Liabilities VS Assets

Today's topic is on the difference between assets and liabilities. Simply put, liabilities are property that take money from your pocket, and assets put money in your pocket. Your credit limit or the amount you can charge on your credit is not an asset because it is money you can use but have to pay back. It is a debt which makes it a liability. Simple right? Now here is where it gets a little more complex. If you are a homeowner, then you would think your house is an asset. Not necessarily. If you paid cash for the house and there is no mortgage then it is an asset. But if you have a mortgage, then it is a liability. Even if you have equity in the house it is still a liability because you are still paying a mortgage on the loan balance. 

Now if you were renting the house and the rent is more than the mortgage then it becomes an asset. You can make your home into an asset by converting part of the house into a money making property for instance starting a home based business. Using part of your house for your home based business makes that portion of your home expenses into a tax deduction. So say you use one of the bedrooms as an office, and it is 25% of the total square footage of your house. Well 25% of your home expenses including utilities, insurance, taxes and interest for your mortgage are all deductible expenses that would reduce your tax liability. This decrease in taxes translates to more money in your pocket thus making your home an asset. 

What else can you deduct? If you are a baker, and you use the kitchen 25% of the time baking goods that you sell, or you are a landscaper and you store your landscaping equipment in your garage, then you calculate those areas and the percent to deduct the respective home expenses. Better yet, if you have a 3 bedroom house, rent out one room for transients on VRBO or AirBnB. Then you not only have a huge tax deduction, you now have money coming in from the rental. These would all convert your liability into an asset. 

The same goes for cars. You buy a car and finance it, it is not an asset. Only if you paid 100% cash for the car then it would be an asset. How do you turn your vehicle into an asset? Same as the house. By converting it into a business asset and using it for your business and documenting the mileage used for your business. Or better yet, if you have more than one vehicle, rent it on Turo. Both would make your car an asset instead of a liability.

Your investments for retirement that are in the form of a 401K or IRA or an annuity etc, these are all assets. If you are a private person and don't wish to share your house with a stranger, think about buying a duplex or triplex or quadruplex. But if you are a high income earner, 1 to 3 rental properties may not necessarily be good for your taxes. It may be good for your pocket and make you money but it doesn't necessarily translate to good for taxes which means it might not be good for your pocket after all. Which is the reason why you need a tax expert to help you make the right decision. All investments are not necessarily money in your pocket if you are taxed for capital gains. But of course you want to measure the return on investments before you invest in anything.

While there is a lot to think about, you now know the difference between assets and liabilities. So for starters, sit down behind your computer or with a piece of paper and make two columns. One column is for all your assets and one column is for your liabilities. This is how you measure your financial worth. If you have more liabilities than assets it is time to find ways to accumulate assets which is the way to accumulate wealth.

Until the next time, this is Dr. KnowItAli

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Rebuild Credit

Today's podcast is on rebuilding credit thus the blog will be on that same topic. I have covered building credit in a past podcast so this time around I will teach you how to rebuild your credit. When people are tired of getting collection notices and seeing their credit not improving the first advice they get is to file a Chapter 7 bankruptcy. NO! Don't do it. It is crazy to me to see people with as little as $10K debt filing bankrupt when the rich person files bankrupt wiping out hundreds of thousands of dollars in debt. They have had the benefit of hundreds of thousands of dollars that gets wiped out. That person with a debt of $10 to 20K probably only had $5K as the original amount. That $5K ballooned into 4 and 5 times that from interest charges. If nothing else, you should file a Chapter 13 because not only does that force you to change your spending habits but it is a form of credit rebuilding. But that's not the only solution.

The first thing you need to do is to obtain your credit profile from the national credit bureau. The first option is to pay them all off. But if you cannot afford to do this, then call each creditor and work out a payment plan. For those that are in collections, first have those that are from debts older than 7 years removed from your profile, and the rest, negotiate with them for a lesser amount. Make sure you get this in writing and make sure you negotiate for them to take it off your credit profile. For those of you who have the money to pay these debts, do it! Even if you disagree with how much more the debt has amounted to, bite the bullet and pay it because it will save you in the long run. For those who get a nice tax refund, pay off your debts. 

Once you pay off these debts in your credit profile, apply for a store credit like with Lowe's or with Ikea. You may start off with a low limit but you will work your way up. Use the credit wisely by spending only what you would have paid in cash. Then take the cash and pay off the statement balance. Here is another piece of advice. Set up auto pay so you never forget and end up with additional charges. Just make sure you set it up to get notifications before payment is deducted just in case. After 3 months of being on time every month, apply for another store credit and do the same thing. After 3 months of two cards on time every month, now you are ready to apply for a credit card. Pick any company but do your research. I personally love Capital One. They will give you credit to rebuild. The limit will be small and the interest rates will be high but who cares? It is irrelevant to you since you will pay off the debt every month. Before you know it, your credit score is in the low 600s. 

Next, see if you can find a friend or family member with  great credit. Ask them to add you as an authorized user. You don't have to use the card and if they allow you to just make sure you pay for what you charged at the time the minimum payment is due. And please do not ever pay the minimum payment. You will have paid more money than the credit used. And it is not good for your credit score. Here is another tip. Keep your balance at around 1/3 of your limit. Even if you only have a $300 limit, charge only $100 until they increase your limit. Just remember you are taking baby steps and rebuilding your credit is not going to be an overnight fix like these credit repair companies promise you or that Bankruptcy lawyer advised you. All these people are getting rich off middle income and poor people with bad credit. Follow my blueprint and make yourself rich. 

Great credit is the stepping stone towards financial success in this country. Everything costs more to you with bad credit. You get stuck in a financial rut with bad credit. Get yourself out of that rut by following my simple steps and get yourself on the road to financial success. 

Until the next time, this is Dr. KnowItAli

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Buying a House

Today's blog is on real estate investing. One of the best and easiest investments is your own home. Buying your own home, like getting a loan for your education, is an investment. You can never go wrong with real estate even if you pick a lousy location and even if there was an economic crash. Holding onto the real estate is key to not losing any money. And buying right to begin with is crucial.

Buying right means buying at the right price at the right time, in the right location and with the right type of loan. Getting the right type of loan means never getting a government backed loan. I honestly believe any government program designed for the lower class masses is bad. FHA and VA loans are designed for you to fail. How? Firstly, you don't ever want to finance closing costs like you don't ever want to finance sales tax and dealer fees into your car loan. That means you are borrowing more than the value of the property. Another negative is they require you to pay mortgage insurance to protect the bank. Why should you be paying to protect the bank? I want to pay for insurance that protects me, not someone else. These lenders make out like bandits when they foreclose on your property. They get paid 3 times over but to get into this is too long. Understand that they do benefit when they foreclose on an FHA or VA loan. The government pays them so they don't lose any money. Why should I pay this to protect them when I can use the money to pay for my taxes or my own insurance? On top of the mortgage insurance you have to pay, they force you to include taxes and homeowners insurance, rationalizing that they have to make sure you're never delinquent in those payments. Well guess what? This is included in your escrow and they can arbitrarily increase your payment based on the increased escrow demand. Yes I say arbitrary because they can use any excuse to increase escrow thus increasing your monthly payment. So you might have agreed to paying $1100 per month, and then down the road that $1100 becomes $1200 and $1300! 

So I reject FHA and VA loans. Their rates are not all that great either. In fact, they are higher than a conventional loan. Compare the rates for a conventional loan versus an FHA or VA loan and I challenge anyone to show me I am wrong. I not only prefer conventional loans, I prefer interest only loans. You see, just like rich people lease cars, they buy million dollar property with an interest only loan. Just like you get more car with a lease you get more house with an interest only loan. Rich folks are not looking to pay down on the house. They are looking for an increase in equity. When you get a regular mortgage, only a tiny bit goes towards principal. So if you decide to sell your first home in 2 or 3 years, you would be surprised to see that the loan balance hasn't really gone down. Plus with an FHA or VA loan, the added closing costs and origination fees will eat up the increase in value of the house. So again with an interest only loan, your interest rate would be much cheaper. Your overall costs to buying your first house is less than any government backed loans and your net proceeds will be a lot more as well. Why? Because you will have put down 20% and none of the closing costs are added to the purchase price.  

So when do you sell and achieve the highest benefit? When it is a seller's market. Sell high and buy low is not only for stocks but for real estate as well. To buy low would be to buy a foreclosed or auctioned property or a fixer upper. Most people want to buy a new subdivision that is a new build. Not a sound financial decision. First of all, these developers would qualify you with an 80/20 loan just to get you approved when you really can't afford the house. Their rates are not all that competitive and they don't have to be because they know they got you. On top of that, these subdivisions will have a homeowners' association that will subject you to so many rules and policies! Give me a regular house and a fixer upper any day. The beauty of a fixer upper is that you can now fix the house up the way you want it. You choose your own preference in flooring and paint etc. Believe me, by the time you spend the money in a fixer upper it will still be less than what you paid for a new build or one that is already remodeled. When you buy a fixer upper you have leverage with the seller not only in price decrease but in asking for seller to pay closing costs. Overall when you sell your fixer upper you will profit more. 

Here's another tip. Do not buy a financed car before you buy a house. Wait until your purchase is done then buy your car. Unless you are way over qualified in income for your house, having a car note will be a disadvantage. You will not get the best rate or best terms. Do everything in your power to not give the lender an opportunity to deny you the best deal possible. Follow my guide in getting your credit score up in the 700s and your savings up to 20%. Then get a loan to buy your first house. 

Why not rent? Some people would argue that renting is the best financial choice and I beg to differ. When you rent, your rent goes towards another person's investment, not yours. While it is true when you rent you do not have to spend money on repairs and maintenance but when you buy you do. Well, look at it this way. You maintain your car don't you? So if you maintain your car which provides transportation, why would you not maintain the roof over your head? Here is another way to look at it. After 5 years of paying rent, there is nothing to show for. After 5 years of paying on your own house, there is equity which in essence is savings. I preach SAVING, SAVING, SAVING! Guess what, buying a house is yet another form of forced savings isn't it? If you cannot save, this will force you to. If you are able to save a big portion of your income, a big portion of your tax refund and any other monies you come into, maybe you can pay cash for your first house. Don't! Why? One, your funds will be tied up and not "liquid". You want your funds to be accessible in case there are other potential investments you wish to make. Here is another thought. Instead of putting all your money into one property maybe you put it towards two properties. I would spend my cash on land or in the remodeling of a house that I would turn around and sell. Plus paying cash for a property gives you the least tax deduction, while an interest only loan gives you the most. 

In summary, save up for a house, buy your first house that meets your financial capacity, and get an interest only loan. That is the start of building wealth. And when you multiply in the properties you buy that will then be passed down to your descendants, you will have moved towards building generational wealth. Happy planning to make this happen soon. 

Until the next time, this is Dr. KnowItAli

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For the Youngsters

Today's blog is specifically for my young adults, our future leaders who were not taught the basics for financial success and financial self-sufficiency. So what is financial success? To me it is as simple as not having to worry about how you will pay that bill, or how you will buy that thing you want, or how you will pay for that vacation you so need. To be financially successful doesn't necessarily mean being able to afford extravagant and expensive things. It is the financial peace of mind. Financial self sufficiency is to not have to worry about money when you lose a job. So many people realize how unprepared they were during the pandemic when massive layoffs took place. If it weren't for government programs many people would suffer as badly as during the great depression. Both financial success and financial self -sufficiency don't require you to come from rich or become an instant millionaire from winning the lottery. Believe me there have been stories of lottery winners who end up a pauper after a couple of years. It doesn't take a miracle and you don't need to be born into riches to become a financial success. 

For starters, those who are not of legal age to work need to work for their parent's businesses. The parents get to keep the money in the family and take a write off in their taxes. For those who are of legal age, get a part time job and develop a saving habit. You're not living on your own so you really don't have bills to pay. So save 25% of your net pay every paycheck. And please put single and zero deductions for your W4. And when the next year comes, don't go running to do your taxes to get that little refund when your parents can claim you up to the age of 24 if you are still in school. So many people do not know this simple fact. And so many young people are so eager to get their first refund check they follow their peers to file on their own and end up screwing their parents on their taxes. Remember, it typically doesn't change a thing for you if your parents claim you because chances are you didn't make a lot of money. And if you did, you should still allow them to claim you because after all they are still providing a roof over your head and food in your belly. If nothing else, tell your parents what the difference in refund is between you filing independent or dependent, and see if they will repay you that difference from the extra refund they will get from claiming you. I guarantee you they will. If they don't tell them to come see me.

Next, I want to talk about college. For those of you who aspire to go to college start at 9th grade. First of all, prepare for the PSAT and take it with confidence. Here's what you may not know. Colleges do not just look at your grades. They look at the "whole" child. They look at your SAT score, they look at your grades, they look at your leadership capabilities, they look at your sportsmanship and they look at you as a social servant. What does that mean? Work on your grades to be sure, but join a club or two, get involved with some community service work, and most definitely take part in sports. And do not listen to those who are negative about college, whether it is your parents, your family, your peers, your teachers and even your own counselor. Never be influenced by the negativity that destroys your dreams for college. And never accept this myth that you cannot afford college. You can. There is financial aid. What is financial aid anyway? It is not just scholarship and grants but loans that are private and guaranteed by the government. There are loans for parents and loans for the students. And so what if it is a loan? Consider these loans as investment into your future financial success. Most doctors and lawyers have huge student loans but have jobs that can pay off these loans and give them the good life. And what if you don't get a job that pays enough for you to afford to pay off your student loans? People, there are programs to help you with income based repayment, forbearance and even loan forgiveness. Did you know you can work for a non-profit for 10 years and your loans could be forgiven? Outside of loans there are grants and scholarships. There is plenty of free money out there if you are diligent in looking for them and applying to them. Apply to as many as you can and do this early instead of waiting until the last minute. The same goes for the colleges as well. Apply to the colleges on your wishlist early and make sure you apply for a fee waiver. Go online and complete your FAFSA on the government student loan site, not a private site such as FASFA or any other website that looks like a government site; https://studentaid.gov/understand-aid/types/loans. Anytime you go to apply for something you thought was free and then at the last part you have to pay, get out of it. You are not on the government website where it is free. This is the same with credit. To get your free credit report you have to go specifically to the government national credit site and not one that asks for payment; https://consumer.ftc.gov/articles/free-credit-reports. It is unbelievable how many scam companies are out looking for naive people who don't know any better. Now let's talk credit.

If your parents haven't set you up with good credit by the time you turn 18, you will be bombarded with credit offers. Rule of thumb, do not apply to all the offers. Scrutinize each and find the one that has no annual fee. Forget about the interest rates because it doesn't matter with how you will use the credit card. Start with only one application and if you get it, that's it. DO NOT apply to all of them because it will impact your score before you even begin to establish credit. Next, if you don't get a good one, at least find one with the lowest annual fee and zero processing fee. Once you get the card, use the card only for those purchases you have the cash for, and use the cash to pay it off when the bill comes due. Never ever pay the minimum balance. Pay it off and in six months apply for another card. And that should be good enough to move towards a great credit profile. So the rule is never to spend money you don't have, and what you do have, spend what you need to and save the rest.

I know it is tough not to spend money you are finally making on your own but get in the habit of saving. If you're still living with your parents you don't have real bills, unless you were foolish enough to go finance a car. If you're going to college you don't need a car. If your parents want to cosign for you a car make sure it is a basic one that you can afford without stress. I personally do not advise this. I prefer cash cars but one that I can get a warranty for. Yes, you need a few thousand dollars to do this versus zero downpayment for a new car. So what? Patience pays. Save your money until you can get that few thousands. Map out how long it will take you to save that money. Ask your parents to loan you the money. Do extra work to earn money. Don't sit and wait for someone to hand you what you need. Make it happen yourself. But it is not advisable to get into debt just as soon as you get a job because you can pay for it yourself. Isn't that what most young adults think? First things first, establish yourself before you get into any debt. Establish a bank account. In fact, apply for a credit card through your bank or better yet, find a credit union. I love credit unions. They are good to their members as long as you don't screw them. Bank account is crucial for depositing paychecks or any checks you get instead of going to a check cashing place and just handing them your hard earned money. And stay away from payday loans and title loans. These will all suck you into a financial void that keeps you in financial failure. 

So how do you stay within your means? Put a budget together. Go back and read my blog on developing budgets. Within this budget set aside a percentage for savings. Like I suggested earlier, get in the habit of saving money. At minimum you should set aside 10% but 25% is better and for those of you who live with your parents you should be able to do this. Why? Because savings are for the future. For your retirement, for investments, for emergencies or maybe even to start a business. Discipline yourself to save. The ability to save seems to be very difficult for most people because they were never disciplined. So if your parents never instill in you the love of saving, and never taught you all these that I am teaching you, you have your blueprint on how to become a financially fit adult first and then move towards financial success. Not just for yourself but for your descendants. To build generational wealth, if your parents did not, you can do better, and you can be the first ancestor to do this for your next generations to come. Hope you can use my guidance here as a start towards helping you make your dreams a reality. 

Until the next time, this is Dr. KnowItAli 

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Starting a Business

Today's blog is about business structure. So you want to start a business. The first thing you think of is a

name that ends with an LLC. Why? Because this is what you heard is best. But then there is the C Corp,

the S Corp, partnership, exempt or non profit organization and then there is the sole proprietorship.

So which do you choose? How do you structure your company? What classification should you choose?

The first thing you recall from listening to others or maybe from reading is to start an LLC. Why?

Because you were told your personal assets are not tied to the company. What is an LLC? It is the

acronym for Limited Liability Company. What does that even mean? Yes, it does mean that the owner's

personal assets are protected against company debts. Somehow this has become the gold standard for

business structure in this country. I say it is a dream because for the most part, finance companies

typically require a guarantor for financing.

Say you want to buy a car. The financing has to be in an owner's name but registered to the company

which means the owner is liable for the car loan. When a member/owner of an LLC becomes a guarantor,

his/her personal assets become tied to the company. So it is a fallacy to think that an LLC gives its

owners 100% protection. The only way owners of an LLC is protected 100% is by incurring debt that is

strictly and 100% owed by the company secured by the company's assets. But this applies to a C-Corp

and an S-Corp as well.

No different than an LLC, a C corp and an S Corp are its own entity. They are all considered individuals,

a "person" separate from it owners who are shareholders or members. No different than the LLC,

corporate debt typically requires an owner to guarantee the loan. Of course, I am not referring to large

companies like Coca Cola or Facebook because they are establised, have assets and can stand alone

without any of it shareholders/owners to guarantee any loans. You are a small business owner so guess

what? You have to guarantee any loan whether your company is an LLC, a partnership, a C corp or an S

Corp so your personal assets are not protected. Plus an LLC is a state designation. You will not find a

form to file taxes for an LLC. There is a form 1120 for a C corp, an 1120S for an S corp, a 1065 for a

Partnership, Schedule C within a form 1040 individual, or a 990 for an exempt organization. So in

essence, the federal government doesn't really recognize an LLC. You have to classify yourself as one of those

federal classes from the beginning or apply to reclassify later.

So what do you do? What should you choose? It depends on a lot of factors. And whatever you decide

you have to file the right tax form at the right time. An S-Corp and a partnership has to file taxes by

March 15th.

The reason is these two entities are called pass through entities where losses and income

passes through the company to its owners i.e. shareholders or partners. The company's loss or income is

reported in a Schedule K for each owner respective to their percent ownership. This schedule then has to

be included in the owner's personal taxes. This is why the company taxes are due one month prior to the April

15th deadline for the rest of us.

This schedule will then be in the IRS database on time to be matched up to

individual returns. Having been in the tax business it is amazing to me to see so many people with

partnership or S-Corp who are clueless about the March 15th deadline.

April 15th deadline are for individuals and C corp. Just like a sole proprietor, a C corp does not pass

through its income or loss. Income or loss belongs to the owner which is the corporation itself. Profits can

be shared with shareholders during the tax year so the reporting of this distribution of profits through

1099DIV or dividends is typically done by the end of January. Thus there is no earlier deadline necessary

for the C corp. So the question to ask is, do you want your income or loss to be passed onto your personal

taxes? If you don't, how do you feel about double taxation; company net profit is taxed, and then the

dividends paid to you is taxed again. It is not a simple answer, is it? And what is the difference between a

partnership and an S corp anyway cos it sounds pretty much the same, doesn't it?

Let me enlighten you. There are two main differences; one, a partner is liable for company debts when

shareholders are not in an S Corp, and two, a partnership income is subject to self employment taxes but

an S corp shareholder profit is not. So are dividends from a C corp not subject to self employment tax.

There are other subtle differences between these 3 from simplicity in organization to complex tax

implications and benefits. I don't want to confuse you with the complexities. I want to make it simple for

you to decide which one to choose. Basic rule is how many people are involved in the business. If it is

just you, the best option is sole proprietorship. Everything is done one time and reported once during tax

time unless you have employees or contractors that you have to issue a 1099 to. Even if there are two

people, sometimes it is best to keep 2 separate sole proprietorship and then merge as a partnership once

the parameters are set and responsibilities are more defined. What if you want to start a family business

and you have youngsters? Do you really want to issue your youngsters a schedule K for them to file

taxes? Or should you choose a C corp and have them reinvest their share of profits into the company for

expansion? Bottom line is there should be strategy involved in choosing the right structure. It should

require a well thought out strategic plan.

Formalizing a business by registering with the federal and state government is not rocket science but

deciding the structure is a little more complex. This is where I come in. For individual assistance, I am a

master strategist and I will help you determine which business structure you should choose. For example,

the typical husband and wife team doesn't have to form partnership. There is another classification that I

did not refer to in my podcast, and that is "joint venture". You and your spouse running a business

together can be classified as a joint venture and include it in your individual joint or separate tax return.

You split the income and expenses 50/50. Pending this is agreeable to both, of course. Not all partnership

is 50/50 but all joint ventures are. This is just an example of extra information that I cannot share in such

a short time. There is so much more for me to share and I will as time goes.

On that note, I hope you have learned something from listening to my podcast and reading this blog.

Meanwhile, if I can help you with choosing the right structure, please submit the form or call me. My first

goal is to educate and empower you with the tools you need to be successful.

Signing off,

Dr. KnowitAli.

Taxes

Taxes! How does taxes affect building wealth? First of all, just like the masses weren't taught

about credit, you weren't taught about taxes. So you listen to people who claim they know about taxes and

you do all the wrong things. Some of you claim exempt because someone told you that is the way to get

the highest amount of your pay. Some of you claim head of household even though you are single because

your peers who advised you told you, you are head of household. Some of you claim deductions that you

don't have. What ends up happening, come time to do your taxes, is you discover you owe taxes or

you are not getting back too much so you're mad. You don't understand how people are

getting thousands of dollars and you're not.

Why are some people getting thousands of dollars? One, because the company they work for are

deducting from their paycheck federal and state taxes. For people with children who work either a regular

job or have their own gig or side hustle or a business there is free money called Earned Income Tax Credit

and Additional Child Tax Credit which are credits that are fully refundable. This is the redistribution of

income from the rich to the poor. These are the only people who can claim exempt from taxes because

chances are these credits will pay whatever taxes they owe. Even so, their income has to be low. If the

make over $36,000 they had better have taxes taken out from their paycheck.

Taking out taxes from your paycheck is a good thing anyway because what you don't see don't hurt you,

and what you don't get you don't spend. So think of it as forced savings which is a good thing for those

who cannot save. When you have enough taxes taken out to pay your taxes owed and get some back, that

is a good thing. When you don't have taxes taken out or not enough taxes taken out you might owe taxes.

If you are already the type who cannot stick to a budget and cannot save, how will you pay this tax debt?

Most of those I have met in the business hide it under the rug year after year after year until it

becomes a huge debt. This can then become a lien on your future tax refund, or your job or business

income, or your house if you are a home owner or even your bank account. How will you ever build

wealth if you put yourself in this predicament?

Now here is what I do with my first year clients. My first advise to them if they don't already have a

business is to dig deep down for their passion and start a business. This is a strategy that serves multiple

purpose that will ultimately help you build wealth. For those who already have businesses but are not

claiming it on their taxes, I show them how claiming the business benefits them. For those who claim the

business but under report the income, I advise them not to, and show them what to do. For all those who

listened to me, the pandemic was a blessing in disguise because they got the PPP which was stimulus

funds for businesses negatively impacted by Covid and the EIDL which is a long term low interest loan

that would otherwise be unavailable to the masses. This year, those same people are getting huge refunds

that they have never seen before.

This is a historic high for refunds. How and why? The American Rescue Act pays businesses negatively

impacted by Covid sick leave pay and FMLA. The higher your income the higher the "pay" with a

maximum of $32,220. We are getting single people over $10K, parents with children over $20K, and

truck drivers and retail businesses over $30K. So what happens after these programs are gone? Do you

continue to report your business? Absolutely!

There are so many expenses you can deduct in your taxes that could lower your overall income i.e. job

income and business income, thereby decreasing your tax liability and increasing your tax refund. Here are

some expenses that you could deduct. Set up an office space where you conduct your business activities

then a portion of your household bills can be deducted in your taxes. There is depreciation expense for

your house. Just like depreciation expense for you vehicle. A portion of all your vehicle expenses like gas,

insurance, maintenance etc. can be a deduction. Section 179 allows you to even deduct the cost of your

vehicle. Meals are a deductible. Anything you purchase for the business can be deducted and the list goes

on. There are so many strategies to increase expenses and decrease your tax liability using legal loopholes

that Donald Trump says he used to lower his tax bill. And he is absolutely correct. There are so many

legal loopholes that the ruling class knows about that the masses is kept in the dark in. Some examples

include hiring your children for your business. If you have teenage children under 18 years, pay them

without having to pay FICA. If they are 18 and over pay them up to $12550 and they don't have to pay

taxes. The income stays in the family and you pay no taxes on that portion of the income. This is how you

build wealth.

Make your money and keep as much of it as possible so you can invest what you keep and make your

money grow. Make your money and keep it in the family so you don't just build wealth, you build

generational wealth. There are many more strategies for taxes so call me if you need my individual

coaching for your individual case.

For now, this is Dr. KnowitAli signing off.

Credit 101

Credit! This is the topic for today's blog. This is the perfect topic after the last one, where I give you strategies to save money. So how does it tie in? For most of the masses, their credit is most likely shot. To clear your credit you will need money. But firstly why are most of the population credit shot? Because they were never taught how the credit system works. The credit system in this country is designed for the masses not to succeed financially. It is designed to keep the masses in debt until they reach their grave. How? 

First of all you were never taught in school or by your parents, who also were never taught. Just like you were never taught how to develop a budget or given the tools to stick to the budget. So how do you establish good credit? Credit is a must in this country for financial success. Without credit, you may as well throw in the towel and stay poor. Poor is where the ruling class wants you to be. You will hear me say this over and over again not because I am a conspiracy theorist, and I am, but because it is the hidden agenda behind everything financially. Think about it. If too many of the masses rise up, what happens with the few that rules? There are less folks to rule and more folks to share their "seat" with. Sharing their "seat" is sharing their power. Do you really believe they want this? NO.

So what happens to the common folk? As soon as you turn 18, you apply for credit only to find out you can't qualify because you have no credit. No credit is as bad as bad credit. Because of this, you end up getting a credit card with some high interest rates, with a low credit limit and an annual fee. This fee is hidden in the language so you don't even pay attention to this. You are just elated to get a credit card even though it is only for $250. You go out and charge $250 only to find out you went over the limit because of the annual fee charge that you didn't think about, didn't know about or didn't know would be charged immediately instead of the end of your first year. So now your balance is the $250 you charged, the over limit fee which typically is $40 and the annual fee that is typically $99. You now have to pay $400 for spending $250. You have no funds to pay this and were looking to pay the minimum due so you are pissed and you choose not to pay anything. This is the start of a downward spiral for your credit. This is one scenario.

Let's look at another. Your first day in college and on open house day, there's a zillion booths with companies trying to give you "money". They coax you into applying for their credit card and each of them promises you a $1000 limit. Maybe you get approved for multiple credit cards. What does a young adult in their first year do with all this "money"? WooHoo! Party time! Drinking Time! Clubbing Time! So you charge up your credit cards and find yourself in a jam when the bill comes due. You ask your parents to help and they say "Hell No!" they won't help you. Or maybe they don't have the money to help you so they can't. So what happens? There goes your credit. Down the toilet! This is what the common folk, the masses go through. This is not what happens with the ruling class. 

They know how the credit system works so the first thing they do is put their under 18 children on their credit card as authorized users. As an authorized user, their children get credit for timely payment made by the parents. These parents also allow them a certain amount, typically 1/3 of the credit limit or they will take away the card. That is motivation for self discipline. Two birds with one stone; build good credit and good discipline for credit. That child turns 18 with an automatic good credit and now can get a good credit card with low interest rates but also with self discipline on charging only 1/3 of their limit. This is the rule of thumb to build and maintain a great credit score. 

Okay, you are not the ruling class and you didn't know before. Now you do. So here is what you do no matter what your credit is like. Start with getting your FREE credit history from all 3 credit bureaus from the national credit reporting agency, a government agency. Please don't get scammed by a private company pretending to be this government agency. There are so many of these scammers pretending to be the government. From financial aid to getting an EIN for your business, there are scammers who will charge you for stuff the government provides for FREE. Don't get trapped. Always read the fine print. They have to have a disclaimer that says they are not a government agency. Ok, so back to getting your credit report. Now calculate how much you owe and look at how you can pay off these debts. Does it mean you have to save more money each month? Make a projection of when you will have the money to pay off these debts. 

The first debts to pay off are those held by collection agencies. If you see multiple collection agencies for the same account you need to dispute them. If they are for debts that are older than 7 years, you need to dispute them. All the rest, if held by collection agencies, you can negotiate a lower amount. Call them and make an offer to pay if they remove the debt totally from your credit report. Make sure you get this in writing. They have to abide by the agreement. Most of the time you can negotiate down to 1/3 the total owed or the actual original amount you owed. Most of these companies paid pennies to the dollar for what you owed the original lender. The rest of the bills are probably small so pay them off. Clear your credit yourself. You can do this. Stop relying on companies that promise you to clear your credit for a small fee because chances are they only clear it for one month. After the month is over, they are all back. Why? Because all these companies do is to dispute every transaction and it is up to the debtor to prove the debt is legitimate. While it is being disputed, the credit bureaus have to remove them. Of course there are companies that do the right thing but it is not any different than what you can do yourself. And please if you don't have more than $50K in outstanding debt, don't go filing bankrupt. Poor people file bankrupt with $10k and less in debts and rich people file bankrupt with over $100K in debts. You will be in a worse position after a bankruptcy than before. You are better off trying to work out plans to pay these debts off. It is amazing to me to see in my line of business people getting thousands in tax refunds and the last thing they are thinking about is paying off their debts. Remember my advice about what to do with tax refunds. Add this to that strategy. Splurge some, save some and pay off your debts some. But why?

Credit is important in this country to build wealth. One of the easiest ways to build wealth is real estate. To pay towards owning your own house is better than paying rent that pays someone else's mortgage. Today it is cheaper to own your own house than to rent. Yes, with ownership comes responsibility but that is what adults do. If you want to stay a child and not have responsibility then that's your prerogative but you are here on my blog because you are an adult and you want to learn how to be financially successful. Good credit is very important in your move towards financial success. If you ever heard of building wealth through using OPM i.e. other people's money, that is what good credit allows you to do. So for starters let's get your credit straight. Once that happens, let me share with you how to maintain good credit.

Once you clear your credit, the first credit you can possibly get is store credit like Ikea, Macy's or Lowe's. For starters, the credit limit is low but understand that this is “baby steps”. The strategy is to use the card only for things you need that you have the cash to pay for now. But instead of using the cash to pay for them, you use the card and set the money aside. When the bill comes due, take that cash and pay it off. If you absolutely don't have the cash, then leave only 1/3 of your credit limit but pay off the rest. Maintaining 1/3 balance on all cards is a great way to keep your credit score from dropping. If you can get a visa, mc or amex, then use the same strategy. Put aside your income that you would normally spend on basic necessities and use the cards. When the bill comes, take that income and pay it off. Paying off your balance every month will increase your credit score very quickly. Before you know it, your score will be in the 700s and you are on your way to build wealth using other people's money. That's it for today's blog. If you need one-on-one coaching, you know what to do. I am here for you and will see you next time. Bye for now.

Signing off,

Dr. KnowItAli

Increasing Your Earnings

Today's podcast is on ways to increase your earnings if you don't have at least 10% income to save. For those who have at least 10% left, you can apply what you gain from today's podcast to increase the amount you can save, therefore increase your wealth faster. I will show you how this will help decrease your tax liability therefore increase your tax refund. Increasing your tax refund will then increase the amount you have to move towards building your wealth. 

The first step is to dig deep down inside you for your original passion. There's this book called the Alchemist that I recommend everyone to read. It speaks to your original passion and how it gets destroyed from a very young age. Whether it is your parents, or your teachers or society as a whole, they kill those thoughts about becoming what you want to become or doing what you want to do from a very tender age. You're groomed for what they want you to become. In later age, you're taught to be more practical, to accept certain things because of who you are or the socio economic class you're in. Your teachers tell you not to have high expectations. Your parents tell you to be more grounded in what you can afford to do or what you're capable of. Society manipulates you into these self fulfilling prophecies. I say to break out from these shackles. 

Go back to your passion as a toddler even. What did you enjoy doing that you were punished for? Did you break a toy taking it a part to explore how it works? Then you're an engineer. Did you play with your parents computer and cause it to lock up? Maybe you’re a computer wiz. Did you cut up your own clothes to make it better? You could be a fashion designer. Did you tinker with tools in the garage to find out what you can do with them? Maybe your passion is construction. These are just examples of what our natural inclinations are from birth. Go back to this and find your passion. Once you do this, figure out how you can start making it happen. If you need to go back to school, then do it. There is money out there for you to go back to school part-time while you work to make ends meet. If you don't need to go to school to pursue your passion, then figure out what you need. Humans are visual so put it down on paper. What do you need? Map it out, make a plan and implement the plan. 

Stop looking at the obstacles as a way for you not to make it happen. List the obstacles and find ways to overcome each one. The most common obstacle is finances. How do you make something happen if it takes money that you don't have? What can you do without money that will make the money you need to implement the plan you are passionate about? What can you do? What are your skills? What tools do you have? What are you willing to do? List them. There are ways to earn money if you are willing to do the work. Today's pandemic times is an opportune time to make money delivering things to people if you own a car. If you don't, can you afford to buy a lawnmower and do landscaping? Are you smart, and can tutor students struggling in different subjects? Can you babysit at night? Are you willing to work a part time job to save towards what you need for your passion to become real? 

It takes money to make money but sometimes it only takes your willingness to work to make money. And then of course there is credit which if badly used can ruin you but if used properly can help you reach your goal towards your passion and ultimately towards building wealth.   

Getting Started with a Budget

Today's podcast on building wealth is focused on budgets. First we have to believe that it is possible. One of the first steps towards believing that building wealth is possible is by saving. Before you save, you have to see what you have coming in and what you have going out. After visualizing these numbers you will be able to develop a budget. Once you develop a budget, the next step is to find strategies to stick with the budget. Most people have a very difficult time sticking to a budget because of the culture of consumerism and the desire to satisfy immediate wants. Discipline is key to successful saving. If you can't discipline yourself, there are ways you can force yourself to save. But before we talk about that, lets delve into the steps.

If you have a computer and you know how to use a spreadsheet, start with a blank spreadsheet. In the first column, write in the amount of your paycheck. Next line, multiply that by the number of paychecks you would get throughout the year. If you get paid biweekly then the number to multiply is 26. Take that total and divide it by 12 months. On the next column, write in Income, and underneath that write in the amount that was divided by 12. On the next column write in the word Expenses. List your basic expenses such as rent or mortgage, electric bill, water bill, total groceries you spend in one month, and incidentals like toilet paper etc. Total your expenses. Now take your monthly income and minus the total for expenses. Do you have at least 10% of your income left? 10% is the minimum but the more you have to set aside in savings the quicker you will build your wealth. If you don't have at least 10%, then we need to find ways to earn additional income, but chances are you do have at least 10% or more.

Now how do you discipline yourself to stick with this budget? Off the top, take that 10% or more and set it aside in a savings account. The discipline is not to just save this money but to not touch it no matter what. This is not an emergency fund or a vacation fund. Look at it as money that is gone just like money that you use to buy groceries. Can you get that money back? Of course not. So treat this money the same way. If you know you cannot stop yourself from taking this money out, then open a money market savings account where you can make deposits but cannot withdraw without a penalty. Or find someone you trust to hold this money for you. Maybe a parent, or a friend that you trust not to spend your money and not to give it back to you even if you beg them to. There are other ways to do this but I will cover that in my investment podcast.

Next, is to stop yourself from impulse buying by staying away from merchandizing traps. Before you go shopping, put together a list of things you need. When you go shopping stick with the list. There will be items in the middle of aisles or at check out to trap you. People are so good as rationalizing the need to buy something because it is on sale. A sale is irrelevant if you don't need it. If the sale has to do with bulk buying then of course you buy it but remember to deduct that from the following month’s budget so it will not look like you have extra money that following month. If you don't do this, it is just another trap people set themselves up for failure. So set yourself up for success in sticking with your budget and the discipline to save. My next blog will be about ways to increase your earnings if you don't have at least 10% left over. For those who have at least 10% left, the next podcast and blog will be for you to increase the amount you can save and therefore increase your wealth. And I will show you how this will help decrease your tax liability therefore increase your tax refund.

Until my next blog

Bye for now,

Dr. KnowItAli

Philosophy of Building Wealth

So today's blog ties in with my podcast regarding tax season and huge tax refunds for those in the low socio economic class with children. Unbeknownst to the masses, the culture of consumerism had held them in financial hostage for decades. They continue to be manipulated into believing they have to spend every dime on things that bring no value other than personal instant spending gratification i.e. impulse buying. To most of these financially struggling folks, it is the only time they can "blow" money like rich folks do on a regular basis, or so they think. Not necessarily true. According to many studies a lot of rich people are thrifty. Super rich people, like Warren Buffet, are super frugal. There is a saying in the "Invisible Rich", "the biggest barrier to becoming rich is living like you're rich before you are." And that is exactly what people do when they get these huge refunds.

They are bombarded by ads that manipulate their minds hypnotizing them to Buy! Buy! Buy! So you find the Walmarts and the Targets and the shopping malls filled with people pushing shopping carts with big screen Tvs etc. In fact, I bet this time of the year is even busier than Christmas. Why? As I said earlier this is probably the only time of the year people from the lower social economic class get a chance to splurge as if they are rich without worrying about how to make ends meet. But consumerism doesn't just affect them during this time of the year. The culture of consumerism has led to the masses making financial decisions. Some so bad they would spend their money on things before paying their bills i.e. spend more money than they make. This is the reason title loans and pay day loan companies are so profitable you can find them all over poor neighborhoods. The rich owns the things that the masses buy so the rich stay rich and the poor stay poor. Why is this so?

No one taught them to think about building wealth, whether for themselves or for their descendants. This is not taught in schools. In fact, they don't even teach kids how to develop good credit, which is a must in this country for one to climb the stairs to financial success. There is a reason for this. Status quo; in order for the ruling class to stay in their class, the masses need to stay down. Of course there are those of us who manage to break away from this status quo, the majority are kept ignorant. Even religion teaches them to accept and embrace their position because heaven is filled with poor people. Or that God wants them to be poor. So between the culture of religion and the culture of consumerism, instead of using these tens of thousands of dollars on investments for the future, the masses just Spend! Spend! Spend!

To those who listened to my podcast and those who read my blog, why don't you put that money towards buying a house instead of renting? At the rates today, your mortgage could possibly be 2/3 if your rent if not half. Can't qualify for the loan? Put that money away and start moving yourself towards qualifying. Even if you splurge half of your refund and put away the other half, say $5K, you do this every year and you will have $20K in 4 years. Do you know what you can do with this money? Plenty towards building your wealth.

I will end this blog with a tax tip; ask your preparer about the sick leave and FMLA refundable credit for self-employed people. It could mean thousands more in refunds.

Bye for now,

Dr. KnowItAli