1. Taxes

Taxes are the largest transfers in your financial life. The most common taxes are the income tax and social security tax. As part of the payroll tax, over the past several years, these taxes have not gone up much. The other hundreds of taxes that don’t make headlines continue to go up almost on an annual basis. In recent years, taxes have increased about 42% faster than personal incomes. State and local taxes have increased over 100% faster than national incomes. You now have to work five months of the year just to pay your taxes.

It is important to understand that with traditional thinking the government will continue to create and compound taxes in the future. Everyone needs to understand that taxes are going to go up in the future, due to the demographic shifts, unsustainable government debt and uncontrollable government spending. The taxes you must pay will consume a majority of your future income.

2. Tax Refunds

Not only do we pay a lot of taxes, but also the average American has a tendency to overpay the taxes that are due. The IRS reports that the average refund for overpaying personal taxes is about $3,000. Getting a refund for overpaying your taxes is not a victory. It is a mistake. A $3,000 refund means that someone overpaid his or her taxes by about $250 a month. That is equal to a car payment per month. Does the government credit interest or give you a dividend for giving them too much money? No. Unlike you, they get to use your money for almost a year – for free. You did get a thank-you letter from them, right? This is your money you are giving away and then you have to fight to get it back from them at the end of the year.

3. Qualified Plans

At best, qualified plans such as IRAs and 401(k)s are forced savings programs. For most successful people, an IRA or 401(k) is not a tax-savings event. A qualified plan simply defers the tax to a later date. A guarantee one should consider is that a qualified plan will be taxed at some point in time, and if invested in mutual funds or the stock market, the other guarantee is that the one investing in the plan is the only one at risk. When you retire, whatever you have accumulated in these plans may be taxed 20%, 30%, 40% or more, regardless whether your investments did well or not. In the future, more thought should be given to whether or not a qualified plan is right for you. Roth plans offer some relief from the tax dilemma, but qualified plans are not the only way to finance your future.

4. Owning a Home

Purchasing a home, making mortgage payments and owning a home that is paid off are events that are filled with multiple money transfers. When in the process of purchasing a home, there are title fees, escrow fees, filing fees, realtor fees, down payments, taxes and many more. While you are making payments on your house, you pay an agreed-upon interest rate, taxes on the property, insurance, maintenance costs and improvements. When your home is paid for, you still have property taxes, insurance costs and maintenance. There are a lot of decisions about the type of mortgage you should have. Most people want to live in the nicest house they can with the least amount of monthly payment, ratherthan the highest payment. Your home, mortgage and equity are all tools that you should understand and learn how to use. There is an opportunity to recapture a lot of transfers you are experiencing in your home. You must understand that the value of your home goes up or down, no matter how much equity you have in your home. Interest rates, taxes, insurance, a changing neighborhood and the economy can impact not only the value of your home but also the equity you have in it. The equity in your home when used properly can help you reduce other transfers occurring in your life. Never take the equity out of your home and invest it in the marketplace. Once again, the goal is to point out the transfers that impact your financial life.

5. Credit Cards

Today, the average American is carrying an enormous amount of debt. It is not uncommon to find credit- card balances in the thousands of dollars. The marketing to the public from credit-card companies is relentless. Credit cards have become part of our accepted culture, and along with it, so are interest payments that are attached to them. The focus of many credit-card companies is on late payments. They have reduced the number of billing days. That is the number of days you have to pay before the due date. You may also notice that many due dates are on a weekend. Plus, they still want you to allow them seven days to process your payment. All of this is to help the credit-card company do one thing: to create a late payment from you and a $30 or $40 late fee for them.

Credit-card debt is going to be some of the most expensive debt you can own. This causes major transfers in your life. Remember, in most cases, personal credit-card debt interest is a nondeductible event when filing your taxes. By reducing the interest rates and restructuring your debt, you can recapture money that you are unknowingly and unnecessarily giving away.

6. Financial Planning

Depending on whom you talk to, your personal financial planning can have many different faces. If you are talking to an investment broker, then stocks and mutual funds will be the center point of your planning. If you are talking to a real estate broker, then owning property is the only way to go. If you are talking to an attorney, then the center point of the decision will be about will, trust and estate planning. If you are talking to a pension guru, then all you need to do is fund the heck out of your qualified plan. When you are seeking a direction for your future, amazingly, the recommendations that you get from someone will usually be the products that they sell. Some professionals charge fees for their advice, while others receive a commission for the products they sell. One way or another, they will be compensated for what they do. Remember, the professionals you deal with are paid whether they increase your wealth or lose some of it. These are just more transfers that you may be exposed to.

7. Investments

The vast majority of people are troubled and confused about the economy. They have been bombarded by the media, bullied by salespeople and bewildered by the millions of things they feel they need to know. As discussed in this chapter, you can invest in bank savings programs, CDs, mutual funds, stocks, real estate, annuities, etc. All of these products expose you to some form of transfers of your wealth. The one thing you must understand is that owning a lot of different products does not necessarily make you smarter or better off financially. Remember, when investing, you are the only one at risk.

8. Purchasing Cars

During your lifetime, let’s say you purchased a new car every four years starting at age 35. If you could have somehow just kept the interest you paid purchasing these cars and received a 7% rate of return on the interest you paid, you would have accumulated $576,473 by the time you reached the age of 79. After 40 years of driving, all you have to show for all that money is a four-year-old Buick worth about $8,000. Remember, a car is one of the greatest depreciating assets you will ever own. Paying cash for a car that is losing value every day you own it could be a mistake. You must take into consideration how often you purchase a new car and the value of that car when you trade it in for a new one.

What makes this transfer of your wealth so painful is that the interest you paid to the lending institutions for these cars is not tax-deductible.

9. Life Insurance

A discussion about life insurance could go on and on forever. How much you should have and the types of policies you should own are major considerations. Typically, any conversation about life insurance is a conversation of avoidance. It is not fun to talk about. But, let’s talk about the transfers in your life if you do not have life insurance. Your family’s home, the lifestyle your family has become accustomed to, the children’s education – all these may be in jeopardy in the event of your death. Let me ask you a question: If you found out that you qualified for two million dollars of life insurance from a life insurance company, how much coverage would you want? The most or the least? Now, let’s say you found out you were dying. What do you feel your family deserves: the most or the least amount that you could offer them?

There are many ways life insurance contracts can play a major role in your life. The first lesson: Do not die without one. It would end up being the largest transfer of wealth in your family’s life.

10. Disability

One of the most dramatic and unfortunate losses in life is one’s inability to earn an income. Stop and think about this for a moment. You are working and earning a good living, paying your bills and taxes, and living very comfortably, and in one moment, you become disabled and lose the ability to pay for everything you have. How long can you live on your life savings before your lifestyle changes dramatically?

We spend our entire lives insuring others will get paid in the event something happens to us. We have mortgage insurance, liability insurance, hospitalization insurance, etc., to guarantee others will get paid. What about insuring your income so that your family will get paid? Transfers that occur from a disability will change someone’s entire life, and it can become what I call "a living death.”

HERE & THERE

Between where you are today financially and where you will ultimately end up at retirement are many obstacles and unintended consequences. Between here and there, you will be experiencing greater transfers of your wealth than you could ever imagine. These transfers will occur many times unknowingly and unnecessarily. 

These transfers will continue to happen throughout your entire life. Between here and there, you will also be confronted with other hazards that will impact your wealth. These hazards can be found in the changing demographics, investment and market risks, misinformation, taxation, government and personal debt, and finally, but most of all, a lack of fiscal knowledge that can be used in your everyday life. Between now and your financial future, if you do not recognize these hazards, you will continue to apply losing financial strategies and end up with a portfolio full of unintended consequences.

-Leonard Renier