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 4^th 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?

Step 2: Eliminate Bad Debts part 2 -- More about DEBT

Many people are trapped in the circle of bad debt, borrowing money all the time to purchase things that will only drop in value, or depreciate, such as an automobile or a plasma TV. Sometimes, people even have to keep borrowing money to keep up with paying debt, becoming slaves to interest.

It is alarming the gigantic debts being run up by Canadians, often thanks to credit card companies’ handling out credit cards like candy. Credit Cards should be used for monthly expenditures and paid off every month in full. Never pay Credit Card interest!

What’s next after the Closed Circle Budget?

Creating your Closed Circle Budget is your first step to financial freedom. It is in this initial step that you build on a solid financial foundation for you, your family and the future generations of your family. You must practice all the 5 Steps regularly before you can truly reach financial freedom. Here’s an overview of what these steps are:

1. Develop a Closed Circle Budget
2. Eliminate Bad Debt
3. Legally Minimize Taxes Paid
4. Wealth Accumulation and Increase Passive Cash Flow
5. Wealth Preservation