Chapter 1

Around the World in Rich Man's Car

Let me tell you an interesting story. Before going to London on business, a man drove his Mercedes to downtown New York City bank and approached the manager with request for an immediate loan of $15,000. The loan officer requested collateral. The man said, well, here are the keys to my Mercedes. The loan officer promptly got the car driven into the bank's underground parking garage for safekeeping, and gave him $15,000. Three weeks later, the man walked through the bank door, asked to clear up his loan and get his car back. "That will be $15,000 in principal and $25.50 in interest", the loan officer said. The man wrote out a check and was given the keys to his Mercedes back. As the man walked away the loan officer said, "wait sir, while you were gone, I found out that you were a multimillionaire. Why the hell, would you need to borrow $15,000? The man smiled. "Where else could I park my Mercedes in Manhattan for three weeks and pay only $25.50?"

Don't you think you should travel for a day in this rich man's car to see how he deals with all financial matters? Don't worry. I have keys of his car and I will let you know his ins and outs.

Control wasteful outflow of money

This is more than just a funny story. It uncovers the fact that the wealthy see things differently than other people. They visualize possibility of saving at every steps of life. The rich have eye on controlling all outflows of money which do not bring benefit or satisfaction to them. Interest and tax are such outlets. You should pay them, only to the extent you are required to pay.

I want you to be rich, because my richness is linked with yours. I suggest you just to follow the steps of the rich to control all your unproductive outflows of money.

 

I.FIRST THING IS INTEREST. HERE ARE THE TIPS:

1. Take every opportunity to use zero % interest money. When you buy any item from Best Buy or Sears or any store, they offer zero% interest for many items. You just need some formality to open account or get store card. Spend 10 minutes. Interest saved could be $100, which is worth price for your 10 minutes.

2. Take Advantage of offers of Credit Card for zero % interest for 1st six months or one year. One of my clients has been using $ 500,000 without interest for his business for last 3 years. He opens one credit card and pays up the balance by opening another one. And there are many credit card companies offering incentives. Although they are not looking for customers like you, but still they cannot deny benefit to you. It is true that you have to take little trouble. But calculate. It could be worthwhile. Above client spends 30 minutes every Sunday to manage multiple credit cards, so spends 25 hours in a year, but is able to save $ 40,000 a year (taking 8% interest, if he would otherwise pay for business loan), which means a return of $ 1600 per Hour. Not a bad return!

3. Refinance your home loans, when interest rates are low.

4. Avail short term loans for home, say 7 to 15 years, which are available at lower rates. You can arrange for low installments still, by availing ARM Loan (3.50 to 7.50 years) offering larger bullet payment at end of the term. People say there is risk, but think are you going to stay in same house for 30 years? Have you found anyone who did so? It is good to sell out house before 7 years and buy a new one. In fact, this is a good tax strategy too, which we shall discuss later.

(B) Investing money at High Interest:

1. Never keep money at 3% interest in bank deposits. Even if you do not want to take risk you can found out mutual funds that pay returns of around 8% to 10% by investing in corporate bonds of reputed companies.

2. You can also consider investing in India. ICICI has good schemes for investment in bonds or properties and offers good rate of return.

3. Consider investing with careful study in real estate

4. Never miss investments (like 401 K) where you get benefit of free matching contribution from the employer. Also take advantage of Stock option offered by employer, if stock prices are good. Many employees have earned fortune out of stock options.

5. Consider Roth IRA. In fact Traditional IRS only shifts income from present to future years. It is beneficial only if you think your future income is going to be lower than present income. In most of the cases, income keeps on growing. But there is no exemption of tax for any part of income in case of traditional IRA. But in Roth IRA, although you do not get immediate tax deduction, your income from interest earned on balance of IRA, is tax free. It grows free of Tax. So effective rate of interest earned in Roth IRA is higher than that earned in Traditional IRA.

With little efforts and care, you can set your monies to earn interest of 8% to 12% with reasonably good security.

How rich deal with taxes?

Do you know that the wealthiest people in America, people like Bill Gates, Donald Trump and Ted Turner pay less than 10% taxes? That's right -single digits. In fact, I've heard as little as 4% to 5%.

This is because they distribute their income and wealth amongst persons- whether real or artificial and this brings down their tax slab. They play with their monies by a remote control.

How they do this, I will explain in Chapter 2.