In my book “Maximize Your Circle of Wealth,” written with Donald L. Blanton, we talk about wealth transfers. A wealth transfer is paying money to government agencies, corporate entities or other organizations that you don’t need to pay. Most of us make these transfers of wealth regularly, but we aren’t aware of it. Here are some of the ways we transfer our wealth to others:
- Compound interest and tax
- Estate tax
- Income tax
- Property tax
- Tax on Social Security
- Credit cards
- Mortgage insurance
- Financing cars
- Trading cars
Let’s take income tax, for example, since it is a timely topic. Many people have more money withheld from their paychecks (via the IRS W-4 withholding election) than they need to. Some do this because they don’t understand how the withholding works; others do it because they like getting a tax refund every spring. I advise my clients to have an appropriate amount withheld, not too much and not too little. Here’s why.
Sam Jones claims three exemptions on his W-4 every year. In this very simple, fictitious example, let’s presume that, in 2012, his employer is withholding $25 more per paycheck than needed. Based on Jones’ tax return at year end, Jones’ is entitled to a refund of $650. Jones is thrilled. This will be his spending money for his annual trip to baseball spring training camp. Sounds good, right?
Sure, a little extra cash is always nice, but in this case, Jones has lost money. Considering inflation alone, Jones’ money is not worth as much today as when he earned it in the 2012 calendar year. In addition, Jones has lost out on other opportunities to use or save that $650 more wisely. For example, he might have purchased a permanent life insurance policy with those premium dollars which could have helped him save for retirement or his son’s college education.Those opportunities may still be available to Jones, but the cost in today’s dollars will be more.
This is just one example of how we are giving our money away on a daily basis. By educating yourself, however, you can take control of your financial future and make the best use of your money today.
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To your wealth and prosperity,
Copia Wealth Management & Insurance Services