The Rules You Need To Know To Build Wealth

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Indexes
  1. Tax Law
  2. Business Law
  3. Conclusion
  4. My 6-Figure Passive Income Plan
  5. Who Is Right, Dave Ramsey Or Robert Kiyosaki?
  6. Why I Own 7 Houses But Choose To Rent

And how to learn them.

image on the bank of an umpire looking into the crowd
image by pixabay on pexels

When I first started to learn about money, I knew the basics:

  • spend less than you earn
  • invest the rest in low-cost index funds

While this is a great way to start and can help people be comfortable, it is not enough to build significant wealth. Especially if you are only focused on your job, your house, and your 401k.

If you want to get rich, then you need to treat your finances like a business and learn the rules of the game.

Can you play a board game like Monopoly without knowing the rules and hope to do well?

Part of every investor’s financial education is learning the related laws of the country where they operate. The government sets the basic rules of the game, and you cannot win if you don’t know or follow them.

While every country has rules that vary slightly, the main categories are:

  • tax law
  • business law

You cannot expect to do well if you don’t learn and study these rules.

Do you know what depreciation is and how it works? You better if you want to invest in real estate. In the US it is a mandatory deduction, not an optional one.

Do you know the labor law? You better if you plan to open a business and hire employees.

Let’s go through these topics in more detail…

Tax Law

There is no way around it, taxes are complicated, and they are here to stay. You cannot wish taxes away or stick your head in the sand.

If you want to build significant wealth, you need to study tax law. You can hire an expert to read books such as the NOLO series that includes titles such as “Every Landlord’s Tax Deduction Guide”.

It’s 500 pages of boring tax rules, but you know what? It will help you stay out of trouble and also to MAKE MORE MONEY!

As a minimum, you need to know how to comply with the legal requirements so you don’t get in trouble with the government. While you want to take advantage of all the tax incentives available to you, avoiding fines and, of course, jail should also be high on your list.

How can you be sure you aren’t doing something illegal without knowing the rules?

Most people don’t think about the tax code as a way to improve their returns, but when you know how to take legal deductions, expense legitimate expenditures, etc, you will reduce the taxes you owe on the investment or business income you generate.

For real estate, once you learn about depreciation, expenses, improvements, etc. you can legally reduce your taxable income and pay less tax on the revenue you collect.

This boosts your returns today without you having to raise rents or defer maintenance.

Taxes are even more beneficial for a business. You can deduct all legitimate business expenses, depreciate all legitimate capital purchases, and reduce your taxable income accordingly.

I spent a couple of years working at a small company run by a 3rd generation entrepreneur. In the same building, he had a hallway of folks working on his money.

Taxes, accounting, etc.

He and the other members of the executive team all drove brand new jaguars, paid for by the company and expensed on the company taxes.

He had houses in Colorado and Montana at ski resorts that were open to employees to stay at. This allowed him to make those properties business expenses.

You can come up with some creative solutions if you have an army of tax consultants focused on finding them.

You don’t have to break the law to avoid taxes. There are legal ways to do it. The tax code is written to encourage you to do what the government wants.

The government wants people to invest in housing, so there are tax incentives for doing so. The government wants people to start businesses, so there are tax incentives for doing so.

Learn the tax rules and reduce your taxes legally. It’s a great way to boost your returns and stay out of trouble!

Business Law

In addition to taxes, you need to know the laws governing your business.

What about the labor laws for hiring and managing employees?

What about the landlord/tenant laws for real estate investors?

What about legal entities and how they have to be managed to maintain liability protection?

Again, you cannot be successful in your field if you don’t know the rules. Who wants lawsuits for not following the equal employment opportunity laws or for housing discrimination?

Do you know your legal obligations as a landlord? Can you raise the rent? Can you charge a late fee? If so, how much?

How do you evict a tenant that doesn’t pay rent?

How long do you have to keep records in case the government wants to investigate you?

Again, you can hire professional help or read books like NOLO’s “Every Landlord’s Legal Guide” to help you learn these rules.

The NOLO series has many great books for regular folks like us to learn about the law. They have books on LLCs, setting up a business, etc. All explaining the legal requirements of each.

Did you know that if you mix personal funds with LLC funds, it can waive your liability protection (called piercing the corporate veil)? These little nuggets are VERY important, yet many small business owners don’t bother to learn them (or don’t know how).

Conclusion

I always recommend professional help. Read relevant books first (the NOLO series is a great start), then pay to consult with accountants and lawyers as needed until you know what you need to know to be successful.

Many people avoid professional help because it is expensive.

While this is often the case, good professionals will save you more money than they cost. Also, consulting with them can often be a legitimate business expense for tax purposes if you have a business.

Also, you don’t have to hire them full-time. If you are prepared and have done your homework, you can get a tremendous amount of information from a 1-hour session with a lawyer or tax professional, which is how I normally use their services.

And I recommend that everyone look at having a business, even if it is a small one.

Even writing on Medium or making YouTube videos, you can start an LLC and get a business bank account.

Then, when you have legitimate expenses that may include things like buying books to read to prepare your writing, membership expenses for related sites or services, buying audio and video equipment, etc. you can legally reduce your taxable income.

How many writers on Medium have an LLC? I do, but I would guess I’m an exception.

Again, this is all part of your financial education. The more you know about taxes and business law, the more you can avoid trouble and the more money you can make.

So instead of binge-watching Netflix this weekend, crack open a NOLO guide and prepare for a better future.

What do you do to learn the rules of the game?

Best of luck, and let me know how I can help!

Building Arks

After struggling to build wealth early in my career while following traditional financial advice, I set out on a path to learn about investing. Over a decade later, I’m financially secure and working towards full financial independence through real estate and the stock market. I have succeeded in building my financial ark to help me weather whatever storms may come.

I founded Building Arks to help busy professionals like you ignore mainstream advice and build real wealth.

illustration of an ark in the ocean in a storm
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I have no affiliation with any sites listed, nor do I make money from any partners or recommendations in my articles (other than Medium). I am not a lawyer, accountant, or certified financial planner. All material is presented in good faith for informational purposes only based on my knowledge and experience. It is not intended to replace professional advice. You should always consult an expert before making any legal, tax, or financial decisions.