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D. Murali

CO-AUTHOR of The One Minute Millionaire Mark Victor Hansen writes in the foreword to Diane Kennedy's new book that there are two parts to making a lot of money.

"The first is earning it and the other is keeping it." The harder part is the second. Revised edition of Loopholes of the Rich, from Wiley (www.wiley.com) is about "how the rich legally make more money and pay less tax".

But first check if the intro makes sense to you: "Many today are waking up to the realisation that they have somehow gotten old, and their lives so far have only been about striving — without nothing to show for all the years of work."

What a true, bleak picture! Gosh, what went wrong, you ask. And Diane demystifies the problem: "The middle-class dream has become a nightmare. You can't work harder at your job and expect to get ahead.

And even worse, you might not know this until it's too late." Oh, didn't our parents tell us to work hard, save money, and collect our retirement? "That was effective for them, but it doesn't work now," writes the author.

STEPS stands for Starting point, Team, Evaluation strategy, Plan and path, and Starting point for revaluation. These are the five steps to financial freedom, according to Diane.

Start with your financial statements, because they are "often the best crystal ball when it comes to predicting what your future is going to be."

Track your personal expenses as well as business expenses using simple software, is her simple practical advice. "A household is really a business," she reminds us and offers help in drawing up income statements, balance sheets and cash flows.

Most individuals have trouble preparing their own balance sheet, says Diane. A common problem is the tendency to inflate the value of assets without thinking what they can realise if sold quickly. Another hitch is that many assets may be illiquid.

If your wealth consists of "art collections, jewellery, automobiles, gun collections and so on", remember that these may not put "any money in your pocket" though they are quite nice as collectibles.

There are three types of income, each governed differently by tax laws. Earned income is wages from job or net income from business. Portfolio income includes interest, dividends, and capital gains.

Passive income is what your investments make for you, as in the case of real estate. It is the earned income that gets the biggest axe!

Australians believe in cutting down the `tall poppy'; "it is practically their moral responsibility to cut a friend down to size if the person starts rising above their present circumstances." So do most of our friends and advisors, explains Diane.

Like crabs, they pull others back into the box, because they are afraid and also because "they don't want to see the other guy succeed."

Psychologically, it threatens them because if you succeed, it means "they would have to change themselves also," but that would be "a challenge to their own complacency".

Beware! "Free advice may be the most expensive advice you ever get." What should you do when given critical comments?

"Look at their perspective," counsels Diane. "Do they know all the facts regarding your personal circumstances?"

Create a team around you; it may include an accountant, an insurance specialist, a corporate guy, legal support, and a banker. Doing it yourself is okay in the beginning, but not advisable as "a long-range strategy".

Also, by doing everything yourself you may well become "the bottleneck in the growth of your business".

Evaluation, the third step, is where Diane introduces you to her `Jump Start!' method for evaluating financial strategies.

This involves seven steps to build wealth in business, real estate, and home. Path for action is the fourth step, because unimplemented plans don't mean a thing.

The fifth step is to come back to the starting point, to check what didn't work. This means you must meet your team regularly to check how each member helps or hurts you as you move toward your goal.

Check if you suffer from blocks such as lack of education ("I don't know where to start"); lack of control ("I don't have time for all this"); too much control or lack of trust ("I don't want to spend money on advisers"); fear of loss ("Someone is going to sue me; I just know it").

Make little changes, advises Diane, because they make big differences. "People overestimate what they can do in a year and underestimate what they can accomplish in 20 years," is a pithy thought to etch in your minds.

"When you take the long-range plan on goals, you have time on your side." Remember, starting small is not as worrisome as not being on the right path.

Though much of the book refers to the US tax provisions, you may still find Diane's ideas lending a hand in your pursuit of getting rich.

BookValue@TheHindu.co.in

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