In this blog post, I will tell you why thinking about tax before investing your hard earned money is important. Most people don’t think about taxes before investing. This takes away a great chunk of their profits from investments. Taxes don’t just take away your money – they steal your time because money is time.
The average person in a developed country spends 25% to 35% of their life working to pay taxes. That means more than two hours every workday or 3-4 months out of every year are dedicated to feeding your government. That adds up to over 13 years in your work life and 20 years in your lifetime. That’s no less than a prison sentence. This is why we should include Tax Planning in our wealth strategy.
But what does it mean when we say this?
Too many people ignore taxes when investing and planning their wealth strategy.
Consider Investment X
If X investment gives 20% return but is liable to 8% tax then:
Net Return = 20-8=12%
Consider Investment Y
If Y investment gives you 18% return but is liable to 3% tax then:
Net Return = 18-3=15%
Without thinking about taxes you may choose X thinking it gives higher return but when Tax is included in your planning then you realise that Y is better investment.
People look at the return on investment as the return before they pay taxes on their investment income. This makes no sense.
With taxes as your biggest expense, you want to look at every return on every investment after taxes.
Hence, Always plan for Taxes before investing!
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