By Dr. John Beckem
1. LACK OF DISCIPLINE
– If you spend more than you earn, the math will never work.
2. POSSESSING MORE LIABILITIES THAN ASSETS
– Simply put, Assets put money in your pockets, Liabilities take money out of your pockets.
3. NEGLIGENCE AND LACK OF CARE FOR THINGS
– Constantly replacing items due to negligence and lack of care is like pouring water in a bucket with a whole in it. Everyone in the family must be on board with implementing behaviors that build wealth.
4. LACK OF FINANCIAL EDUCATION
– Personal Finance & how to build generational wealth is not taught in the K-12 or Secondary educational system. What is taught is Corporate Finance (how to manage your employers finances for the company). If you want to learn Personal Finance you must learn through publications, seminars, and mentors.
5. LACK OF KNOWLEDGE REGARDING TAXES
– The #1 expense for most people is taxes. In the U.S., there are four types of income which determine how much tax you pay.
a. Ordinary Earned Income (40%) – is what you earn when you work for an employer and trade your time for money. You receive a paycheck and pay approximately 40% of your gross income to taxes.
b. Self-employment Income (60%) – is the income you make working for yourself as a sole proprietor such as a lawyer, dentist, doctor, chiropractor, etc. You are your business. If you are suddenly hit by a bus, get sick or miss work, your income and business stop. Self-employed individuals generally must pay self-employment tax (SE tax) as well as income tax. Taxes for Self-employment Income are approximately 60%.
c. Business Income (20%) – is the income you receive from businesses in which you own an interest such as Partnerships , Limited-Partnerships, Corporations, or Limited Liability Companies. This is income you receive from your business working for you. It generates income whether you, as the owner, are there or not. Taxes for Business Income are approximately 20%.
d. Passive Income (0%) – is the Income you earn from an asset you own such as Real Estate Investments, Paper Assets, and Royalties. Taxes for Passive Income are approximately 0%.
Dr. John Beckem is a Personal Finance Expert, Educator & Consultant. He helps middle income individuals and families free themselves from debt and build generational wealth.