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Archive for March 2016

Retire Before You Start Working

There are a lot of blogs out there telling you how to retire early. It seems 35 is the new 65 or whatever age we were supposed to retire. I think it is all crazy talk. Why would anyone ever want to start working in the first place? According to my own father I never worked a day in my life and I turned out just fine. Okay, bad example.

There was a momentary lapse of sanity in my grand design back when I met Mrs. Accountant. As we prepared for marriage the minister of the church knew I was not working and offered me a job as janitor. What was I going to say? I accepted the job. A year later I quit because I did not want to swill toilets for a living. Don’t get me wrong. The people were awesome! I loved the people over at Trinity Lutheran Church, but I did not want to be janitor.

Previous posts outlined how I live my life without a job. I grew up on a farm. Sure, farming is hard work, but a lot of fun too. Working with animals is something many people do for free all you cat and dog lovers. Well, I grew up in wide open spaces with animals galore. Later I worked for my dad’s agricultural repair business and you can call my dad and ask him how hard I worked. The great news was I found my calling when my dad hated paperwork and taxes and left the job to me. My on-the-side money from preparing taxes for employees hooked me on accounting. I loved the idea of working less and making good money while sitting in a chair or talking to people. Sure beat milking cows or fixing a silo unloader.

Now I work a part-time seasonal job and enjoy a wonderful lifestyle with friends and family. (Ya gotta do something to fill the time.) I am back to living on a farm. People think it is a lot of work when I say I have twenty steers or fifty chickens. Geesh! Do you know how hard it really is? Calf prices are out of line with beef and feed prices so I don’t have steers for the first time in fifteen years. I still have fifty chickens and 19 gardens. I try hard not to roll my eyes when people are amazed at the work I do with all those chickens. Let me explain how hard it really is. Okay, brace yourself. I go out to the barn each morning and pick up 20 eggs and pour a bucket of mash into the feeder (how do I do it?). Then I go back to the house. It gets worse. At night Mrs. Accountant, the girls or I walk back to that very same barn and pick up another 20 eggs. Every couple days I need to reload the water feeders. Once a week I clean the chickens. Cleaning the chickens takes less than a half hour. Let me be clear, I spend more time eating the eggs than I do working to get the eggs. Am I still considered retired yet?

Now Let Me Tell You about Real Work

I read all those other blogs about checking out early. It seems you can’t really be retired unless you live frugally (I am), save half your income (I do) and travel. I hate travelling! Preparing a tax return is fun; so is small-scale farming. But travelling! I like travelling like I enjoy a root canal. (For some reason I have experienced both more than I care to mention.) My teeth to the side, I have visited Costa Rica, Jamaica, Canada several times and three-quarters of the states. Reluctantly I admit I enjoyed the experience of having been on vacation; I still hated going and could not wait to get back home when I left.

Last year I travelled to Seattle to attend a workshop with Mr. Money Mustache as the focus of the event. I only went because I had ulterior motives; I had a business idea for Pete, the real Mr. Money Mustache. I ended up speaking at the event for free (they later gave me a small stipend). Pete became a client and he loved my business idea. To top it off, Pete is the nicest guy you will ever meet. Let me share how nice Pete is. A month ago he emailed to tell me he thought I was “insane” for working as hard as I do. So far, so good. Then he finished the sentence with, “at your age.” I’m headed back to Seattle this year to the same event with Pete as the guest of honor. I think I will ask Pete to explain what he meant by, “at my age.”

At the Seattle workshop I gave a one-hour presentation on a tax issues (early retirement, of course; this year is on knowing when to do your own taxes and when to call in the pros). I did not know I would get a stipend; I did it for free because I wanted to do it. It was not work; it was fun! I was still retired or at least continued in my unemployed status that began when I was born. I enjoy speaking if front of groups so much I accept 5-10 speaking engagements per year, most unpaid. Sharing ideas excites me.

My message is for you to discover what “fun” is for you and what “work” is. Some people golf for a living (a job), others take every opportunity to hit the greens; they even pay for the privilege. I am not insane, as Pete indicated, for running a business and preparing a boatload of tax returns. Truth is I am happier than a pig in manure.

We all do things we do not like doing at times; doing so does not make it a job. The root canal I spoke of above is not a job description; neither is travelling, though it feels that way to me. What makes travelling palatable is the people. I love working with people. I went to Costa Rice with my parents for two weeks because I knew I would have a great memory. Loved coming home, too. Jamaica was my honeymoon. Most of the states I’ve seen and Canada are the result of conferences I attended. I travel to learn and meet new people, giving my travels a purpose.

Long-term Commitments

The best part about never having started a life of work or entering the rat race is long-term commitments. There are only two things I have done consistently for any period of time: husband duties and daddy duties. The only reason why I have stayed committed for so long to these two commitments is because I have a deep seated fear of Mrs. Accountant. If I absconded either of these duties I would be a eunuch within moments. (Note: I read these posts aloud to Mrs. Accountant before publishing them so if you are reading this it passed the Mrs. Accountant test. She does have a good sense humor. She has to; she is married to me.)

My tax practice has been around for decades. Sometimes clients accuse me of thinking about retirement because I am gone so much, especially during the summer. (If you plan on faking an illness, be sure to do so on a nice, sunny day.)I come in late, leave early, take long walks from the office and hit the gym during the work day. How do I tell clients I can’t retire because I never started? Oh, well. Such is the life of a vagabond (minus the travelling part).

Years ago I went through a phase where I attended a large number of science fiction conventions. Then the itch went away. Met a lot of nice people and authors though. Then I dragged Mrs. Accountant to film festivals for several years. Been a while since I did that too. As you can see I go through phases of things I like to do. The best part about never entering the rat race is you can engage so many different lusts. Most tend to be short-term. The ones that count, the wife and kids, are the only things I make a full and lifetime commitment to. In my life family is not everything; it is the only thing (a special thank you to Vince Lombardi).

Back to Travelling

Back to our story in Seattle where we left Pete as he tries to explain what he meant by “at my age.” For the second year in a row I am attending Camp Mustache and will speak to the wonderful people in attendance. Pete, great guy that he is, gave my tax business a heck of a plug with a blog post on his site. A significant number of people have asked me if I have met Pete in person. Yes, I have. Even sat in his house. They ask about Camp Mustache and if I will attend this year. Yes, I will. Already signed up, but have not purchased the airline tickets yet. It feels so final like I gotta go once the tickets are paid for. Until then there is always a glimmer of hope I can find a way to weasel out.

Several people have asked if I went to Ecuador with Pete, an annual event he seems to enjoy. No, I have not. The same several people ask if I plan on going. No, I am not. Why not? they ask. Every reason I give only brings more questions of, Why? Eventually I say, “Because I refuse to leave the northern hemisphere.” It stops the questions. People have a hard time believing how much I hate travelling.

This all ends badly, you know. At some point in the near future I will be sitting grumpily in a plane looking out the window and watching the earth turn slowly below, pointing, “Hey, wha’da’ya know? The equator.”

 

More Wealth Building Resources

Personal Capital is an incredible tool to manage all your investments in one place. You can watch your net worth grow as you reach toward financial independence and beyond. Did I mention Personal Capital is free?

Side Hustle Selling tradelines yields a high return compared to time invested, as much as $1,000 per hour. The tradeline company I use is Tradeline Supply Company. Let Darren know you are from The Wealthy Accountant for a bonus. Call 888-844-8910, email Darren@TradelineSupply.com or read my review.

Medi-Share is a low cost way to manage health care costs. As health insurance premiums continue to sky rocket, there is an alternative preserving the wealth of families all over America. Here is my review of Medi-Share and additional resources to bring health care under control in your household.

QuickBooks is a daily part of life in my office. Managing a business requires accurate books without wasting time. QuickBooks is an excellent tool for managing your business, rental properties, side hustle and personal finances.

A cost segregation study can save $100,000 for income property owners. Here is my review of how cost segregation studies work and how to get one yourself.

Worthy Financial offers a flat 5% on their investment. You can read my review here. 

The Tragedy of the Commons in Investing

Just one more cow.

Just one more cow.

Back in the early 1980s a CPA named Herb Vest had this crazy idea to merge the investment and tax preparation fields. By the 1990s both HD Vest Financial Services and your favorite wealthy accountant’s tax firm were hitting full stride.

My first career choice was not tax preparation or accounting, it was financial services. I fell in love with the stock market crash of 1929 my sophomore year of high school and from that point on wanted to be a stock broker. Tax preparation was a seasonal job I preferred over working all year long, putting the stock broker idea on hold. Besides, I invested most of my income and the library was filled with great books on the stock market and its history.

Herb Vest wanted every tax office in the country offering a side order of mutual funds with that tax return so it is no surprise Herb came knocking on my door. Of course, I loved the idea and signed up on the spot. My enthusiasm for investing showed as I went from newbie to the top 100 brokers in less than six months in a firm of 7,000 plus brokers.

Make Way for the Tragedy of the Commons

The tragedy of the commons is used in environmental and political circles to describe the abuse of natural resources held in common. Fishing in international waters, for example, are exploited until collapse since no one is responsible for the resource so the incentive is to overfish before someone else does. A smaller example is the difference between a hotel restroom and a roadside restroom. When a business or individual has a vested interest in keeping the resource viable the resource is usually managed with care.

Another example that illustrates the tragedy of the commons is in the rural village of farmers with one shared pasture for grazing their livestock. Since the pasture is the only place to feed your animals it would be in the best interest of all farmers to have only 10 cows each to prevent overgrazing. One day a farmer decides to add an additional cow. Sure, the farmer will suffer a small amount from the overgrazing, but so will all the other farmers. The tragedy of the commons is the direct result of your actions giving you gain while the price is paid by all in common.

The rest of the farmers notice the extra cow their neighbor has added to his herd. To make up for their slight loss and over fear of additional cows further depleting the pasture, more farmers start adding cows. Soon the pasture is loaded with cows as each farmer adds more and more cows to get his fair share of the precious grass available. Eventually the pasture is pushed beyond its carrying capacity and the grass dies, killing all the cows of all farmers with it.

The Hidden Tragedy of the Commons

51NU2DtQBcL._SX328_BO1,204,203,200_The tragedy of the commons ends the same every time; a full collapse of the system. In commonly held natural resources the tragedy can be averted if all parties gather together and set limits (govern themselves) on each member of the group and protect against outsiders exploiting their intelligent management of the resource.

The tragedy of the commons rears its ugly head in more subtle and sinister ways. Back when I was so excited about entering the stock broker industry I had no idea how things really worked behind the scenes. Once I went from zero to top producer in six months and stayed there until I quit four years later the pressure was on to get me to conform to a system built to exploit the customer, I mean, help the customer invest for their future needs.

Back then I was asked to do things that are illegal today. When I was in the industry mutual fund companies had bonus funds each month. To make load funds (mutual funds with a commission fee attached) look more like no-load funds the industry came up with class B shares. These back-end loaded funds had a higher fee in the early years called 12b-1 fees that averaged around three-quarters of a percent per year until the back-end fee was reduced each year until it was illuminated somewhere around year seven. Sell sooner and you paid a back-end fee. Either way you were paying.

Brokers who sold B shares earned a flat 4% commission. Since mutual funds were easier to sell without an upfront and easy-to-see fee, most brokers sold B shares, including yours truly. The rotating bonus funds paid 5% commissions or sometimes higher on B shares for the month they were promoted. This is a 20% increase in income for the salesman and a difficult inducement to pass up.

The broker-dealer (all brokers have to work for a broker-dealer to sell securities) noticed I did not sell very many bonus funds. The broker-dealer gets the 4%, or the higher bonus amount, and pays a percent out to the broker based upon sales. The more you sell the larger your percent. I earned the maximum 85% payout. The broker-dealer had a vested interest in their brokers selling bonus funds because it also raised their revenue by 20% or more. When I sold appropriate investments to my clients instead of bonus funds I would hear about it. I refused (politely in the beginning, less so as time went on) to comply. Selling the right investment to the client was more important than a bonus. Long-term happy clients trump a few extra dollars. I’m not a chump!

The handwriting was on the wall when I started to recommend clients consider index funds and similar low-fee investments. It was not allowed. The broker-dealer started a fee-based only investment program where people paid 1% or so per year to have their investments managed for them. What they really did for the fee was rebalance a basket of mutual funds a few times a year. Ripoff! I refused and I was shown the door. I sold a lot of mutual funds and other investments over those few years. I regret every bonus fund I sold under peer pressure.

Today the practice is illegal. Don’t worry. The investment industry has more ways to separate you from your money. The worst are the hidden fees that nickel and dime you daily and you never see it.

The Tragedy of the Commons in Investing Today

Now that you understand how the investment industry is not on your side when you are not looking, it is time to see who is helping their clients and who is helping themselves to their client’s money.

Mutual funds are really a form of assets/resources held in common. The incentive to over exploit this resource, your money, is strong. Once upon a time it was a mantra of the mutual fund industry that economies of scale would reduce fees as funds grew larger; instead, fees have gone up. History has proven the mantra false as a distorted form of the tragedy of the commons infiltrated the mutual fund industry. There are a few stand-outs. Vanguard is the most notable. The index fund arena of the mutual fund industry has held the “lower fee” banner highest. Actively managed funds have been slower to catch on.

Research indicates mutual funds generally match the performance of their investment field minus fees; therefore, the higher the fee, the poorer the result. Actively managed funds resist the overwhelming evidence for self preservation reasons. Load fund are the worst. Not only are fees higher, the investor pays a premium for the subpar results. I understand some people need an investment advisor to help them make solid investment decisions, but most people are better off with an index fund, cutting out the high costs of actively managed mutual funds and advisor/broker fees.

Actively managed funds have the incentive to outperform at any cost to justify their higher fees. These mutual funds tend to trade more and take certain risks for the chance of hitting a home run. A short term out-performance can bring in an influx of new money to the mutual fund as investors chase performance. This means a superstar fund manager can earn a massive bonus, all paid for by the investors for his rapid trading and risk taking.

It ends poorly every time. Risks eventually lead to losses or poorer performance. Not every risk will pay off and rapid trading is a fool’s errand as trading costs make it even harder for the mutual fund to even match the market. Index funds limit trading and the risk is clearly defined. An S&P 500 index fund will be within a fraction of a percent of the S&P 500 index performance every year. No risk taking; no superstar fund manager with a massive Christmas bonus; no speed trading.

Over the years I discovered the exciting investments do terrible over time. The boring investments usually do well. Buying a broad cross section of the market has no exciting stories to share when family gets together or with friends over a pint. Over time you will accumulate a large value portfolio without bragging stories or stories of woe.

In the tax office I see a large number of people every year. They can tell me any story they want; I know what they make and what they have. You would be amazed at who has the largest investment accounts. People who invested consistently over the years have the most. Savers invested in boring index funds blow away actively managed investments and the spenders every time.

I know exactly the life you lived when you sit at my desk, age 80, with a $6.5 million portfolio of stocks. You were frugal with your money your entire life; you saved before spending; you bought quality blue chip stocks (or similar mutual funds) and held them forever. You never worried about not having enough; you always lived within your means regardless of your income level. You lived longer because you had less stress and were (and are) happier because you were always happy with what you had.

The tragedy of the commons involving commonly held resources holds true in other, less obvious area of life. We all fall prey to foolish investments. Keeping the majority of your wealth in broad based investments, like index funds, is the surest way to build and keep wealth. Fees play an important role in performance. Digging deep into the fees paid, the ones hidden in small type deep in the prospectus can increase your lifetime wealth by hundreds of thousands of dollars.

Wealthy people ask about motivation. What is the motivation of the person selling me a good or service? When you take an active interest in your wealth you reduce the risk of the tragedy of the commons affecting your investments. There are people motivated to really help. Frugal people are the best to do business with. They have less incentive to cheat because they already have more than they need. They work because they love what they do. They are the best doctors, investment advisors, accountants, plumbers, and business owners.

Why I Know Your Tax Return Is Wrong

20160323_165144I sometimes play a little game with people to prove most tax returns are prepared wrong. Before any tax professionals reading this start writing nasty comments I confess I also make errors on tax returns. I get it. Tax season is more triage than solid tax planning. However, once tax season slows down it is time to put your tax preparer to work saving you money, building your net worth, helping you with early retirement and making your life easier from a financial and investing point of view.

Certain errors on a tax return are understandable. Maybe you did not know the tax law or you forgot to tell your accountant about a certain income or expense. Other errors are unacceptable. These include transposed numbers or forgotten elections. This is sloppy tax work and it drives me insane. Anyone plugging numbers on a tax return must review their own work and reduce the number of issues on the return to zero before sending it to the final reviewer.

The game I mentioned at the beginning of today’s lesson involves people bringing me their tax return without any receipts or other tax documents and by glancing at the return tell them if their tax return is correct or wrong. Over half are wrong. Then I ask a few short questions. The answers confirm my suspicions and provide a solution. With the new information in hand I send the client back to their regular tax preparer to amend the tax return.

How accurate am I in my little game? I can tell you if your tax return is wrong with over 85% accuracy and without seeing any supporting documents. So how do I do it?

What You Know

People have tried to understand my thought process when I review tax returns and until now have had only modest success in transferring this skill to themselves. To begin, when I say most tax returns are wrong I mean they are mechanically correct, but not optimized. Certain things jump out as absolutely wrong. For example, if I see gambling winnings on the front of Form 1040 and see no gambling expense on Schedule A I know the taxpayer was either gifted the lottery ticket or they spent at least $1 to pull the lever on the one-armed bandit at the casino. If I see the gambling error I start talking about gambling sessions, but I leave that conversation for another day.

What I am specifically looking for are things that jump out from the tax return. A comparison page of the last few years really helps, but is not always necessary. (I’ll want to see the previous return no matter what if I am going to feel confident in my assessment.) Any number that changes significantly grabs my attention. Assuming all W-2s and other documents were entered correctly I turn to the schedules and the depreciation table if applicable.

If all you have is a W-2 and rent you cannot play my game; there is not much to do wrong on such a tax return if the W-2 and rent are inputted correctly. You can sit and watch the rest of us play because you will get ideas.

A tax return reviewer always looks at numbers that look out of place. A properly prepared tax return has an elegant feel to it. Just by looking at it you can tell if it is right or wrong. The wrong feeling comes from the jaggedness. Massive depreciation schedules are almost always wrong with the new repair regulations and tangible property rules and is a great place to go after checking the comparison page. Rental property owners and small business owners are all overpaying their taxes. You are better off applying proper tax law than cheating when it comes to business and investment properties and the audit risk is eliminated since an audit will result in no change over a penalty for cheating.

Many accountants get this one wrong because the rule changed so late in the year their training books contained the old rule. The new de minimis rules issued by the IRS changed the safe harbor amount from $500 to $2,500 for depreciable assets. This means that under the new repair regulations assets purchased for $500 or less (lasting longer than one year) can be deducted rather than depreciated. But wait (sound like one of those old commercials, doesn’t it), accountants bitched when large corporations could write off up $5,000 per asset if they audited their books. The IRS took pity on the crybabies (thank goodness) and changed the $500 used by most of us to $2,500. Better yet, we can clean our depreciation schedules, but it is not required. All you need to do is make a simple election on the originally and timely filed tax return.

More Opportunities

Reviewing tax returns turns up all kinds of fun ways to save money. There are times a landlord can deduct a roof replacement over depreciating over forever. The repair regulations allow most stoves and refrigerators as deductions for additional tax savings. Another election allows remodeling, including certain improvements, as a repair expense rather than depreciation if the amount is under $10,000. Wow! You can call a kitchen or bathroom remodel in a rental property a repair expense and write the whole thing off? Yes! Sometimes. Have a qualified tax professional help you with this. Again, you must make an election to enjoy the grab bag of goodies.

I consider the repair regulations one of the best changes the IRS has made in my career. It allows a simplification of the tax return and brings sanity back to business and investment property owner’s tax returns.

There are more ways to optimize a tax return. Depending on your income you may qualify for a Saver’s Credit. I will need to see a W-2 sometimes to know if this goodie was missed on your return. Another area often missed is mileage. Mileage applies to businesses of course, but did you know medical miles count, too. People exceeding the threshold need to add miles to their medical expense. Charitable miles also count if you itemize. Driving to church for Sunday service does not count even if you teach Sunday school. Helping Habitat for Humanity build a home are charitable mile that count; so do miles driven to church to help on a project.

Glaring Example

To finish our review of tax returns I will share an example from this tax season. A small business brought in their paperwork, including the financials prepared by a CPA. I plugged the numbers into the return except for the depreciation. Something was wrong here. There was $20,000 of depreciation on the profit and loss statement. I knew my client. The number did not feel right. To have $20,000 of depreciation would require $100,000 or more in asset purchases to make sense. It had to be wrong. I went back to the CPA and discovered he entered the full year depreciation as monthly depreciation. Now it made sense.

When something does not feel right on a tax return it is probably wrong. A big refund or balance due out of line from previous years and not supported by an accompanying change in your financial situation is a dead giveaway something is off. Don’t take a surprise refund from the accountant without questioning the gift from above. It will come back and bite you later. Remember, the IRS will send you a letter, not your tax preparer. Same applies if you prepare your own tax return. You know approximately where you will end up. If it differs you need to check why. Sometimes it is a real gift from above; sometimes you missed something and thank the gods you caught it before you hit send.

More Money

Reviewing your tax return, even if a professional prepared it, can put serious money in your pocket. Your tax bracket can be a major motivator in planning for early retirement. If you are not maxing out your retirement plans you are overpaying your taxes.

A solid tax plan can pay off in unexpected ways. There are a few instances where putting additional money into a retirement plan through your employer can cut your taxes nearly as much as invested in the retirement plan! A solid review of your tax options outside tax season can pay massive dividends every day.

At the very minimum you will save your tax rate by increasing your 401(k) or similar retirement plan contributions to the maximum. A $10,000 increase in retirement savings (a traditional, not Roth) in the 35% tax bracket, federal and state, reduces your cash flow by $6,500, not $10,000. And you still keep all the money!

Some ideas I share here are not errors. Having a mechanically correct tax return is okay; an optimized tax return will make early retirement easier to attain. Not everyone has a goal of early retirement. I get it. The reduced tax burden can be used to send your children to college or make your community a better place. You can change the world, or at least a small piece of it. By optimizing your taxes most of you will make the life of your family better and that is what it is all about.

Caveman TV

800px-Moon_at_nightWhen I was a little boy I loved watching the stars and dreaming. Then I grew up and, for a short period of time, lost the awesome wonder of the universe. Truth is I lost sight of the big picture for a better view of the small picture.

In the early years of my marriage we forwent cable television. The local free channels were enough entertainment for us. Even after children entered the scene the TV remained free. Massive wealth later caused me a moment of insanity where cable TV entered my home; a decade later it was gone.

An addiction to football* grew in me as I got older. In my defense the football game was nothing more than background noise as I worked around the house, garage or barn. But addictions have a habit of taking over a person’s life. Soon I was watching several games on Sunday and college ball on Saturday. And don’t forget the Monday and Thursday night games. If they had a Tuesday at two in the morning game I am sure I would have tuned in.

Then I took the first step; I admitted I had a problem (not to mention how sick and tired I was of commercials). Where I live out in the boondocks cable is called DirecTV. After a decade of insane television watching I pulled the plug and cancelled the DirecTV subscription and watched my net worth jump $1,000 a year. Anticipating pushback from the wildlife in my home I suggested we put DirecTV on hold for six months as an experiment. Two months in the kids were the first to say they did not care if cable ever came back. They preferred the internet anyway. The nightmare had ended.

I had my life back. As a matter of confession I do have Netflix. Network television is something I don’t watch due to an allergic reaction to bullshit, I mean, commercials. Once I ended TV in my life some wonderful things happened. Everything looked brighter. By ending the litany of garbage from the glass teat** I was able to think better on my own and enjoy each day more. Without network television I have not watched a football game in forever and don’t know and don’t care who is playing. Commercials, also known as mind control, no longer affect me since I am not seeing them.

Something else magical happened. One August night I decided to watch the Perseid meteor shower. I tossed a blanket on the lawn and enjoyed a night like I had not had since I was a little boy. Then something that could only happen on such a magical night happened; my oldest daughter wandered outside to check up on dear ‘ol dad. She sat down beside me on the blanket and asked me what I was watching. I said Caveman TV. She busted up laughing and the term stuck. My daughter, my baby, fell in love with the universe at large that night. Tears poured from my eyes as I thought of the words to Cats in the Cradle.

During the summer months we have a fire pit at night when the wind is calm. Caveman TV is eagerly anticipated by certain members of the family as the sun sinks below the horizon. I wish I could convey in words what we see, but you need a reference point to understand. Either you have seen Caveman TV or you have no reference points to understand Caveman TV. It is like listening to people talk about the Packers when you don’t have a clue about any of the players.

Let me share what we see anyway. Sometimes we lay on a blanket, other times we sit in lawn chairs as we gaze at the massive big screen TV we call the night sky. Countless meteors have surprised us with a glistening trail of brilliant light and a rare fireball is table talk for weeks. One of our favorite pastimes is watching a circumpolar satellite*** trace silently across the sky. As our eyes adjust to the darkness the stars sharpen and dim stars appear for the first time. The Pleiades, or Seven Sisters, is now a mesmerizing feature of the heavens.

There is something about the crisp nighttime air and the critters of the evening. Crickets are soothing as bats dart through the air keeping the mosquitoes in check. There! Out of the corner of the eye, a meteor etches a laser cut burning into the retina of the eye. An unannounced meteor shower makes its presence. The crickets keep singing their tune as a faint strobing light slowly makes its way across the sky. The plot lines are countless as the soap opera unfolds on today’s edition of Caveman TV.

The Leonid meteor shower in November is a hit or miss event. The colder weather in northeast Wisconsin coupled with the cloudiest month of the year sometimes disrupts the signal from classic Caveman TV. Winter is colder, of course, and we spend less time outside late at night, but we take the longer nighttime hours to watch Orion race from east to west. The hunter never seems to catch his elusive prey. Like most classical Greek, the storyline is filled with adventure and hope.

51ADuwm1AUL._SX298_BO1,204,203,200_City-dwellers reading this do not understand the night sky until they travel to the countryside. It reminds me of Nightfall, a novel by Isaac Asimov and Robert Silverberg where people face darkness for the first time in 2000 years. Watching the face of a child light up as they see the night sky, the real night sky, for the first time is moving. It is at this moment when a child realizes for the first time there is another much larger world out there.

I could preach about the negative effects commercial TV and radio have on you. You already know advertising manipulates you into spending money you should be investing. You also know advertising works or the advertisers would soon go out of business. My conscious choice was to remove commercial media from my life. The radio in the barn is tuned to public radio; steers and chickens don’t like commercials either. I only watch Netflix on the glass teat now and read and write or work around the house while it plays. I have turned into a terrible television watcher.

Money was not the motivating factor in dumping cable, network TV and commercial radio; freedom was. Spending hours a day planted on the couch watching the same commercials ad nauseam did not give me what I wanted. I found a better way and hope you will join me. Sure, I still see commercials when visiting family or at the gym. (They have TVs everywhere in the gym!) I read a lot and even your favorite blog from a certain wealthy accountant has ads on the page. (Man has to eat!) I am not against advertising. I am against this splatter shot approach of ‘in your face’ promotion. Relevant ads are okay with me. Ads to help me cut costs or educate me on things I am interested in are okay. But if I see another ad asking me to talk to my doctor the promoter is going to need a doctor.

A massive world exists out there (Oh wonder! /How many goodly creatures are there here! /How beauteous mankind is! O brave new world, /That hath such people in ’t!). Discover the world our grandparents knew when the night sky was alive and the distraction of the Idiot Box did not call. Teach your children of the brave new world, filled with beauteous people, and wonders.

 

* The Green Bay Packers rank higher than God in these parts. Don’t believe it? Check how many people watch the game versus how many went to church. I rest my case.

** The glass teat (for the younger people in the group) is from the days when televisions had a glass bubble for a screen. The protruding glass screen fed us our daily dose of mind control, hence, the glass teat. (Gawd! I feel old explaining that.)

** I know there is no such thing as a circumpolar satellite. There are no satellites circling either of the poles. There are circumpolar constellations however. In the context of the story, the satellite travels from south to straight north. We might be confusing the International Space Station for a satellite periodically. It is still good Caveman TV.

Card Counting

20160317_080351Last year I inherited a client with 23 years of unfiled tax returns. Normally I enjoy multiple years of unfiled returns. The extraordinary number of years in this instance put me at risk of potentially preparing a tax return by hand for the early years and the tax return contained rental real estate, a trucking business and a farm. I have an allergic reaction to preparing tax returns by hand; it brings up memories of my early days in the business.

The exact year eludes me when we converted the office to 64 bit computers. Old tax programs only run on 32 bit systems so I keep an old computer at the home office for just such an occasion. I had to check the old computer to see if I still had a tax program available all the way back to 1992. I breathed a sigh of relief when I found I did.

The box of paperwork for all 23 years was huge. I lugged it upstairs and fired up the antique computer. The hamsters took a while to get up to speed, but it felt good to visit an old friend. The tax returns peeled away, one after the other, until it was break time. Rather than take a walk I decided to see what goodies I had hidden on the old desktop tower.

A familiar icon was tucked in the lower left corner of the screen; a blackjack game created to mimic real life casino play. The program was built to train card counters and I acquired the program due to a fluke accident.

Back in the 1990s a client walked into my office with a story I never heard before; he made a living playing blackjack. From his tax return he did very well playing. Before long he shared with me the card counting method. Numbers intrigue me and beating the casino by using your grey matter appealed to me. (Call it a sickness.)

Stanford Wong is a household name among the card counting community (at least he was back in the 1990s). My new client introduced me to Stanford and a group he gathered called BJ21. Through Stanford I acquired the blackjack game mentioned above along with several methods of card counting. The game was addicting and I soon mastered the art of card counting without even thinking about it. I also discovered another card playing skill; I can remember the exact cards already played. I developed the skill by accident. From age twelve I started playing a game called sheepshead with family; we still gather every Friday night (family and neighbors) and play the awesome game found mostly in Wisconsin. In sheepshead it is necessary to remember what has been played, hence my blackjack skill.

71J7N0M6C2L._SX361_BO1,204,203,200_Before long I was on a plane to Vegas to meet the gang at BJ21. What an eclectic group! One guy made a good living sports betting, several others playing poker. Everyone in the room played blackjack for profit. Several teams were in the group. (Team play was getting hard by the time I discovered card counting because the casinos changed the rules to prevent teams from coming in and walking out with millions, which they did.)

After dinner the group had a card counting contest and I won. It seems the guys thought I was a natural. They started testing me to see how good I really was. Just like sheepshead back home, I remembered the cards already played. The guys at BJ21 could not let this pass. We were off to real life blackjack, just like the computer game.

I knew before I left for Vegas what would be expected of me. I was already financially independent at the time and felt the experience was worth a $10,000 bankroll for the blackjack experiment. As any card counter will tell you, a $10,000 bankroll has a real possibility of going bankrupt due to an ugly beast called variance. Just like a gambler can go on a roll even when the odds favor the casino, variance can deplete your bankroll before the law of averages takes over. I was unwilling to lose more. In business I threw away $10,000 on ideas that did not work and that is what I considered my blackjack venture. If the $10,000 went bye-bye I had no intention of going back for more.

51ZVM4hpIvL._SX329_BO1,204,203,200_The BJ21 guys found a nice single deck game on the Strip. Three of us sat down while the rest watched. The thing about card counting is that when you count you change your play and your betting as the cards are played. You start with a small bet: $25. If the count goes up you bet more, if it goes down you keep the bet small. It is the direction the count is going that determines your winning percentage. When the count is high it is more likely good cards come out, lowering the count.

I knew how to play blackjack and I knew how to count. I also knew the only way to make real money playing a singles game was to bet wildly. With three people at the table we played either two or three hands before the deck was reshuffled. I bet $25 to start and $500 when the odds favored me. Variance did not rear her ugly head. The BJ21 guys kept smiling at me when I bet such a wide range. Little did I know how much casinos hate card counters. Before the night was over I was invited to never return to the casino. I was banned!

Since I had attained financial independence at such a young age and since my job was three months a year with plenty of free time nine months of the year, I engaged in projects that amused me. For two years I flew out to Vegas perhaps fifteen times. The money was good, but the travel and casinos were hell. There are still a half dozen casinos I think would arrest me if I set foot on their gambling floor. The casinos changed their blackjack game to 6-5 from 3-2 for blackjack payouts and ruined the fun. The odds were too stiff to make it worth my while so I stopped going to Vegas.

The local Indian casinos were a different story. The best part was they did not care if I counted cards. They loved the idea of other people seeing me play and winning, thinking they could copy my style. They couldn’t. Maybe once a month I would run to the casino and play cards for four hours or so to pass the time. I did this for another year before I quit.

I share this story because it illustrates the issues surrounding financial independence and early retirement. Growing up on a farm was a full-time job. After high school I worked one year as the custodian at a church before quitting and starting my tax practice. All, except for my youth and one year of adulthood, I have worked about two and a half month per year with plenty of free time to read, play and satiate my curiosity the remainder of the year.

Once I stopped running to Vegas I no longer had a group of friends to commiserate with anymore when playing cards. It was then I discovered how much I hated sitting in a casino. My $10,000 penetrated deep into the six figures in value over the three years I played. And I knew I was playing for money only; I was a chump.

Casinos are noisy and the smoke aggravates my lungs. It was time to say goodbye to the card game. I still had sheepshead with family and neighbors so the best part of playing still existed for me.

I always wanted to retire early (or never work at all). I had great ideas as a kid. Business was in my blood; still is. My accounting practice is not about money; it is about something to do, a place to go to from time to time.

You are like me in so many ways, I can tell. You think about financial independence and early retirement, but what then. Travelling gets old after a while for most of us. Work provides social interaction. Even during the summer when I have no reason to go to the office I still show up. It is always nice to talk with employees and clients. Then I bike back home, a fifteen mile ride.

Let me share a few guidelines I use due to early retirement:

  • Cultivate a life outside work.
  • Don’t turn early retirement into a busman’s holiday. Your retirement should entail new people not asking about your profession. (I have to be careful or I end up talking taxes wherever I go. If people ask, tell them you are a retired life insurance salesman. They’ll change the subject fast.)
  • Don’t be afraid to try a crazy idea like card counting, but beware the Chump’s Game.
  • Give yourself permission to say no. (I have issues with this one, too.)
  • It is okay to just enjoy the sunshine. (Anyone who really knows your favorite accountant understands how hard this is for me.)
  • Early retirement does not mean you can’t work. Help a non-profit or take a part-time job to help out a business in a difficult time. It gives you something to do and people to associate with.
  • Spend time with your family. People grow up, grow old and die. Make it count while you can. We all have our moment in the sun. This is your moment. Don’t let it slip away.
  • Read great books.
  • You have earned it.

What I am Reading

20160312_113046Charlie Munger, the right hand man of Warren Buffet at Berkshire Hathaway, is quoted as saying he never met any wise person who did not read a lot. Reading is how we learn about the world around us. We live better when we educate ourselves. Every year I read 20 – 30 books of substance and a handful of entertaining novels I think have a value lesson to teach. Reading is as important as breathing. Many of the greatest books I’ve read were introduced to me the same way you are being introduced to books here, from a blog.

This list is by no means comprehensive. Periodically I will add more posts with a list of books I feel are significant. Most of you have already read several books on this list. No surprise there; people interested in bettering themselves will discover these gems on a regular basis all on their own. There will be a few you have not heard of and now is your opportunity to add to your wealth of knowledge.

Most of these books are available at our favorite meeting place: the library. I recommend visiting your local library and picking up a few books from the list below and few additional nuggets you discover in the House of Knowledge. Some books are too good not to own; I understand. I have provided links for most of the books to Amazon.

The Power Broker: Robert Moses and the Fall of New York, by: Robert A. Caro

The story of Robert Moses, the greatest builder America ever saw, reveals how our modern world was created in the mind of a genius who never held public office, yet was one of the most powerful men to live in the 20th Century. This massive book will have you eagerly anticipating the fall of Robert Moses. His Machiavellian wielding of power crushed everyone who stood in his way, even Franklin D. Roosevelt. Moses finally gets his moment of humility. It is then the reader realizes how important Robert Moses was to our nation. Robert Moses knew how to get things done. His energy knew no limits. The reader is left wondering how this one man could do so much. The story of Robert Moses is motivating. Reading The Power Broker encourages us all to get out there and get things done.

The Millionaire Mind and The Millionaire Next Door: The Surprising Secrets of America’s Wealthy, by: Thomas J. Stanley

The veneer comes off the mythos surrounding millionaires when Thomas J. Stanley performs the most in-depth research on America’s wealthy. The illusion of fancy cars and big houses gives way to truth — the wealthy are actually boring. They save a massive percent of their income and invest; they marry and stay married; the wealthy live in average neighborhoods and live in normal homes; they drive reasonable cars; many made their wealthy by owning a business. The average American saves too little and spends too much on wasting assets like fancy cars. These two books are required reading for anyone interested in early retirement and building wealth.

America’s Cheapest Family Gets You Right On the Money: Your Guide to Living Better, Spending Less, and Cashing In On Your Dreams, by: Steve and Annette Economides

With a name like Economides they must be good with money. The lessons this large family shares about money are valuable for everyone. Spending less and enjoying life more are easy when you think about it. The Economides provide a simple roadmap to frugal living without resorting to coupon clipping or other such crazy time wasters. Learn how the Economides shop for groceries only once a month, spend $350, and feed a family of seven. You will need to invest in a freezer though.

Stocks for the Long Run, by: Jeremy J. Siegel

Here is everything you wanted to know about the stock market between two covers. Siegel provides more interesting facts and tidbits about the stock market than a baseball fan talking pitching stats. By looking back to the beginning of Wall Street, Siegel shows how the stock market has a smoother performance than appears when viewed close up. For example, the broad stock indexes average a 7% return over long periods of time. Too often investment advisors use 10% or higher in their illustrations creating a false sense of what the stock market will do. I keep this book on my shelf and pull it out whenever I am curious about anything stock market. There are so many interesting facts about stocks, but I would never trade on them. They are fun to read about, however.

The Intelligent Investor, by: Benjamin Graham

Warren Buffet is the best investor to have ever lived and he learned his investment skills from Ben Graham. The Intelligent Investor is an easier read than Security Analysis, Graham and Dodd’s earlier work. I understand most of you invest in index funds; so do I. Still, understanding what makes investing in stocks and bonds profitable is powerful knowledge. Managing a small percent of your portfolio in individual stocks successfully requires an understanding of what company makes a great investment. The same principles apply when buying a business to run or even in evaluating an investment property purchase.

Steve Jobs, by: Walter Isaacson

Several movies have been made over the last several years trying to capture the flavor of what made Steve Jobs, Steve Jobs. They fail for the most part. Isaacson allows us a look into Jobs’ life and what it was that made Steve Jobs the person he was. Like The Power Broker, this is a book about getting things done. A serious question we should all have is: What makes some people perform at such a high level? Many of the great business leaders do it in one lifetime. Steve Jobs started Apple in his garage and grew the company to the most profitable on the planet all within one lifetime cut short by cancer. Bill Gates and Warren Buffet also did it in one lifetime; neither was born into significant wealth; they earned it all in short period of time.

The list is short, but filled with so much good reading it will take you a while to work through the material. I started with a list of over 50 books and picked the handful I felt would be the best starting point. Browsing through Amazon will yield many more treasures. Don’t forget the library. Find the section of the library that holds the above mentioned books and examine the books surrounding them. You are sure to find buried treasure all along the shelf.

Have All the Clients You Want

20160308_124457

Clients are stacking up.

There is an interesting stream of questions hitting my mailbox. My recent suggestion to cut back and retire early has led to one interesting question. I recommended cutting back to a part-time seasonal job and enjoying all the free time. I used tax preparation as a business idea perfect to live the relaxed lifestyle. CPA’s and other tax professionals came out of the woodwork with the same question: How do you get clients?

Getting clients has always been the easy part for me; finding qualified people to help me with the abundance of clients is a different story. What I am sharing today is something I charge a minimum of $3,000 for a personalized plan to increase your clientele. For free I’ll share my business growth story and few example businesses to help you create your own growth plan.

In the Beginning

Starting a business is always the riskiest time. All the start-up costs strain working capital while you have the least community recognition and the fewest clients or customers. Advertising can be a budget killer which leads us to:

Keith’s Rule # 7: If somebody is selling you on a great advertising idea it rarely works and costs plenty, while your own cheap promotional ideas frequently work.

There are plenty of salespeople and companies willing to tell you how to promote your business. They are all expensive with no real thought on how it will drive business in your door. If I had a dime for every time I was told I’d be out of business if I did not advertise with their company I’d have, well, about thirty seven and a half bucks by now. It is still a lot of predictions of my demise and after 30 years of hearing it I am coming to the conclusion they don’t know what they are talking about.

We will start with my tax practice as an example of how to do it right. In all the examples I will assume a small to medium sized city for business location; the rules could change a bit for businesses in major city centers. If you understand my thought process I am certain you can duplicate the results anywhere.

My original intention was to retire before I started working. (More in a future post.) Tax preparation appealed to me due to the seasonal nature of the work. I prepared taxes for a few people part-time for years before going full-time so I understood the business in the way only a greenhorn can be confident in his expertise. I also worked for a year at the church where my wife went and where we got married. After a year of doing the Lord’s work I gave my tender for January 31st. Here it was, February 1st and I was in business as a real tax preparer.

51E+0IRE81L._SX348_BO1,204,203,200_My plan was simple, everybody needs their taxes prepared and I have experience so if I hung a sign outside my house and put an ad in the paper so I was good to go. As I would explain to business clients decades later, “Everybody has to eat, but not at your restaurant,” I learned a valuable lesson. Here it was, April 15th, and all was quiet. I had a total of 48 clients, mostly simple, low-fee, tax returns. I stared out my bay window on April 15th and thought, Oh sh . . .

Let me share how bad it was. My revenue was $3,000. Sure, it was 1989, but $3,000? I had money packed away and was not in fear of starving. Still, I needed more income or I would eventually run out or my spending would stay permanently low. It was in this moment I learned a skill that has served me well. I learned failure is the best teacher in the world and desperation a hell of a motivator.

Expensive advertising was too much of a risk and hit working capital too hard. I decided I would spend the summer building a client base and even considered working during the summer doing bookkeeping, payroll or other accounting work. Several low cost ideas helped (business cards with my puss on it, business card magnets) brought in a few clients the following tax season and a few late filers over the summer. There was one more thing I did. I created a flyer on my own computer and printed out 2,000 copies. The local newspaper I noticed delivered the paper in these neat plastic baggies. The newspaper was willing to sell me a box of 10,000 for about $50.  Over the New Year’s holiday I stuffed 2,000 flyers into the baggies and over the next week Mrs. Accountant and I walked the street hanging the flyers on the 2,000 closest doors.

The efforts paid off. The next tax season saw a tripling of business to a few more than 150 clients. The average prep fee increased too. My revenue approached $12,000. Better, but not enough. I rolled up my sleeves and decided I needed a new approach. I owned a few rental properties at the time (how do you think I was living?) and joined the local apartment association. Each month the association brought in a guest speaker. Well, I had the perfect presentation for my fellow landlords. It was then I learned a massive number of organizations are hungry for speakers, the perfect venues to ply my trade.

For some strange reason apartment association members did not flock to my door when I sat with them in the audience. A few were clients, perhaps five. I researched and rehearsed my presentation for over a month in advance. I must have practiced that first speech 100 hours. It paid off. In less than an hour I had the audience eating out of my hand. I fielded question after question and answered like a pro or offered to find the answer after the meeting. That night I went home with over thirty new clients and they all owned rental properties, a higher fee tax return.

Speak Up

Speaking in front of a group does not bother me in the slightest because I think I have something important to share. Some people get the jitters when faced with public speaking, not me. The trick to speaking to a group is to treat it like you are talking with a group of friends that need your help. After that it is a piece of cake.

I searched out more speaking engagements the remainder of that year. The following tax season ended with over 500 tax returns and I had to hire Mrs. Accountant to help out. I hired a tax preparer for the following tax season and have been a job creator ever since. By my fifth full-time tax season I was knocking out over 1,000 returns and was forced to move to a commercial building I bought near my home. A few years later I pushed past 2,000 tax returns, and payroll, bookkeeping and consulting took over my life. Business was too big. By the year 2000 I started pruning the client list to keep my sanity and now enjoy a 900 return practice. The returns are usually much bigger and include a full line of business services.

There are a lot of ways to promote your business with a small investment. Speaking engagements are the cheapest and best. Sometimes you even get paid to talk about your business. Sweet! When I speak to a group I focus on an area of tax law that affects the group. Taxes are boring until is puts a bigger refund in your pocket. It is rare to speak and leave. More often I am surrounded by an eager group of people looking for answers. My business card is always handy and I encourage them to call my office and set an appointment.

But how do you use the speaking idea if you are a car mechanic? Or a restaurant? I would recommend talking to groups around town about better gas mileage or increasing the value of your car for resale. A restaurant can give a presentation about healthy eating or organic food. Never talk about you. Don’t treat it like a sales call. Talk about them! Give them value! When you do that they will ask to be your client. Talk about the ultimate soft sell.

51Cu7cH19PL._SX332_BO1,204,203,200_Keith’s Rule # 7: Never try to create opportunity; take advantage of the opportunities already there.

If someone is happy with their accountant I tell them, “Why change?” If they are unhappy with their accountant I am more than happy to welcome them into the company. There is no need for a hard selling style when you use my method. My way is easier, fun and people and businesses ask to be my client; much better than putting on a full-court press to snag one.

A Few More Ideas

Every business is unique in how it must be presented. Speaking works for most businesses, especially service businesses. I helped a small restaurant triple sales in less than three months with one simple idea: coupons. Not any old coupon, mind you. I had him get 250 flyers printed at a local print shop for under $100 and hand them out to the closest businesses to his restaurant. Each flyer had a coupon for a free cup of gourmet coffee and a simple $1 off a lunch item. The employees of the nearby businesses started to come in for the free cup of coffee. I told the restaurant owner to keep breakfast sandwiches on hand and breakfast sweets. When people got their coffee they bought a sweet roll, cinnamon role or egg croissant sandwich with it. The best part was his restaurant could not handle all the business, but since so many were carry-out it did not matter.

Then came lunch.  Think about this for a while. Employees are always looking for something good to eat for lunch. A dollar off a pizza or a sandwich is all you need to draw people in. Employees need something fast so they can get back to work. The restaurant was not only full for lunch, but take-out orders were massive. People don’t just buy lunch for themselves when they have a flyer with $1 off, or some other special, they buy for the whole office. Think of it. Here is a small, struggling restaurant with an average ticket sale of $10 and he now has people ordering over the phone with tickets sometimes over $200. Another bit of advice: Don’t take the coupon. Give the customer the discount and encourage them to reuse the coupon. People love it!

Do It with Passion

One final thought. Business is hard, we all know that. If you start a business I’m going to assume you love what you do or you are playing our Chump’s Game. And if you love what you do, do it with passion. Act like your clients are long lost friends. Have an up-beat attitude; share stories; make your clients feel welcome. When people think you care you will have more clients or customers than you can serve. And really care. No faking it. Remember:

Keith’s Rule #8: Too many customers is a good problem to have.

Why I Don’t Smoke Marijuana and Don’t Care If You Do

I did not have any marijuana growing around the farm so I used what the government had. Source: drugabuse.gov

I did not have any marijuana growing around the farm so I used what the government had.
(Source: drugabuse.gov)

Last year I attended a conference forty miles east of Seattle. The venue was nestled in a wooded area with hiking trails and mountain climbing. Meals were provided and some of the best home cooking I’ve ever eaten. I was honored with an opportunity to speak at the conference and made several new friends and gained a few new clients. I’m headed back again this year with a new presentation ready to go.

I was one of the first speakers at the conference and word soon traveled that I had a pretty good offering. The only thing I can think of is I made taxes into an interesting subject. (Taxes are boring until you hear how much you can save on yours. Then taxes are the most interesting subject in the world. Go Figure.) More people wanted to be my client than I could handle. The rest of the day I was grilled non-stop with tax questions. There is a real hunger for good tax advice out there and only one me. Exhaustion set in by the end of the day.

After supper (we still call it supper back where I live) the group settled into a relaxing social gathering. Small groups shared laughs as people mingled back and forth between groups. After sundown a fire pit was started. One of the small groups was gaining more followers than most and I soon discovered why. One of the guys came into the dining area, followed by his eager group. They were looking for something to smoke a bud with. (Hope I am using correct terminology. I have never smoked, used or even touched marijuana so I will probably get some of the facts wrong on usage. Laugh if you want at my naiveté; I’m okay with it.)

I never saw a more excited group of people in my life. One of the guys decided they could use the head of a salt shaker to make an apple (did I get that right?). I had no idea how in the hell they were going to smoke or consume their find with a salt shaker head. I was curious as hell, but my self preservation instinct kicked in loud and clear; I stood back and watched. Once the guys decided they had what they needed to get the job done they headed out to the fire pit. One individual turned to me and asked if I wanted to go with. I said no. With a million dollar smile he said, “It’s legal here.” Without missing a beat, I replied, “So are cigarettes back home and I don’t do that either.”

It was one of my prouder moments. The quick comeback stopped the young man in his tracks. He gave me a smile and thumbs up as he followed his larger group to the fire pit. Fifteen or so stayed behind and migrated to a deck area, enjoying a beer and conversation.

This story is not about bragging I am better than anyone else. My choice of drug is only different. I prefer a drink now and again and would be lying if I told you I drink occasionally; I like a shot of whisky at night, you know, to relax. Seeing most of the people in the weed smoking camp did not surprise me either. I think more people have tried marijuana than have not and I am okay with that too.

Why I Don’t Use Marijuana

81E2Du9Dl+L._SL1500_So why did I say ‘no’? There was zero risk I would get caught. No one at the conference would have thought less of me if I imbibed. Quite the opposite. I would have been part of the in crowd if I went along.

Normally I am insatiably curious. What inside of me squelches the curiosity when it comes to drugs? Sure, I drink a shot of whisky now and again; I even drink a beer in a social setting even though I don’t care for beer. You could not pay me enough to smoke a cigarette or use any illegal drug. The doctor resorts to threats and intimidation when it comes to getting me to take a prescribed medicine. I still rarely finish my dosage. I don’t like taking stuff that messes with my thinking. But I still drink! Oxymoron?

For me, saying “no” is not enough. I actually pull away when drugs are involved. I was not drawn to the bud in the room; I actually stood back and observed. What I was really doing is making sure the dirty substance was nowhere near me.

There is another reason I have no desire to try marijuana. It is a bit stupid of an excuse, but it is all I’ve got and I’m sticking to it. Back in the old days, when I was fresh out of high school I worked in my dad’s agricultural repair business. One day I was scheduled to perform regular maintenance on a Harvester unloader. The silo was empty with about a foot of feed covering the floor. The farmer was informed to open the silo before I came and start the blower to remove all the silo gas. The farmer forgot. Good employee that I was I refused to leave without finishing the job. I came up with an idea only the ignorance of youth can explain. So I could breathe in the silo I took the oxy acetylene torch from the service truck and pulled the oxygen tank. I opened the valve on the oxygen tank and blew it in my face as I crawled into the silo and finished the job. Unfortunately, silo gas was still in the silo and I breathed in too much. That night I started foaming at the mouth and medical treatment solved the immediate problem. Once again, unfortunately, once you have silo gas, you always have silo gas. I suffer sinus issues and a cough non-stop all year round as a result.

Smoke is the worst thing for me so I stay clear of smokers (all my employees smoke so I chase them outside when they do). I doubt marijuana smoke would be all that good for my lungs either. I know it is a BS excuse; truth is, I really don’t want to smoke weed and it is as good an excuse as any other.

Why I Don’t Care if You Smoke Marijuana

Well, if I don’t like marijuana, why don’t I advocate for the abolition of marijuana? There are several reasons for my attitude. The first goes back to my insatiable curiosity. Avoiding something does not mean I must remain stupid on the subject. Sure, I will never know what it feels like to be stoned and don’t care either. What I can know is the effects marijuana has on the mind and body. Research is thin on the subject because it is an illegal drug. We do know marijuana is less dangerous by most measures than alcohol, nicotine and many prescriptions drugs. Just examine the statistics on the incidence of overdose and addiction with these drugs and medications.

61Bhi13dw+L._SX356_BO1,204,203,200_There appears to be evidence that marijuana is not a totally free ride either. There are health effects associated with marijuana use, especially in younger people. THC, the active drug in marijuana (you already knew that), can cause mental impairment (even long after use), breathing problems and increased heart rate. You can read more at drugabuse.gov/publications/drugfacts/marijuana. Since I am referring you to a government website I also add the following disclaimer. Never trust anything the government says. They have an agenda to promote marijuana as an illegal substance. It is possible they are making marijuana use seem worse than it really is, a modern day Reefer Madness.

The Real Cost of Marijuana

Here is where the tire meets the pavement. The cost to society for illegal marijuana is massive. Exactly like prohibition in the 1920s United States, taking an essentially benign drug and making it illegal has led to massive levels of crime, organized crime and punishment. As with everything on The Wealthy Accountant, we get back to the tax and cost consequences.

In Wisconsin we spent (according to a recent estimated budget; I don’t have actual numbers yet) $1.2 billion on prisons in 2015. Millions more were spent on district attorneys ($50 million), courts ($102 million) and law enforcement (amount unknown since so much is paid from local taxes). The state of Wisconsin is broke, can’t fund its colleges and schools and has some of the highest taxes in the country. Why would any large business want to relocate to Wisconsin with a population less educated (education spending was cut), taxes high and prisons as a growth industry?

We hurt our self in Wisconsin by spending so much on criminal activity which should not be criminal! I did a recent survey of a local county court docket and found 212 hearings for the week (this is in a very low population county). If you removed marijuana and disorderly conduct (a fancy way of saying you did not sacrifice your freedom to the police on command) half the hearings disappear. There is a strong incentive for the system to keep the low level crimes flowing to justify their paychecks and budget requests.

The worst cost is the damage to families. A recent University of Wisconsin research project found Wisconsin has the highest rate of incarceration for black males anywhere in the United States. We actually beat the number two state by over 100%. One in eight black males in Wisconsin is currently in prison and most of them are there for drug possession related crimes. One in eight! The damage to the black community is beyond reprehensible. As a correlation, white and black people tend to use drugs at similar rates. The type of drugs consumed may be different, but drug use is not a black-only problem.

If marijuana is no more dangerous than cigarettes, why do we spend so much money locking people up for using it? The cost to the taxpayers is unreal. The only explanation is politics. An intelligent adult would prefer spending some of the money on treatment for people with a drug problem and using the remainder to cut taxes.

Before you run out and light up, let me be clear. I don’t want you to smoke weed; I think it is unhealthy. However, marijuana is a drug that can help some people with certain medical problems. I never used marijuana, but if were suffering from cancer and marijuana eased the pain and gave me dignity of life I would smoke it in a heartbeat regardless of the law. I am a little more concerned over recreational use of the stuff. Don’t run out and try marijuana because Keith said he was okay with it. If you already smoke the stuff, don’t worry about me; I’m fine with it. I’m not calling the police.

Office Rules

As a business owner, drugs are always a concern. In my office I have a policy: don’t bring marijuana on my property, it is grounds for immediate dismissal. Same applies for alcohol. Don’t come to work stoned, intoxicated or hung-over. If you smoked weed or went out drinking over the weekend, I hope you had fun. I do not judge people on how they unwind with friends. You don’t have to whisper in my office about your drug use. If you have a problem we can help you get help. If you drink, smoke or use weed responsibly, good for you. I will not fire you or call the cops. Just remember, no drugs on my property.

In my office I do not drug test, I performance test. If drugs are a problem you must get help or you must get out. Same applies to clients. No drugs on the property or you will be asked to leave. I strongly encourage clients to visit sober. We are working on your finances and a clear mind is important.

I think my policies and attitudes toward marijuana are healthy and balanced. Non-users have legitimate reasons to want marijuana legalized. But we are a personal finance blog. Do you really want to spend your hard-earned money on smoking a weed? Yeah, I get it. That bottle of Jack I’m holding was not free either. Maybe we should both cut back and enjoy a more wealthy (and healthy) lifestyle.

Keith’s Rules

Around my house (and office) I have a large number of rules I come up with for living life better. These are small lessons on living right. So, I will start sharing some of Keith’s rules periodically when a lesson is to be learned from a story presented here. Here is the start of Keith’s rules.

Keith’s Rule #1: Free is not always a good deal.

Hey, they offered me free weed! I still say, “No, thank you.”

Keith’s Rule #2: The lowest price is not always the lowest cost.

Keith’s Rule #3: Following the crowd means you give up your personal freedom and individuality.

Look at rule #1. Free, or any other argument, is no reason to sacrifice your individuality. Follow your own path to wherever it leads.

Keith’s Rule #4: Just because you can do something does not mean you should.

Keith’s Rule #5: Don’t believe anything the government tells you. Verify first.

Keith’s Rule #6: You rarely save money by spending it.

Spend your money on whisky or weed? It does not save money or help you on your way to financial independence. Make sure you change the oil in the car though; not doing so will cost much more in the end.