Tag Archives: Robert Kiyosaki

Life is About Understanding Incentives

Incentives are everywhere. They’re all around us. You’ll have a better chance at navigating life, if you can better understand the incentives in play and learn to play the game on your terms.

I hope to challenge your thinking here, open your aperture and see the world through a new lens.

Who Loves Taxes?

The Author and CPA Tom Wheelwright says, “the tax code is a list of incentives the government wants entrepreneurs and investors to use.” That was certainly an eye-opening way for me to look at taxes. Let’s go deeper.

We’ll never forget this 2016 Presidential Debate moment when Hilary Clinton thought she’d staple Donald Trump against the wall for stating, “He doesn’t pay taxes!” And what was Donald’s response? “Because I’m smart!”

Now regardless of how you feel about either of them, what people need to understand is Donald (love him or hate him) understands tax incentives. What do these incentives look like? The government rewards entrepreneurs or developers, for building housing, or creating jobs. It’s in the IRS tax code. Curious how this works?

Lets say you build a property for $10,000,000. Relatively a small number, but in doing so there is depreciation expense the owner of that property gets to write off for the next 27.5 years against the income. So if the owner depreciates the property $363,000 per year, any income they generate up to but not excluding $363,000 isn’t taxable. If you want to get mad, get mad at Congress. It’s the law and it’s legal. That’s why the wealthy love real estate. They can generate income, and not pay taxes. Legally.

Ask Robert Kiyosaki the author of the hit Rich Dad Poor Dad how he feels about taxes. He sees them as a game. What draws developers to “Opportunity Zones” in developing real estate? Tax incentives. Who better to understand this than those who write the code? The IRS! Incentives are everywhere.

Lets Look at Employment

There is a good chance if you have a job, your employment contract contains expectations for your role. Those expectations contain incentives. So what’s the incentive? A paycheck. And if you’re in sales or a revenue role, there very likely is a variable incentive or “commission” you can obtain. Why? The business will reward you for the behavior they’re looking for(higher top line revenues). If your compensation has recently been changed, it’s because the business is looking to change behavior and reward different outcomes. Pay close attention to these changes and take advantage.

I’m an avid listener of the FOUNDERS podcast (Learn from history’s greatest entrepreneurs. Every week the host reads a biography of an entrepreneur and find ideas you can use in your work). What’s one consistent theme of the greatest entrepreneurs across hundreds of episodes? They all have a knack or deeply understand the power of incentives to drive the behaviors needed in their business.

How about Healthcare?

I can’t even call it health care with a straight face. It’s SICK-Care, and it’s not well done. Why do we need to understand these incentives? Because in my opinion, the incentive isn’t for a doctor to make you well, or have a holistic view of your health. Their job is to write prescriptions and move you along. Why is it the average doctor visit is only minutes long? Because their incentive is to see MORE patients. Not cure you and all those waiting. Really think about this. It’s worse as you go down the specialty medicine path as they only focus on their trained discipline. Getting a new prescription? This happened to me a little over a year ago, and I asked my GI doctor outright, “are you incentivized to get me on this medication?” That got awkward. But the question remained, “is this about me, and my health…or your incentive?!?!”

Insurance Costs

Insurance companies are becoming more interested in the overall/general health of its customers. But they want to know the numbers. So much so, that if you submit annual blood work, and physical, they’ll reduce your annual rate by upwards of 30%! Seems to be a pretty solid incentive.

Why are they doing this? They’re dangling the incentive of cost savings to you, because it will likely drop their liability ten fold by having a better view of those they’re insuring. I’m fine with it either way, just understand the incentive.

Does the NBA Know Incentives?

They sure as hell do, and it just cost Luka Doncic $100,000,000 (yes, one hundred MILLION) by getting traded to the Los Angles Lakers!! Why? Because the NBA incentivizes players to stay in the city they were drafted in, by rewarding them with larger “Super Max” contracts. Otherwise, all the stars would end up in: LA, Boston, Miami, etc. and leave the small market: Oklahoma City, Milwaukee, Memphis, Sacramento, and so on. So instead of signing a 5-year, $350M contract this summer in Dallas where he was drafted, he’ll have to settle for a 5-year, $250M contract in LA. Not sure how he’ll afford the eggs…

Keep Your Eyes Open for Incentives

Everyone around you is trying to get something done. Don’t be naive. If you can look around the corner, you can better understand the behavior they’re looking for. The next step is choosing if, or how you’d like to participate.

Changing Views on Retirement

When I started out in my working career I’ve always thought very intentionally about retirement. You know, that mythical creature we’d all hope to reach by the ripe ole age of 65!! I might look something like the picture above (PS – Thx Snapchat Filter)

I began as most do, with an employer sponsored 401K and began socking away money for a day that “could be” 40+ years from when I started. Initial learnings of OPM (Other People’s Money) became apparent as my contribution was “matched” by my employer. I supplemented this work 401K plan with a ROTH IRA contribution. Post tax dollars invested for a similar “someday” but these dollars would not be taxed as they grew or when they would be redeemed. Decent start for someone early in their 20’s…or so I thought.

All that seemingly remained to accomplish my goal of retirement would be to:

  • Continue to grow earnings & investing with consistency over time
  • Reduce expenses and debt (this almost always makes sense)
  • Hope the market continued to grow as it had the last 90+ years
  • Don’t die…

Don’t Die?

Killer Strategy (no pun intended!). When saving for “Someday” the importance of don’t die took on a new light when I got into my 30’s and continued growing personal income. I began to question the ideals behind saving and investing (buy, hold, pray) during the best years of my life, so I could retire somewhere in Florida to ease my arthritis and work on my shuffleboard game in my 70’s at a measurably slower pace of life.

The goal isn’t to stash away money for 40-50 years so that some day when I’m 75 and have limited mobility I can be as free as a bird (from expenses). It takes too long!!! What if I wanted to retire 10 or even 20 years sooner? How could that happen?

Mindset Shift

Through an introduction of some terrific business friends, I read, listened to and re-listened to The 4-Hour Work Week, by Tim Ferriss. The “new rich” as he’d described saw retirement not as the end goal, but more a means of being throughout life. Scheduled “mini-retirements” were necessary to live life to the fullest now vs. saving it all for a future someday (the end). This began my learning journey of my 30’s.

Concepts like: Business Ownership, Monthly Cash Flow, Time Management and Target Monthly Income (TMI) became common place in my retirement planning while learning from the “new rich.”

The Rich Don’t Work for Money

I dove back into the classic Rich Dad Poor Dad and the classic teaching from Robert Kiyosaki. I started asking simple questions of the wealthy. How did they get there? What do they do? More importantly…what do they OWN?

Assets like a 401K, IRA, or Roth IRA weren’t accessible until 59 1/2 years old (without substantial early withdrawal penalty) and they’re subject to high tax. As I grew in my knowledge, I also became more aware of taxes on the impact of wealth creation and wealth preservation. Would taxes likely be higher 30 years from now….I’d venture a strong HELL YEAH, at this one!

I’m an incredibly visual person and so at 38I drafted this visual to unlock the answer to the question,

“What would it take to retire at 45?”

What would it take to require at 45?

Pretty simple answer. Produce monthly cash flow from investments that exceeds > current expenses. Period. End of story. Invest in assets which produce cash flow. [From: Rich Dad Poor Dad]

There’s a critically important point to make here. I’m 99% sure I won’t retire at 45 to a john boat, weekly fishing expeditions, morning coffee with the boys, and afternoon golf (daily). But, that doesn’t sound too shabby does it?

Back in 2013 I started what I call “Dream Bucket 2027” which is my plan to freedom at 45 years old. I sometimes interchangeably call this mission the “Freedom Fund” as I’m talking about it and investing in assets.

Familiar with the F.I.R.E. Movement?

Financial Independence Retire Early. If you’re not familiar with Mr. Money Mustache, this would be a good side track for you and another POV on early retirement if that’s the mission you’re on. His “mustachian” philosophy is that of aggressive saving and passive index fund investment and aggressively limiting and/or eliminating expenses for financial freedom. Different path, but similar destination in mind.

Where do we go from here?

Today I continue investing in cash flowing assets (primarily real estate) and I feel well positioned given the recent explosion of inflation. I’m also doing a great deal of learning about TAXES and how the wealthy navigate this space (legally)to keep more of what they earn. If you’re wondering why the wealthy don’t pay taxes, consult the IRS Tax code. The tax code is simply a series of “incentives” from the government. The wealthy understand how to use the code. Tom Wheelwright does a terrific job with his TAX FREE WEALTH books and content on this subject.

Nothing Happens without Income Growth

I’m certain there are differing opinions here, but I’ll make this very simple. The first step to any retirement or freedom journey is to MASSIVELY increase your income. A person can live very comfortably and with large steps forward with their income many options will become available. I recommend following Grant Cardone for income explosion inspiration and concepts. I’ve read a few of his books and they’ve been helpful on my journey.

As I move from my 30s to my 40s in 2022, I look back at all the learning I had in my 30’s and how different it was from the learnings of my 20’s. I’m looking forward to further mindset shifts in my journey and I look forward to updating the readers on my DREAM BUCKET journey.