I am totally fascinated by holding companies.
The 2 most famous holding companies are Berkshire Hathaway and iCahn Enterprises. Warren Buffet and Carl Icahn. 2 Legendary investors who created one business that own several different businesses.
They did not create the idea of owning more than 1 business. Big businesses have been purchasing smaller businesses for decades. Facebook owns Instagram and WhatsApp. Tesla purchased a solar panel company. CVS just purchased a health insurance company. Amazon owns Whole Foods. Businesses often merge and partner up to cut administration costs, labor costs or leverage business synergy to scale larger.
How and why does this apply to your life or mine?
Well, first you can invest in these companies on the stock market. You get lots of diversification, because of the different businesses they own.
But lets go deeper.
We learned from Rich Dad, Poor Dad that in your personal life you need to be more like a business. Read my article: You are a business. What does that really mean?
First you need to understand the real difference between what is an asset and what is a liability. An asset is anything that earns you money and a liability is anything that costs you money. So your car and house are really liabilities, because you have to pay to use them. You should be interested in purchasing or creating assets. This is your 401k. This is your taxable stock account, business, course, book, artwork, song. Whatever it is that you uniquely do.
Holding companies look for and purchase assets.
- How much money does/will this asset produce?
- How much does this asset currently cost?
- Is this asset in alignment with my strategy?
- Will this asset grow or decline in the future?
These are the same questions that you should be asking when you make an investment.
- How much does this stock currently cost?
- How much does this rental property cost?
- What dividend am I going to receive from this asset?
- Should I go into debt to purchase this asset?
If you work for a company and it has a 401k you are already doing and you never think about it. You have chosen a strategy and money from your paycheck automatically goes into purchasing stock. Your money is compounding without you even thinking about it. Just by working for your company you have 2 streams if income. The company your paycheck pays you and then the dividends you are earn in your 401k.
But what if you create more streams of income? 3,4,5
Your money would compound that much more quickly. You would become a holding company owning assets that pay you passive income.
Taxes. Taxes. Taxes.
We all have to file and pay taxes. When you make a salary from an employer there are only so many ways that you can reduce you tax bill. And when you reduce your tax bill then you may have to reduce your lifestyle and watch your spending.
There is a limit to how much you can save. There is no limit to how much you can earn.
The government wants you to start a business and they incentive businesses. Businesses pay a lower tax rate than individuals. If you started and grew a business you would be earning revenue. You can write off depreciation. And you can write off any expenses used to operate and grow that business. That means a lower tax bill for you.
Maybe you are not dreaming big enough. Sometimes I have imposter syndrome and feel like I do not know what I am doing. I have to remind myself that I am a business owner and I am just as capable as any other business leader. Sometimes I stop myself from thinking bigger, because that seems like too much of a risk or there is too much information that I do not know.
You have more knowledge than you think. And you can and should monetize that knowledge in many different ways.
If you ever want to “retire” you need to create passive income. Social Security is a form of passive income. The more passive income you create, the more compounding that will happen and the greater impact you will have.
Look at my role model Warren Buffett. He started with a few stocks and created one of the biggest businesses in the world.
Read the article: You need to be rich!
You need to be rich for your own sake, the people in your life and the world around us.
You have the power to do whatever you desire.
I am working on creating my own holding company. I hope you will also build yours.
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