Pay taxes, still go for your dreams

Financial Independence

Death and Taxes are the only things which are certain in life.

There is nothing much which I can suggest on the first item – though if you are interested, it will be worth your while to look at Dr. Peter Diamandis and others on what they are doing for enhancing the quality and longevity of human beings.  If you subscribe to his Abundance newsletter it will give you insights into the kind of amazing work that’s going on in the areas of robotics, DNA research etc.

However coming back to taxes….this is the time of the year (April – July) in most countries when taxes have to be filed.

For service class people the biggest challenge is that the government takes away its “pound of flesh” even before we get the salary in our hands.  Depending on the tax brackets, generally the income tax rates are around 25-35% in most countries.  So for every $100  that you earn, the government has a right on $35 before you.  Which means the harder you work, the more your try to earn, the more you end up paying to the government.

Unlike a business person who is allowed a lot of expenses as tax deductible.  The employer has to deduct tax at source before paying the employee.  That’s kind of unfair for the employee.  Being an employee myself I completely sympathise with all my salaried brethren.

Having said that, we also have to take cognisance of the fact, that all the roads, hospitals, defence services that the government provides.  If we have to ensure prosperity and safety for all the people of the country then paying taxes is mandatory.  One of the big challenges for countries like India through history have been poor compliance to paying taxes.  That has resulted in us still being a poor country.

So we should ALWAYS ensure we pay taxes which are due.

For the employed the government in India does give avenues to do a tax deduction to plan for long term capital appreciation.  One of the things in this is the NPS( National Pension Scheme) in India. ( In the US I believe there are 401K plans) . Not only can you contribute about 10% of your basic income and get tax exemption, you can in addition contribute another Rs50000/-.  The biggest advantage of this scheme is that there is a very low management charge and you can decide to also invest a certain percentage in equity because of which you get the benefits of tax exemption as well as capital appreciation in the long term.

There is another avenue which you should look at exploiting and do good as well. The government wants you to help organisations which are doing good for the society.  When you showcase that you have contributed to a good cause you can also get a tax exemption.  Now that’s such a good idea….you do a good cause and the government supports you in doing good by giving you tax exemption.

There are many such things which the governments in India, US etc. give to help the salaried class reduce the tax liability.  I would sincerely suggest that you’ll take professional advice from a CA or CFA on how to bring down your tax liability as per what is legal.  But do not shy from giving taxes.

Now when you get the tax deduction, the money saved should be put into a bucket to help you achieve your dreams.  Over the long term these amounts aggregate to a very large  corpus to help you get closer to your dreams without breaking the bank.

Last time I had spoken of how I had gone about trying to achieve things from my bucket list.  You too can, by utilising the avenues given by the government, reduce your tax liability and then let that money compound.

Every person should have a bucket list to look forward to in life.  That’s what makes life interesting.  Let finances not stop you from living your life.  Plan things, use compounding to your advantage and take benefits given by the government to have life.

Till next time.

Carpe Diem!!!

Are you covered to live past 90 years

Financial Independence, Uncategorized

I had gone to Lucknow ( capital of the state of UP in India) last week for celebrating the Golden Anniversary of one of my in-laws.  In their house they have a decent size lawn and also a lot of pots and trees in the garden.

While sitting in the garden, having my coffee I noticed an old man mowing the lawn with a manual lawn mower.  Since you don’t get to see a manual lawn mower too often these days I got talking with my in-laws about it.

That’s when my in-laws mentioned that the gardener was in his 90s and peddled down on a bicycle about 17 km everyday to come to their house and do the gardening. He does gardening in about 5 lawns in the vicinity and spends an hour at each location. He earns about 5000-7000 INR every month- about USD 900 /annum.

The positives from the interaction were that he was so healthy and fit even at 90.  He was able to move large pots around even though I would never be able to lift those plots.  I felt extremely happy to see a 90 year old, so healthy and independent.   I did not get an opportunity to talk to him because I got caught up in some other engagements there.

However it got me thinking, would he want to do this activity if he had the financial freedom. Was he working because he had to earn his daily bread or what were his circumstances at home which pushed him to travel 365 days on a bicycle to earn such a meagre amount.

When I visited Canada in 2017 in one of the department store I saw ladies at the cash counters who in my opinion were more than 70 years working on the basic minimum wage only because they did not have any savings to last them their remaining life. Yesterday I met one of my old colleagues who is now settled in the USA and he mentioned that the official retirement age in the US is now 67.5 years.  So as countries are ageing they are trying to increase the official working age.  But for countries like India where the population is still very young, the increase in retirement age from 58-60 in most cases is still afar cry.

Globally the average age of the people is increasing with better nutrition and medical support. If Dr. Peter Diamandis is to be believed in the next decade the breakthroughs in science will help people live well over a hundred years.  However the working life of an individual is only about 30-40 years while they will have to support themselves without an active income for the next 30 odd years.

Just with pure saving instruments its not feasible to beat inflation and grow your money.  You need to be investing money on a regular basis from a very young age so that the you can get the benefits of compounding.  If you will notice Warren Buffet’s dramatic growth in wealth has been after he crossed the age of 60 because the compounding equation is an exponential equation and as the number of years goes up the impact on your investment is dramatic.  He started investing in his early teens, so close to 70 years of compounding has made one of the richest men on the planet.  At around the same age our gardener is still trying to earn USD 900/- per annum because he did not make investments.

Compounding is such a simple equation that grade 7 students are taught in school mathematics.  However our teachers are not able to show the implications of that equation because what is simple is not always easy to comprehend and most people inspite of knowing it don’t apply it ever.

I would strongly recommend everyone to read the book “The Compoound Effect” by Darren Hardy to see the benefits of compounding in all walks of life.

Use this simple equation to make your life easy for the long run and be secure to live well beyond 90 years.

Carpe Diem!!!