Taxes:
Our Greatest Financial Opportunity
Michael Jackson, Mike Tyson, Mark Twain, Willie Nelson, Donald Trump, 50 Cent, Kodak Black; the list goes on.
People enjoy studying great success stories, but there’s often more to learn from studying great failures. In many cases where individuals quickly acquire enormous amounts of wealth, especially apparent in lottery winners, an attitude is adopted that becomes the cause of their financial ruin: “Now that I’m rich, I will always be rich no matter what happens; no matter my behaviors.”
“WHOEVER CAN BE TRUSTED WITH VERY LITTLE CAN ALSO BE TRUSTED WITH MUCH”
Imagine becoming wealthier than you had ever thought possible. Imagine finally having the weight of the world lifted from your shoulders by the thought of never struggling to afford anything ever again. Then one day a bank employee, like lightning from a blue sky, informs you of your unpaid tax bill and advises you to file for bankruptcy. This situation is exactly what the list of icons above experienced at some point during their unbelievably lucrative careers. #Tax Season
Michael Jackson was nearly Half A Billion Dollars in debt when he passed in 2009. Rest In Peace to the King.
Obviously, these individuals never had the benefit of basic financial planning with an advisor, because no advisor worth his salt allows his or her client to “forget” about their imminent tax bill. No disrespect towards these celebrities, because let’s face it, taxes are complicated and confusing, but one thing is certain: do whatever you can to begin maxing out your retirement account and it will help tremendously. More on this later.
WHERE DO OUR TAX DOLLARS GO?
Congress has created a number of tax advantaged accounts that should form the backbone of every individual’s financial fortress. Among these are: 401(k)s, IRAs, HSAs, and many, many more. Important to realize is that these are not “loopholes.” They were written into law by Congress and they want you to take advantage of these things. Americans love complaining that we spend too much on the military, but how many realize it’s only the third largest ticket item on the United States’ balance sheet. In fact, in 2020 we spent more on welfare than the military. Did you know social welfare is the US government’s highest expense by far? We spend nearly $1.2 Trillion a year on social security benefits. Medicare/Medicaid is over $1.3 Trillion. Military spending comes in third on the list and equates to about 25% of the combined costs of social security and healthcare! This is why our government incentivizes saving and investing, in hopes that more people will become assets rather than burdens to society, and the government can lower its two highest expenses saving taxpayers millions if not billions of dollars. So, remember how I said it will help to max out your retirement account? If you’d like to immediately deduct $6000 from your taxable income, then contribute those funds to a traditional IRA; want to invest $6000 a year and not pay a dime in taxes on any of the gains? Then open a Roth and get to work becoming a disciplined saver. Unfortunately, young people are sold on products that all too often are expensive and inappropriate for their financial situation. For instance, using an insurance policy as an investment vehicle is akin to using a motor-home as a commuter vehicle; extremely and unnecessarily costly. However, that doesn’t stop millions of insurance salesmen from trying to convince you that insurance can be an investment. Annuities? Don’t even get me started. Be careful with people who aren’t strictly in the business of investing offering investment advice!
LOWERING YOUR TAX BILL
(AND/OR INCREASING YOUR TAX RETURN)
John Bogle, a man who Warren Buffett called a modern-day saint, said, “The magic of compound interest is only overcome by the tyranny of compounding costs.”
At TFG we maximize your long-term gains by minimizing your costs of investing. Chief among those costs is your tax bill. Yes, we are very good at investing as well, but the tax savings are what really separate the wealthy from the rest of us. Never allow yourself to fall subject to compounding costs by failing to exhaust all possible avenues of reducing the amount you pay in taxes! Wondering how much you’re going to pay next year? Here are the brackets for 2022.
https://www.kiplinger.com/taxes/tax-brackets/602222/income-tax-brackets
What We Do Different
You are probably wondering what effect TFG’s approach will have on your net worth. The difference is astounding! Wall Street fees typically average around 2% annually. If you run the numbers, it shows just how devastating an effect compounding costs can have on your net worth over time: after 30 years HALF of your gains have been extracted from you, and after 50 years it jumps to two thirds! The most disappointing part of all, the majority of the time advisors won’t even invest clients’ money themselves, choosing instead to buy actively managed funds with high expense ratios that the client pays for on top of paying their advisor’s fees. Not only is this typical behavior for advisors, sadly it has become the industry standard. At TFG, we assess risk tolerance so WE can build and manage our clients’ portfolios ourselves. We develop a catered approach for each clients’ individual financial situation, because people are individuals with different wants and needs, not numbers on a list to be tossed into a cookie cutter formula. Give us a call at TFG, and we can start working together on a plan to build your financial fortress and begin growing your net worth!