Daily Insights Archives - Page 15 of 29

The middle class is under attack

We’re pulling back the curtain on inflation this week… and it’s getting ugly. The middle class is getting wiped out.

And that’s not just an opinion. It’s all in the data. Today I’ve got two tables for you that spell it all out, clear as day.

This table tracks the median price of a new car, ten gallons of gas to put in that car, and five pounds of ground beef going back to 1940.

As we can see, it’s not a pretty picture. Costs have risen dramatically over every ten year period in modern history.

That said, we have to compare these costs to the median income to get a better feel for the story. And that’s what this next table does:

Here we’re tracking the median home price compared to median annual incomes going back to 1940.

And again, we can see that home prices have risen significantly over every ten year period. But incomes have too… so it’s that third line that we need to focus on. It shows us exactly what percentage of the median home the average guy’s salary can cover.

The median home costs $430,300 today. The median annual income is $74,580. That means the average person’s salary can only cover 17% of the median home price.

War and the middle class

And it begins.

Yesterday we talked about the real threat of war… especially wars on multiple fronts. Now we have confirmation that it’s happening.

The US just committed troops to the Middle East. And US Treasury Secretary Janet Yellen publicly stated that she believes the US can afford to aid the war efforts in both the Ukraine and Israel. By the way, I pulled back the curtain on Yellen’s motivations and her allegiances in my new book Beyond the Nest Egg.

As we discussed yesterday, governments can only finance wars by printing money.

Technically, that means Yellen is right. The US can afford to support both war efforts. They can just create new dollars out of thin air to do so. But this is going to further erode the dollar’s purchasing power… which will drive our cost of living higher and higher.

So ultimately it’s the average person who must pay for these wars. But we don’t pay for them directly. Inflation is a stealth tax that steals our purchasing power away from us.

This chart tells the story perfectly:

The Real Threat of War

I got very concerned last week.

By now I’m sure you know all about the conflict in the Middle East… and that the US government has gotten involved.

I’m not here to comment on the politics of it all, other than to say that there’s nothing more stupid than war. Like governments and bureaucracy, it’s a relic of the Bronze Age. We’ll need to put it in our past if we wish to build a civilization geared towards human thriving.

That said, war is a major threat to our economy and our finances.

Some of these threats are obvious. Potential supply chain issues and rising oil prices are easy to anticipate.

But the biggest threat is hidden in the shadows… and they will never be honest about it.

The Promise of Financial Freedom

All week we’ve explored ways to maximize our after-tax income by leveraging the secrets hidden within the US tax code.

I know some of this may sound tedious—it’s far easier to simply work a W2 job and take the standard deduction. But if you’re willing to do a little bit of tax planning, a whole new world can open up to you. That is the world of financial independence.

Imagine what life would be like without the need to earn employment income. No more commuting to a job you may not find fulfilling. No more answering to bosses and corporate bureaucracies. No more scrambling to pay the bills.

Instead, picture having complete control over your time and schedule. Waking up when you choose. Pursuing creative passions. Volunteering for causes you care about. Traveling the world with family and friends. Simply enjoying each day as you desire.

This is what financial independence looks like. It’s about no longer being dependent on a paycheck to make ends meet. Time freedom. Location freedom. The flexibility to live life on your own terms.

Of course, this doesn\’t happen by accident. It requires us to diligently construct multiple income streams and then maximize the after-tax income from each. We’re talking passive income from well-chosen investments.

This is the promise of financial independence. And with the right roadmap, it\’s possible to get there sooner than you think.

For a much deeper dive on how it can all come together, check out my new book Beyond the Nest Egg. You can find it on Amazon right here.

See you on Monday.

-Joe Withrow

The Deepest Secrets of the US Tax Code

The rich play the game of money very differently. The rich know that the real way to wealth is via cash flow, and if managed properly, cash flow can be both substantial and tax-free. -Robert Kiyosaki

We’re talking smart tax-planning this week. And it all starts with understanding the true nature of the US tax code.

Simply put, the tax code was designed to help entrepreneurs and investors minimize their tax liability. I know that’s not what we’re led to believe in school. But it’s clear as day.

Consider this – the federal tax code consists of over 70,000 pages. Yet, less than five percent of those pages are about paying taxes. The other 95 percent are all about how to avoid paying the taxes that the first five percent says we owe.

This is what Kiyosaki’s quote above speaks to. If we understand the tax code, there are countless ways to reduce our taxable income.

The Power of Tax Write-Offs

Autumn continues to descend upon us up here in the Virginia highlands.

Temperatures dropped down into the 40’s for the first time this past weekend. It was a blustery Saturday morning.

From the comfort of our great room we sat and watched many leaves pull free from their trees and gradually flutter to the ground. To me, no television show could ever match that level of entertainment.

This image tracks Fall’s progression up here. The picture from the left is from last week. The one on the right is from yesterday.

We should see peak foliage within the next few weeks. Stay tuned for that.

Shifting gears back to finance…

It’s not what you make…

It’s not what you make, it’s what you keep.

I stumbled upon this old adage many years ago. It’s a simple thing. But it’s always kept me focused on what’s truly important when it comes to money and investing—the bottom line.

This saying means that financial success isn’t just about how much money you earn. It’s about how much of it you are able to keep after taxes and other expenses.

If you want to build wealth over time, you must maximize your after-tax income. That’s the name of the game.

Fortunately, the U.S. tax code makes this easy to do. There are endless deductions we can take. That is, if we’re investing in the right assets and doing things the right way.

Deductions, also known as tax write-offs, reduce our taxable income. They enable us to lower our tax bill by subtracting eligible expenses from our total income. The more deductions we can qualify for, the less taxes we’ll owe.

For example, suppose you earn $100,000 this year. Given current tax rates, you’ll owe $17,400 in federal income taxes. Ignoring state and local taxes for simplicity, this gives you a net income of $82,600. That’s what you keep.

Now, let’s suppose you can qualify for $35,000 in tax write-offs.

Don’t make the same mistakes I did

Serious talk today…

I’ve been sharing stories and pictures of Fall descending upon us up here in the mountains all week. This is my favorite time of the year. But only because I’m now in a position to enjoy it. I wasn’t always…

I don’t talk about this often, but I’m a reformed corporate banker.

I say “reformed” because even though I’ve studied money my entire adult life…

I made every mistake in the book when it comes to building wealth. For example:

I once watched a stock go from $7 to $80 a share… only to ride the elevator all the way back down to $10 per share again – erasing all my gains.

I’ve even had to pull money out of an IRA early – only to be on the hook for taxes and the 10% penalty. Ouch.

I once poured $10,000 into a small-cap stock – only to watch this “sure thing” go absolutely nowhere.

I blew tens of thousands of dollars trying out “new” trading systems. I might as well have set that money on fire for all the good it did me.

I learned the hard way – “piecemeal” investing just doesn’t work.

Growth and Expectations

Dad, this year for my birthday I want a real laser. Like something that can cut through things. Then I can help you cut the grass…

That was my boy’s birthday request this year. I thanked him for his desire to help his dad out… but I pointed out that such a strong laser may be dangerous. What if it cut the wrong things?

Don’t worry Dad, I’ll only use it on things you say are okay.

You have to love the imagination of a child.

My guy just turned five… and he’s an absolute tornado of energy. It’s such a joy to watch him grow and explore the world. Here he is blowing out his candles:

In our household, we have one overarching rule: treat others as you would like to be treated yourself.

Nice and simple. Everything else flows from this one principle. A wise man once called it the Golden Rule.

The kids know very well that I expect them to diligently follow this Golden Rule—especially as they get older. With growth comes expectations… there are no excuses.

And I think a similar dynamic holds true in the world of finance and investing.

For everything there is a season

Fall continues to close in on us up here in the Virginia highlands.

The leaves continue to brighten. The morning fog thickens. What a joy it is to experience the changing of the seasons.

The following pictures bring these words to life. I posted the first in one of my missives last week. The second is from yesterday.

In the book of Ecclesiastes it says “for everything there is a season”. One doesn’t have to be Christian to appreciate the wisdom in those words.

And what’s true of nature is just as true of life. We all go through seasons.

Birth… growth… play… work… and eventually we each become just like that leaf falling from the tree. Once robust and beautiful, we each will one day become but a memory.

Perhaps that comes across as a downer. But I don’t mean it to be.

To my way of thinking, it all comes down to a single question: what will we do with this incredible energy while we have it?