Wednesday, May 5, 2010

4th Step to Financial Freedom: Wealth Accumulation & Increase Passive Cash Flow part 1

The end of the Tax Season has finally come! After a week of covering some important tips on tax savings, let’s now get back to learning more about the 5 Steps to Financial Freedom. We have already discussed Steps 1 to 3 (please see my previous blog entries) and we are now at the 4th Step which is Wealth Accumulation and Increase Passive Cash Flow so let’s get going . . .

Wealth is for the next generations and cash flow is used for retirement. Cash flow allows you to retire and have time to fulfill your purpose. We need to make money our slave so it can work for us to produce cash flow and wealth.

Invest in 3 Asset Classes (True Diversification)

True Diversification means investing in the 3 following asset classes:

  1. Real Estate
  2. Paper
  3. Business

When we have investments in all 3 of these asset classes, we can weather most economic storms!

It is good to become an expert in at least one of the asset classes. The better you become at something, the more successful you will be. All it requires is the following:

  1. a little of some acquired abilities vs. special natural abilities
  2. a little bit of well-spent time vs. lots of free time
  3. a little well-placed money vs. massive amounts of money

Do your Due Diligence! I cannot stress enough the importance of due diligence. You should do as much as you can to know more about the investments that you are going into. Here is a list of some of the things to do due diligence on:

  1. Entity used for the investment
  2. People involved – shareholders, directors, officers, management, etc.
  3. Testimonies
  4. Track Record
  5. Compliance
  6. History
  7. Performance
  8. Asset/s
  9. Liabilities
  10. Market Potential

Look at the minimums and maximums and the risk vs. reward. What is the minimum and maximum investment? What is the minimum and maximum potential Return on Investment? How much risk will I be taking in comparison to the potential maximums?

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