| Loopholes of the Rich |
By Diane Kennedy, C.P.A.
Genre: Business & Money
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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 newsyou've already handled some of the steps. Plus, even better newsyou 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 financiallywithout 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 memberyour tax strategist, bookkeeper, legal counsel, or financial plannerwill 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 withand 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 beto 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 teamand, thus, reach your goals much more quickly."
"Wait a minute!" exclaimed Ted. "That's what I want you forto 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 treehigher and higheruntil 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 otherswe 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.
Excerpted from Loopholes of the Rich , by Diane Kennedy, C.P.A. . Copyright (c) 2001 by Diane Kennedy, C.P.A. . Reprinted by permission of Little, Brown and Company, New York, NY. All rights reserved.Back to top