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5 Steps to Retire Rich

Updated on August 3, 2016
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Keith Schroeder writes The Wealthy Accountant blog with 30 years experience in the tax field. He is the tax adviser of Mr. Money Mustache an

Oprah: The Secret to Retiring Rich

From the beginning of my tax practice in 1982, I noticed people with serious wealth, defined as a liquid net worth of $10 million or more, have certain similar traits. Books have been written on the subject for years, but I noticed the real information would make a very small book. The wealthiest clients followed the 5 steps below to amass and retain their wealth. The preconceptions of society are false. Wealthy people work hard, but not endlessly; some wealthy people own a business, but only about half; some wealthy people are easy to spot in their fancy car and clothes (especially movie and sports stars), but the vast majority could never be picked out of a crowd. To retire rich is a process that does not include flashy spending, hot rod cars, or 10,000 square foot homes. Those that live and retire rich do so with little fanfare. Follow the steps below and you too can retire rich. Few will notice, but fame rarely brings lasting wealth. Instead, wealth allows for a comfortable life with family and friends and a low stress lifestyle.

Carlos Slim Helu could be the richest man alive.
Carlos Slim Helu could be the richest man alive. | Source

Step 1

Wealthy people hire professionals in the important areas of life. Even before the first dollar of wealth is acquired, wealthy people rely heavily on medical, legal, accounting/tax, and investment professionals. The average person tries to do it themselves. The poor file their own taxes, set up their own LLC and other legal work, and put less emphasis on healthy living. Not the wealthy. From the early stages of wealth creation to the zenith of their net worth, wealthy people use professionals where it makes the most difference. The wealthy are less price sensitive in key areas and more frugal in non-key areas. Rich people do not do their own taxes to save a couple hundred or even thousand dollars in tax preparation fees, knowing full well, a good tax accountant can reduce a tax liability many times the preparation fee. Our wealthy friend also knows a tax pro will share strategy that will increase and maintain large amounts of wealth.

I never met a wealthy business person that setup their own LLC or corporation. Rich folks hire the best attorney and expect to pay a premium, expecting a premium service in return. When unforeseen events threaten accumulated wealth, the wealthy know they have the best legal representation possible and stand a good chance at keeping their wealth.

A health lifestyle and medical care rank high with wealthy people. They know a shortcut here will shorten their life or reduce the quality of life. Wealthy people talk to their doctor, but not about the stuff commercials say you should ask your doctor about. Wealthy people want to eat right and be physically fit. This isn’t track star healthy, rather, a strong fitness to enjoy a good hike or a long walk on the beach without gasping for breath. Wealthy people want fewer pills and a more holistic approach to medicine.

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Step 2

Wealthy people use the tax code to their advantage. It is rare for my wealthiest clients to underfund tax advantaged retirement, education, and medical savings programs. The tax code is large and complex. One article cannot even begin to explain how to manage taxes in a wealth building manner. What I can tell you is that wealthy people spend time with their tax pro on a regular and consistent schedule.

Tax planning is more than tax preparation. The biggest reductions in your tax burden requires multi-year planning. In many cases a small tax liability today can set you up for massive savings later. Even when dealing with small amounts of money, a well thought out tax plan can add to your wealth, allowing you to retire early and rich.

On the top of the list are retirement contributions, followed by education funding, and estate planning. The wealthy require their attorney and tax pro to work hand-in-hand for maximum advantage. The wealthy have no time for professional egos. They want answers and results.

Tax professionals also provide an additional service to the wealthy: consulting. Tax pros have a significant amount of information to save money, from banking to negotiating deals. As a tax professional for over 25 years, I have helped negotiate purchases and sales of homes and businesses many times, almost always for people with a liquid net worth north of $1 million. What the wealthy know is that I am not swayed by emotions in their deal. I am willing to walk away if it does not serve my client's needs. It is wise to have a third party help in major transactions. It hones excesses and leads to long-term gains. The wealthy make money even when spending.

How much money does it take to be rich?

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Step 3

Debt is used sparingly by the wealthy. Credit card and other consumer debt is rare among the very wealthy. In fact, the very wealthy never had much credit card debt, if they had any at all. I have several clients with large net worth’s that paid cash for every car they ever owned, even the first car they bought in college when they were flat broke. Wealthy people know it is near impossible to get rich paying interest to the bank, a de facto increase in the purchase price of what you bought.

The only place wealthy people feel comfortable borrowing money is on assets that are likely to appreciate. This includes homes and businesses. Investments, like stocks, are out; no margin accounts. When debt is used, the amount borrowed is low compared to the purchase price. Therefore, the wealthy may purchase a new home with 50% down and 50% borrowed. Wealthy people have no stomach for no money down deals. People that buy no money down today are a steal for the wealthy tomorrow.

Bankers must provide term advantageous to the wealthy individual or the deal is off. Even with assets that increase in value, debt adds a level of risk the wealthy are cautious to engage in.

The average wealthy person pays with cash. He finds no benefit in chasing a few dollars back on his credit card purchases. The credit card encourages frivolous spending. Every study proves the point and the wealthy know it.

Step 4

The rich people of the world know value; they buy low. You may notice I didn’t say sell high. In many cases, something that is valuable is worth keeping a lifetime. The wealthy want to buy at a great price and own it a lifetime and pass it to his heirs. Warren Buffet is famous for saying he thinks the optimum holding period for a stock is forever. Buffet sells stock, but in a selective manner. When Buffet buys an entire business he keeps it.

The wealthy sometimes sell assets, but know that selling accrues a cost: sales commissions and taxes. These costs bleed the life from wealth. For the same reason, wealthy people buy a car and run it for 10 or more years. The constant buying and selling of vehicles will wither wealth.

The average guy on the street was pulled into the real estate market at the peak. The rich either sold or accumulated cash to buy now, when the real estate market is down. The wealthy are buying real estate now for less than half the market peak a few years ago. He is buying with cash. He can wait out any economic decline. If you want to retire rich, watch what most people are doing and do the opposite. Most of the time you can sit back and enjoy life as there is nothing to do... yet. The wealthy buy real estate when it is down, but not any old property. They buy quality at a bargain price.

Step 5

The final step can be the hardest. It requires faith. Some call it the Law of Attraction. See the video above on how Oprah built the life of her dreams.

Rich people see themselves as rich. No matter what life throws at them, they see a successful, honest, loving, wealthy, family man in the mirror. The vision never fades. They live the dream and the dream becomes true. Wealthy people prefer a low stress life. Their work may be high stress, but they focus on doing the high stress work in a low stress manner.

Most wealthy people are first generation rich. The reason is that the people that inherit the wealth can not see themselves as successful or wealthy. Everyone lives life to their expectation. If you see yourself as poor, you will remain poor with few exceptions. Look at lottery winners. Even the multimillion dollar winners end up broke in a few years. You need to picture yourself in a role. If you see yourself as poor, you will be; if you see yourself as wealthy, you will be that too. There are few, if any, exceptions.

Wealthy people do NOT work harder than everyone else. They work smarter and see themselves as financially secure and wealthy. From the moment they wake till the moment they drift to sleep, they see themselves as wealthy. I am not talking about wishing and hoping you are rich. I am talking about closing your eyes and seeing yourself as wealthy, attracting wealth by your actions. Hope is not enough. An unshakable belief leads to actions only the wealthy will do. THINK AND GROW RICH by Napoleon Hill exposed the world to this powerful secret. I challenge you to find a wealthy person that doesn’t see himself as wealthy. There are short-term exceptions. Hollywood provides examples of those that get rich and destroy themselves with drugs, alcohol, and lifestyle because deep down they don’t see themselves as wealthy. They live to their expectation.

I encourage you to read more on the Law of Attraction and similar books. This is the only area where you can’t hire a professional to guide the way. You learn it from books and articles and then must apply it yourself. There is no other way.

Now you know the secret every wealthy person on the planet knows. Go get some for yourself. The world will be a better place if you do.

Please share your comment below and bookmark this page for future review. You never know when you will need to review this article on your journey to retire rich,


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