Financial Education and Planning
BUILT IN SAVINGS
In the blog post Ten Percent (10%) Is All I Get, I ending with this:
We will have to address this built in savings in an upcoming blog post. For us, this is a critical part of our Financial Education and planning.
I was referring to putting aside 50% of the taxable income and saving this for taxes and savings. When we discussed these percentages, we certainly whittled down the money coming in deducting this and deducting that, right? Will, when you work at a job, what do you think happens to your paycheck before you get what is left? Taxes, dues, insurance, FICA, etc
No wonder why you think you can’t make it on your paycheck!
This built in savings is 50% of your “net” taxable income. However, not all of this will be necessary (unless you have a certain situation) to pay taxes with. The remainder is yours (as I said for savings). Are you going to put it in a Savings Account and collect 0.1% Interest? I HOPE NOT!
FINANCIAL EDUCATION AND PLANNING
This is where it begins to get interesting! Once you are over the “shock” of actually getting paid”, then it is time to tighten up the reins on this income hitting your bank account. It is now time to get with the program” or you are going to get run over by all the laws and regulations that the accountant at your job have been taking care of for you.
This, by no means, should be deciphered as falling totally in your lap. This is where you start hiring out some of this work. (If you are not planning to make much, you don’t have to worry about this! LOL) Most people are already use to the idea of hiring out some of their work because come tax season, they gather all the information they can and cart it off to their tax preparer to fill out and return for their signature. Guess what? You have been doing this already!
Beyond the obvious need for accounting help and possibly legal advisement, what are you going to do with the remainder of that 50% after you deduct the taxes and pay them? Notice, I stated this is your built in savings.
I hope you are not going to stuff this in your pillow or leave it to earn less than 1% in a Savings account! In the words of Robert Kiyosaki, “Savers are losers”.
You have to find your own source of Financial Education that resonates with you. We have followed many people over the years and one that I will recommend is one of my favorites: ROBERT KIYOSAKI.
I remember in one of his books, he mentions a time he wanted to buy this Sports Car. He tells this to his wife, Kim and without missing a beat, she asked him, “What asset are you going to build to pay for that car?”
It wasn’t a question of “could we afford it” but “how are we going to pay for it through income off an asset”. This reminds me of a comment that Warren Buffet made regarding his friends telling him he should buy a new car. He stated he could not afford to lose $5 Million dollars. At this, his friends could not understand how a $50 thousand dollar car would cost him $5 Million dollars. He told them, that is what he would lose in the next 5 years if that $50 thousand dollars was not working for him!
How can you have both?