Tools of the Rich #1 – Depreciation

Tools of the Rich #1 – Depreciation

An October 13th, 2018 article in the New York Times discussed how Jared Kushner avoided paying almost no federal income taxes several years running. According to the article, Kushner, who has a net worth of $324M plus, paid little to no taxes from 2009 through 2016.  Just by my first two sentences, you can see the slant of the article – how things are tilted unfairly toward the rich.

To avoid paying taxes, the article pointed out that Kushner used “depreciation, a tax benefit that lets real estate investors deduct a portion of the cost of their buildings from their taxable income every year.”

Before we get too far into this post, let me state one thing – I didn’t vote for the current president nor do I like how he’s running the White House.  That will be the most political I say on this blog as I’ve tried to be very apolitical.  However, I’m going to defend Mr. Kushner’s use of depreciation throughout this post and I don’t want anyone to believe I’m doing so for political reasons.  I’m doing it strictly because it’s the right thing to do.

As we get started, let me be clear.  The depreciation “tool” is available for every real estate investor, but you must get in the game to use it.  Otherwise, you’ll just be standing on the sidelines, wondering how come there are others running up and down the field.

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Lessons from The Force

Lessons from The Force

When most people learn that I formerly was a police officer, they raise their eyebrows and will usually say something like, “Really?  Why would you quit?”

To most, the idea of being a police officer has an exotic feel to it.  It’s because they have envisioned the Hollywood cliché of law enforcement – heroic exploits of men and women in a daily struggle against crime and corruption.  While there are some of those moments on the street, that’s not what happens behind the scenes within the department.  Most of the stuff that happens is boring, day-to-day decisions just like you have at your job. 

Who do I want to work with? 
Am I correctly filling out this new paperwork?
What educational path should I pursue for my career?
Where should I go to lunch?

Most of that’s not interesting to share.

However, why I got into law enforcement, what I learned about it and personal finance, and why I eventually left are things I believe are worth sharing.

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Are You Telling Your Friends and Family Too Much?

Are You Telling Your Friends and Family Too Much?

A friend of mine, Andrew (not his real name), is married with two kids.  A few years ago, his life was like many Americans – he carried consumer debt, had no savings, and was stressed out.  Life was not turning out the way he’d hoped.  Then he realized he was responsible for the mess he was in and set about to change things.

He worked hard to improve his financial position.  He eliminated all his consumer debt, leaving only his home mortgage which he has now paid off more than half.  He owns a single rental property which he recently paid off completely.  Due to his and his wife’s diligence in paying down their debt, his wife recently stopped working to stay home and care for their children full-time.

Andrew’s family lives in a nice home, but he and his wife drive older, paid-off cars.  They don’t take annual, expensive vacations.  They aren’t flashy.

Andrew listens to financial podcasts like The Money Peach, reads books like The Richest Man in Babylon, and is excited about his future.

Although some would like to think so, this isn’t easy for them.  Andrew works two jobs.  One is seasonal while the other is commissioned-based so there are good months and bad months, good years and not-so-good years.  This requires frugality and communication.  Sometimes the couple is on the same page about purchases and sometimes they are at odds (like all of us), but they are always focused on the same goal – staying debt free so they can live a life that most can’t achieve.

While I’m in the office, I touch base with Andrew about our financial journeys.  It’s one of our favorite topics to weigh-in on and we’re very open about how each of us is doing.

One morning recently, he was slightly bothered.  I asked him what was wrong, to which he replied, “I learned something disturbing this weekend.”

“What?” I asked.

“You can’t talk about how you’re doing to most people.  They’re either going to be jealous or expect you to start paying for everything.”

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Why Viewing Pet Ownership as Only a Cost is Short-Sighted

Why Viewing Pet Ownership as Only a Cost is Short-Sighted

I want a dog.

Until recently I’ve had a dog, even a couple dogs at a time.  I’ve had them since I was a little boy.  They’ve been there to catch tennis balls and run through various neighborhoods.  Dogs have listened to my stories of success as well as tales of woe.  Moments of crazy happiness have been had with them as well as calm reflection.

Growing up, I would often say I liked dogs more than people and that probably still holds true today.  I look around the world and see it full of ding-dongs who are making the world a lot less friendly for the next generation.

I miss having a dog around as I haven’t had one with me for almost eight years now. 

Like, I said I want a dog, it’s just that I don’t need one and that’s where I’m struggling.

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Rich Habits

Rich Habits

I listened to a past episode of Money Peach (www.moneypeach.com), where Tom Corley, the author of Rich Habits: The Daily Success Habits of Wealthy Individuals, was interviewed.  If you’re interested, it is Episode 49 – Daily Rich Habits of Millionaires with Tom Corley.

I started the podcast not knowing what to expect.  I’d never heard of Corley nor his book.  This would later surprise me, because I thought of myself as a tuned-in reader, especially when it comes to personal finance books.  I know I haven’t read all of them related to the subject, but I think I’m at least aware of them.  Obviously, not.

The podcast blew me away.

Chris Peach interviewed Corley the way I would interview Sammy Hagar - with straight-up fanboy excitement.  The interview was fun and informative and when it was over, I immediately bought the book.

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You Don't Buy Things With Money

You Don't Buy Things With Money

I was recently talking with a colleague who said he was close to retiring.  Gil (not his real name) is in his early fifties and slightly quirky.  He’s the type of guy who marches to the beat of his own drummer.  Although he works for a large, corporate-think company, he sports a long beard and tattoos.  He’ll freely talk about politics and other matters that most folks would shy away from.  With his wife, he lives in the country – far away from the hustle and bustle of society.

It had been a while since I talked with Gil so his mention of retirement was exciting.  I told him congratulations.  He said he was more than ten years ahead of what society had scheduled for his retirement, mostly because he’d been debt free, including his home, for many years.  He’s got a rental house which has some debt on it, but that payment is being covered by someone else.

I loved hearing he was free of consumer debt and asked him what led him to that point.  Almost everyone who is debt-free has a story about a moment of awakening to the soul crushing weight of financial liability.  Gil said he got himself into a position to retire, based upon some advice he was given when he was young.  Gil said once he fully grasped that concept, his life changed.

Being on a quest for knowledge that can help me grow, I immediately asked, “What was it?”

The advice, he said, was, “You don’t buy things with money, you buy them with time.”

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Is It Time to Keep Your Powder Dry?

Is It Time to Keep Your Powder Dry?

In the days of muskets, soldiers carried gunpowder separately.  To ensure that the powder would ignite when the need arose, the soldiers took special care to protect it from moisture.  Anything that would dampen the powder could put the soldier’s life and, the lives of those around him, at risk.

The first time I heard the phrase, “Keep your powder dry,” was immediately after the market tanked in 2008.   A real estate developer with a lot of experience said something to the effect of, “Now’s the time to keep your powder dry.  There’s going to be a lot of opportunities very soon.”

I didn’t understand what he meant at that moment.

However, I do now.

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How Drinking Cheap Beer Can Remind You of What is Important in Life

How Drinking Cheap Beer Can Remind You of What is Important in Life

“Life is too short to drink cheap beer.”

That was my mantra for a lot of years.  I’d proudly say that while ordering one of the latest craft beers that my favorite joints would have on tap.  Each time I’d visit I’d peruse the beer menu and take my time selecting.

No Hefeweizens for me, thank you.  I’d had more than my share while in the Army and haven’t really enjoyed them since.

And while I love Guinness, I’m not a fan of the craft versions of stout beer which are often overly heavy and just downright nasty.

Nope, my enjoyment rested with the Pales, the Reds and the IPAs.  I’d pick one, drink it and enjoy the hell out of it.  I wasn’t one of the ding-dongs who would drone on about the IBUs (International Bitterness Units) of the beer or if I knew where the hops were grown.  No, I really didn’t care that much.

I just wanted to drink a fancy beer and get a nice, hefty buzz out of it.

This behavior continued into my financial awakening.  Even when I would sit with a table of wine snobs for some event, cringing at their extreme douchiness, I would have a fancy beer in my hand.  I was half a step away from imitating their self-importance.  Had I uttered one IBU rating you could have handed me a membership into that overly-indulgent beer snob mob, the group that is as obnoxious as the wine crowd, but twice as loud.

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