having flexibility, and avoiding asset exposure. This book is the best simple version of how to do all of this I have seen. You will obviously need experts to help you do your planning to match your needs, but this book will prepare you to work knowledgeably with those experts. Over a career as a small business owner, this book may be the most valuable one you will ever read. Review: I am a big fan of Rich Dad, Poor Dad and wrote a review of that book that caused me to get a lot of e-mails asking tax-related questions. I am delighted to see this book because it means that those who wonder how developing passive income can cut taxes can start to understand why that occurs. 'Loopholes . . . are government incentives.' For many years, Congress has provided tax incentives to encourage certain kinds of business development and investing. As a small business owner, you have the opportunity to benefit from some of those incentives, legally and morally. This book will be most valuable for those who know little about the structure of the income-tax code and regulations, how property is protected against legal suits, and ways of creating financial flexibility. The tools you can use differ from year to year, as the rules change. This book is good for explaining the general concept of how these rules usually work. It also tells you what kinds of advice and expertise you need from others. Most people don't know where to start, and this book gives you a step-by-step process to assess where you are today, get the resources you need to help, evaluate a potential strategy, create a plan to implement a strategy, and monitor how well your strategy is working and whether you need to make any changes or not. There is a tendency for popular books about business and investing to overpromise what can be accomplished. I thought that Ms. Kennedy avoided that problem. Based on my understanding of these issues, she describes things accurately and appropriately. When she gets into more problematical areas like VEBA, her cautions are well-stated and complete. I have heard many people try to explain these concepts simply, and her explanation is the briefest, accurate one it has been my pleasure to read. Knowing more detail will not help you all that much. The main drawback of the book is that it doesn't go into enough detail about the advantages of real estate investing. Rich Dad, Poor Dad makes quite a point about how taxes paid can be low on such businesses. Basically, the answer is that you get to charge off part of your investment as an expense (depreciation) and that there are special incentives for specific classes of real estate that reduce tax bills even more. So I expect that I will still get e-mails about why Mr. Kiyosaki is so positive on real estate businesses. After you finish reading and applying this book, I suggest that you think about how your family life should be structured for optimum happiness. If you think about that subject as much as you do the structure of your finances, you will truly be wealthy in all the ways that count. Live life with rich spirituality! Donald Mitchell, co-author of The Irresistible Growth Enterprise and The 2,000 Percent SolutionWas this review helpful? Yes NoThank you for your feedback. Report this reviewThank you, this review has been flagged.