Tom's Blog

One of my favorite activities is to attend the Rich Dad http://www.richdad.com staff meeting. I really appreciate Robert allowing me to come. He has a way of opening my mind to new ideas that I cannot really describe. He is definitely on the cutting edge of whatever he does and constantly is thinking of new ideas.

One of the ideas Robert presented yesterday was about how important it is that we feel productive. This idea may not be cutting edge in the traditional sense of the term, but it a very important concept for business owners and investors like myself to think about. Everyone in the organization needs to be and feel productive.

Productivity does not just mean you are busy. It means that you are busy doing something that you are good at and you are being successful at what you do. The first question I asked myself on my drive back to the office was whether each of my employees was productive. This is a fairly challenging question that all business owners should ask themselves every day.

People who are not productive simply are not happy. They don't feel like their life is fulfilling or that they are contributing to the organization. And, in fact, they probably are not contributing to the level that the should and could.

Some of the business owners reading this may feel like I used to, i.e., how can anyone not be or feel productive? Can't they generate their own productivity? After all, entrepreneurs by definition are idea generators and never lack for productive work. Sometimes, however, we feel like everyone else should be just like us.

In my experience, there are relatively few people are idea generators. And most of these people own their own business and/or are working diligently to create their own wealth. As employers, we have to help our employees see our vision and give them direction so that they can be productive all of the time. Not an easy task.

Productivity is also a question that every investor should ask him/her self. Is your investment strategy productive? Do you feel productive with your investment strategy? Are you making the progress you want to make? Is your chosen asset type (paper, business, real estate) something you are good at? If you are not good at it, is it at least something you enjoy doing and are you doing something to get better at it? Finally, do you have someone helping you evaluate your investment strategies whose sole interest is in your success (i.e., they have no personal/financial interest in what investments you choose)?

Just a few thoughts provoked by the master mind of Robert Kiyosaki.

Warmest regards,

Tom

This is the time of year that we contact all of our clients and suggest that they do some year-end tax planning with us. Many of you wonder why planning at this time of year is so important. Let me give you three quick reasons.

Reason #1: AMT. More and more people are subject to the Alternative Minimum Tax. The reason this is a problem is that you lose many of your deductions if you are subject to the AMT. For example, your state income and real estate taxes are no longer deductible. Nor are your investment expenses.

The good news is that you can avoid or minimize your AMT if you do proper planning at year end. Will you be in the AMT for 2007? Then, you may want to postpone your final estimated tax payment until 2008. Same with your investment expenses. Postpone paying them.

Reason #2: Estimated Payment Penalties. If you have income outside of your regular employment, you are probably making estimated tax payments. To make sure you have made sufficient payments to avoid penalties, do a year-end tax projection now. You may be able to avoid penalties even if you are currently underpaid by a significant amount.

Reason #3: High/Low Income Year. I have run into many people this year who are either having and extraordinarily good year or a very bad year. Many people with real estate are having a bad year. What can be done at year end? Reverse Tax Planning. Rather than accelerating expenses as you usually do, you may want to push expenses to next year. Otherwise, you risk losing the deduction or taking it in a year when your tax rates are really low. If possible, you may also want to accelerate income. This way, you can avoid losing itemized deductions and personal exemptions that cannot be carried forward or back.

So take some time to meet with your Tax Coach in the next week or two while there is still time to project your income and make a permanent impact on your taxes through a little year end planning. Then, take those savings and invest them to create additional Velocity in your portfolio.

Warmest regards,

Tom

The other day I was doing some wealth training with our ProVision employees. We were talking about Internal Controls. One of our employees mentioned that it seemed like Internal Controls were not just about preventing embezzlement and theft, but about all negative actions, including mistakes with a portfolio. I totally agreed with this comment and we started to discuss what an investor needs to do to prevent simple mistakes in their real estate portfolio.

I suggested that values need to be monitored on a regular basis so that real estate that has gone up in value beyond its "true" value can be sold. What is a property's "true" value? Under my definition, a propertie's true value is any value at which we would buy the property ourselves. So, if the property has appreciated to such an extent that we would not purchase it ourselves, then we should sell it. Let me give you an example.

Suppose you have a single-family home that you purchased for $200,000. The property has appreciated over the years to $400,000. Let's say also that your investment criteria include a requirement that any property you purchase must produce positive cash flow. When you purchased the property for $200,000, the property had strong positive cash flow. But if you paid $400,000 for this property, it would now have significantly negative cash flow. In other words, rents have not kept pace with appreciation.

But, you might say, you paid $200,000 for this property so it still has strong positive cash flow. Wrong! If you own property that is worth $400,000, it's cost to you is about $370,000 ($400,000 less selling commissions and other closing costs). This is because you could have $370,000 to use on other, positively cash flowing properties, if you sold the house. Another way to look at this is to determine whether this house would positively cash flow if you borrowed out the appreciation. If it does, then you should keep it under your criteria. If not, you should sell it.

Most people make the mistake of believing that if they have positive cash flow from their property, then they should hold onto it forever. This is a mistake and ignores the enormous benefits of Velocity of Money. For a simple demonstration of the Velocity of Money, go to our website at http://www.ProVisionWealth.com/wealthcd and download our free cd entitled, "What Your Financial Planner Will Never Tell You."

So don't forget to monitor the value of the properties in your portfolio so you can maximize your investment returns. If you need a source for more properties that positively cash flow, visit our recommended resource, Spectrum Investment Group, at http://www.spectruminvestmentsolutions.com.

Warmest regards,

Tom

The WSJ wealth blog (http://blogs.wsj.com/wealth/2007/ ) recently featured an article about Wealth Fatigue Syndrome. This problem occurs when people spend more and more money on "things" and find that they get bored with their things and need more things.

Unfortunately, this problem is not limited to the wealthy. It's a problem for everybody. If your focus is on things and not people, you will always be bored and will constantly be searching for bigger and bigger thrills. For the wealthy, that may simply mean that they trade in one toy for another. For the rest of the world, this can mean catastrophe, as people get more and more into debt in order to try to satisfy this need for things.

The good news is that there is a tried and true remedy for this syndrome. The remedy? Service. Serving other people and focusing on how to help other people, whether it be our family members, church group, or favorite charity, is the key to happiness and fulfillment. And, it doesn't cost anything but our time and effort.

The other day, I had the great privilege of working on a Habitat for Humanity (http://www.habitat.org) housing project in Guadalupe, Arizona. Guadalupe is a predominently Hispanic neighborhood and historically has been a very low-income area. Habitat for Humanity is building 4 homes in Guadalupe now for needy families.

At the house I was working on, there were over 25 volunteers from various walks of life. All had come to dedicate their time and energy to helping this family build their home. And all were very happy to be there.

Serving others is the great privilege and joy of this life. The more we are focused on helping others, the smaller our own problems become. So, get out of the Wealthy Fatigue Syndrome that often comes during the holiday season and go out and help someone. You will be happier and so will they.

Warmest regards,

Tom

This is a question I get frequently from clients. They want to know when to change their position in an investment, i.e., when to buy more or when to sell. At ProVision, we are not investment advisors, so we don't give specific investment advice. However, as accountants, we are experts at monitoring and managing finances.

Let me share a few thoughts with you on this matter. First, put the proper reporting in place. Reports should do more than just give you raw data. They should also give you information about the status of your investments as compared to a few different standards. They should compare your results to your target. They should also compare your current results to historical results. And, ideally, they should compare your results to the average results of your industry or your region.

For example, let's say you are invested in the stock market. It would be nice if your investment report didn't just give you the current value of your stock. It should also compare your current value compared to your expected value. And your return on investment compared to your target return on investment. Plus, your report should compare your current value to the value a year ago, a month ago and/or a quarter ago. Your report should also compare your return on investment to the average stock portfolio return on investment with your criteria. Your investment advisor or trading house should be able to provide this information to you. If they aren't, then you should ask them to do this or you should consider finding a new investment partner.

Real estate can be monitored the same way. You should have a report that tells you where you are compared to where you have been historically, both with cash flow and with appreciation. Your report should also compare your current value and return on investment to your expected value and return on investment. And, your report should tell you how you are doing compared to the rest of the market in the areas in which you are investing.

There is one ratio that I rarely find tracked at all in real estate - cap rates. See my blog tomorrow for more on this.

Until then, remember that financial freedom is closer than you think. Visit the ProVision website to learn more at www.ProVisionWealth.com.

Warmest regards,

Tom