Deciphering Phantom Income: The Power of Financial Intelligence

In a world where technology advances by leaps and bounds, financial education becomes an invaluable resource to prosper. However, the knowledge taught today is insufficient and incompatible with this objective. The new financial era requires a strategic and creative approach to combat the drama of poverty and the challenges facing the middle class.

Author Robert Kiyosaki popularized the term “rat race” to describe the cycle in which employees find themselves trapped. This career is based on working hard to earn money and going into debt to maintain a certain standard of living. The income they obtain is mainly used to cover expenses, which leaves no room for investments.

In contrast, phantom income is smart investment, tax management and asset acquisition strategies that generate income and allow you to escape the vicious cycle.

Even those who earn more can’t stop their money from evaporating. Many people ignore that for every dream fulfilled, such as buying their first car or owning their own home, their expenses increase. They must eliminate unnecessary expenses and create profitable goals. This is achieved by educating them to obtain passive income, which is income that is obtained without having to work directly for them. Financial education is a currency that does not devalue.

This occurs because the rich focus on acquiring assets rather than liabilities. On the other hand, employees tend to acquire more liabilities than assets, which keeps them in a constant debt cycle.

An illustrative example: the rich buy properties and use them to obtain money by mortgaging them. With money from the banks, they pay the debts by renting the properties. Thus, the speed of money growth increases by acquiring other assets that are also rented. The rich look for cheap properties that can be rented quickly, especially taking advantage of times of crisis to do so.

There are three types of income:

Earned Income: It is the one obtained by working and it is the one that pays the most taxes. Taxes, in the United States, began to be applied in 1943 to finance the expenses of World War II.

Portfolio Income: It is generated through capital gains, such as buying shares and selling them at a higher price.

Passive Income: Comes from purchasing an asset that produces money.

Former President of the United States, Donald Trump, stated: “I am the king of debt. I love debt. But it is complex and dangerous.”.

The employee mentality is characterized by the need to have secure employment. However, this security no longer exists. Advances in artificial intelligence can destroy jobs, and an employee can be fired overnight. They also lose approximately 50% of what they earn due to taxes.

Saving is not a good option in today’s economy. Interest rates earned through savings are close to zero, and states are printing more and more money to prevent their economies from collapsing. This leads to currency devaluation and permanent economic crises since the gold standard was eliminated in 1971.

The strategy of the rich

The rich take advantage of market declines to buy assets at low prices, while the poor sell what they have to pay debts. They know how to handle a type of income that many are unaware of: phantom income, which involves renting money to buy assets that pay for themselves.

Appreciation: It is the growth in the price of a well-purchased property.

Depreciation: It is the reduction in the value of a property due to wear and tear over time, reducing taxes even though it has appreciated.

Amortization: It is the reduction of the debt by paying each installment.

In short, the rich get richer because they have learned to earn phantom income. This income comes from a financial education that allows them to understand that debt does not pay taxes and that properties are valued and, at the same time, depreciated for tax purposes, while they are amortized with the installments, and the tenants (the ghost payers ) take care of the debts.

Understanding that strategically borrowing can be beneficial, as debts are tax-free, while paying with earned income carries a 50% tax. Knowing how to discern between positive and negative debts is key. Financial education is not only liberating, but it can also change the course of a person’s financial life.

We find ourselves in a kleptocracy, where many government officials steal to profit. The subprime mortgage crisis is a clear example of how this manipulation can affect society. Subprime mortgages caused the poor to buy homes they could not afford, leading to a chain of disastrous events.

The current educational model does not encourage error or learning through it. However, mistakes are essential for growth and success. Furthermore, this model is outdated, designed for the industrial age rather than the information age.

It is essential to recognize that financial education is more valuable than the excessive accumulation of academic degrees. A study by Nature Neuroscience reveals that children who grow up in a disadvantaged economic environment and also face family problems have smaller brains compared to those who grow up in healthy and prosperous environments. However, brain neuroplasticity allows these patterns to be transformed with proper education.

Practical exercise:

To buy a property intelligently, it is essential to conduct an exhaustive search throughout the city, physically inspect the options and prepare a report with the advantages and disadvantages of the property. Analyzing the potential for income growth and forecasting debt, taxes, and phantom cash flow is essential to making an informed decision.

Physical Intelligence:

Just as the caterpillar transforms into a butterfly, humans can do it too. Physical intelligence is key, as it is best learned through action and experience.

Action is the best teacher, and every mistake is a lesson that brings us closer to mastery. Like the caterpillar, each individual has the potential to transform and fly into a future full of opportunities if they align their physical intelligence with their emotional, spiritual and mental intelligence.

Cash-Flow is a game that simulates economic life. It is useful for improving financial intelligence, as it challenges the player to make decisions and accept their consequences. The decisions could be from the purchase of a small apartment, the acquisition of shares or the purchase of a shopping center.