50% Money

If you're like most Americans the way to get ahead in life is to go to college, get a good job and in time get pay raises and bonuses. There are some problems with that strategy. Have you noticed that most people don't stay at their job for 20-30 yrs anymore? In fact, many businesses startup and go out of business within 10 yrs. We are in a very different age these days and the old ways our parents taught us regarding money just don't work! For our parents growing up in the industrial age it worked fine to go to school, get a job, work for the same employer for a long, long time and then retire. These days, in the information age, we clearly have to look out for ourselves and our own retirements. Nobody, including the government, is going to take care of us.

If we are going to make a solid plan for our financial future then we have to better understand our own finances. You earn money in at least one of four quadrants; employee, small business owner, big business owner or investor. If you are like most of us you earn 100% of your money as an employee. This is where the 50% money comes in. You see, if you think about it, the government taxes you on your money before you even get your hands on it. It is taxed before you have a chance to pay yourself or pay your bills. Right off the top, taxed. Federal tax, state tax, Medicare, social security, etc. After you get your net income, after tax money, you pay your bills and if you have any left over you might try to save some. Now as if you weren't taxed enough any money that you managed to save you are taxed on the earnings. If you put money into a 401k you are taxed when you withdraw it at retirement. There is gift tax, death tax and the list goes on. What it boils down to is the employee is the most heavily taxed of all the quadrants and this income is considered 50% money because that is about all your going to see of it in the end. It is very hard to get ahead with 50% money.

Now wealthy people have this figured out and that is why they earn their money as big business owners and investors. Small business owners are still getting earned income and all they have done is create a job for themselves instead of an employer doing that for them. A big part of the strategy to go from being broke to being wealthy is figuring out the tax system. Think of it this way; employee 50% money, self employed 50% money, big business owner 20% money, investor 20% and in many cases 0%. Yep, in many cases they pay zero taxes and it is so much easier to get ahead financially if you don't have to pay out 20-50% in taxes!! Also the nice thing about earning money in a business is that the government doesn't tax you on your gross income but on your net income. So you are able to deduct all of your business expenses, and they are many, and then the government taxes you on what's left. Pretty good deal eh?

So really the objective should be to go from the employee quadrant to the business owner and investor quadrants. It's a different mindset and will likely take years but remember "A journey of a thousand miles begins with a single step."