Tuesday, October 16, 2012

Financial Wisdome

As this post will come out about a month before the presidential elections I need to make sure not to come across as partisan towards any candidate asI am not here to persuade, just to educate. 

While at a customers site a month back I could not help over hear a discussion on taxes and income levels.  "How much do you think a millionaire pays in taxes" asked one of the technicians, " I don't know probably 14% or something, and I pay over 20%" replied the other.  As I listened my heart was breaking as this single parent was saying how their take home income was around $600 per check. 

I was raised by a single mother who some how made me not notice any lack even though she was making $12,000 per year.  I know first hand how the lack of financial education effects the regular tax payer. In this post I want to educate and make the lay person understand why even with all the hype and misinformation out there we are in the best country in the world. 

I have taken the 2012 tax brackets by typing "tax brackets in google and picking one of the results from Forbes.  

Tax Bracket Married Filing Jointly Single
10% Bracket $0 – $17,400                 $0 – $8,700
15% Bracket $17,400 – $70,700         $8,700 – $35,350
25% Bracket $70,700 – $142,700 $35,350 – $85,650
28% Bracket $142,700 – $217,450 $85,650 – $178,650
33% Bracket $217,450 – $388,350 $178,650 – $388,350
35% Bracket Over $388,350                 Over $388,350

Payroll SS & Medicare 7.7% 

The first part to realize is that there are stepwise increases when it comes to taxes. So for example your first $8,700 is taxed at only 10%, what remains of your earned income up to the $35,350 is then taxed at 15% and so on. So not all of your $35,000 is taxed at 15% rate. 

The other point to know is there are only 3 types of taxable income. They are 1) Earned income that is taxed at the rates you see above, then there are 2) portfolio and 3) passive incomes that are taxed at a 15% rate.  Why does the government give such a nice break to the last two types? Lets explore that a little and see the beauty of it.  When you invest in the economy by either having investments in the stock market or having real estate or intellectual property, you are stimulating the economy for everyone so you can essentially reduce the amount of income that is seen as taxable by the IRS.  This option is not available to the individual. As an individual your taxes are taken before you see a single sent of your earned income.  Again why do businesses get such a break? Because businesses are the lifeblood of our economy.  It makes perfect sense from the stand point of the Law of Attraction.  Businesses put the money into circulation. That is an abundance mentality. Individuals for the most part "save" or hoard the money. That is a scarcity mindset.  As a business, all the payroll and retirement taxes are taken off of the profit line and business expenses are paid before a tax is levied and that is a good thing.  Businesses provide jobs and revenue and do not (usually) become a burden on the government, so they are rewarded. 

I talked with the  technicians during a break and used the example of the owner of their company to make a point. I pointed out that if the owner of the company made one million dollars as earned income, most of the earnings would be taxed at 35%, but chances are that the business is ran as a corporation and hence is taxed at a much lower percentage. 

The same is true with most people of wealth. They rarely earn most of their income as earned income to be taxed at the highest level.  They are rewarded because they are not a burdening the government, they stimulate the economy, they provide jobs, they contribute to charity and such.  

The great thing about our country is that anyone has the opportunity to become wealthy.  Most of the really wealthy people in the U.S. came from very humble beginnings and worked hard to get there.  What separates them from the average Joe is that they DECIDED that they would not depend on the government for a handout, and they will follow their dreams no matter how many people told them they were crazy.  Wealth starts in your mind not in your pocket. Again do you see the magic of The Law of Attraction in this?  Your reality is first created in your mind, however you can't think about  things that you don't know about. The saddest kind of ignorance is one you have no idea exists.

Since I was "a science major" in school, I didn't learn anything about finance even though I had all kinds of math classes.  It took real world to teach me about finance.  I lost my "job" and in the process I ended up taking a job at a MLM company that dealt with insurance and financial services. Wealth is a mindset I learned quickly after reading Think And Grow Rich.

Robert Kiyosaki  the author of Rich Dad, Poor Dad, a book that I think should be required reading in High School by the way, explains that there are 4 financial quadrants. On the left side is Employee, and Self Employed.  On the right side are Business Owners and Investors. You cannot be truly wealthy as long as you trade your time for money, on the left side of the quadrant. Also to be a true business owner you need to have a system that makes money for you weather you are there or not. 

The main point is that you can keep more of your income by some simple discussions with your tax advisor or by a few trips to your local library. You will find out that you don't have to be a massive conglomerate or invent the next light bulb to have a business.  In this age of technology you can have a business real quick.  Try E-bay for example.  Get a business identity IF IT MAKES SENSE TO YOU. Dream big. Take action.  That is the most important thing. The next step is to never ever give up. You will learn from your mistakes, lessons that no one can teach you.  Also remember you only have to deal with people that WANT to pay you for your goods and services.  The rest will always have opinions, and I love the sayings "opinions are like a@$ holes, everyone has them, and they all stink". 

I hope this helps and as always feel free to share this with anyone who may benefit. Comments are always welcome.

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