I have a terrible track record of locking myself out of my back accounts. It happens at least once a month.
Yesterday, I finally got back in to my personal business account.
I called the bank, I got back into the account, and when I logged I was shocked at the balance. There wasn’t nearly as much money in the account as I thought. What happened?
Uncle Sam happened of course.
I have conversations with my teammates every day trying to help them learn about money management, investing, tax code, and savings. I’ll never understand why we don’t teach tax code in school.
I’m not great at planning for taxes, but I’m better then most. Here are some important lessons I’ve learned.
1. Invest Your Money
When I was growing up I would fantasize about being rich. I’d imagine having a safe in my wall that is completely stacked up to the top with cash. As I’ve gotten older, I’ve learned that keeping cash on hand (or in your bank account) is one of the worst things you can do.
When you put money into the stock market, you don’t get taxed on that money until you withdraw your earnings. In addition, the stock market will grow your money (assuming you’re not day trading and gambling on dumb shit on Robinhood.)
When I was 26, I called Vanguard and I set up and automatic payment plan that deposits money each week into the S&P 500. I have a 26% growth on my money, and I am shielding that money from the government. Yes I will be taxed when I pull it out, but I will have made more in the long run.
2. Buying Assets is Not a Company Write Off
The reason why I got hit so hard on taxes this year was because I assumed that when you buy an asset (in this case I bought Copyblogger, invested in LSAT Clarity and funded Agency Clarity), that money is treated exactly the same as cash in your bank account.
The government doesn’t see this as an expense. You’re exchanging your cash for an asset. So you have less cash in your account (because you made a purchase) and you still owe the IRS on the gross. It’s tricky.
As I grow as an investor, I will be much more mindful of this in the future.
3. Automate Everything
I’ve written a lot about Ramit Sethi, his book, and how much it helped me.
The problem with money for most people isn’t that you make too little of it, it’s that you don’t know how to remove the emotional turmoil that comes with money.
You want to spend your money to enjoy your life. Right?
But you also want to plan for the future.
What about that once in a lifetime trip you want to go on? Should you go, even if you can’t afford it? Will you really regret not going? What if you die? Would you really care about the extra $5000 you saved in your bank account?
Automation solves these emotional dilemmas. Here’s how my system works.
Every quarter, my companies disperse money to the partners. All my profits drop into my personal investment account. Then my investment account automatically pays me as though I were an employee of my own company. This way, I pay taxes out of each paycheck. Then every week, my checking account deposits money into my savings account, and my savings account deposits money into the S&P 500.
I am living in the moment and I am planning for the future. I never have to worry about finances. The best part is that the money in my personal checking account is there for Jules and I to spend guilt free.
Am I perfect? No.
Do I still stress about money? Of course. More so then I should considering how financially stable we are.
But the more I systematize this process, the less fear I have about the future and the less I care about my civic duty to pay taxes as an American citizen.
It’s a great system. It works.