Normally when a parent leaves a letter to his children the doors and windows are closed. However, when your dad is a business owner and somewhat known due to decades of publishing, the public will want to look in the window. Regardless, this letter is for you girls and no one else.
My fondest hope is you will print and carry this letter with you. There are many things I want to share with you about life. I know it looks daunting and impossible at times, but it isn’t that bad. During those darkest hours, hours when you doubt your own judgment, you can reference this letter and know that your father has felt this way many times in his life. Watching me over the years you probably think it comes easy for me. It doesn’t. I fight as hard as or harder than the next guy to achieve goals.
The same applies for those moments of excessive glee. Honing the highs and lows is an important part of living a joyful life. Always keep an optimistic attitude. Regardless the situation, it helps. Things are never as bad as they seem and rarely perfect either. Life is lived in the middle.
Life is a journey best taken at a gentle pace. Don’t rush! Goals are fine as long as there is more. The only real goal life offers is death and you will get that right the first time, same as everyone else. What matters is what you do now, at this very moment. Yesterday is a memory; tomorrow a dream. All that is real, all that matters is this moment in time. The universe is not 13.7 billion years old. It is one moment only. This moment. The one you live in.
Living a Joyful Life
I see how confused you look at the world around you, Heather. You are not even sure what dream to follow or if your dream is just settling. It’s not. You are searching. It is what humans do. We take the world around us and try to make sense of it. People sell you a bill of goods they think is the right way to do things. The truth is, only you can decide that course. And the choice is not permanent! You will change your mind. It’s called evolving. Nothing to worry about. It is a good thing.
And you, my little sweetie. It breaks my heart to look at you. Life dealt you such a difficult hand. Medical issues will always be part of your life. Never allow it to define you. You are a young lady with a bright future before you. There is no hurry to decide what path you will take in life. Like your sister, take it one day at a time. When the right thing enters your life, you will know.
Notice I did not title this section “Living a Happy Life.” Happy is different from joyful. Life can test your happiness, but joy is something totally different. Joy is knowing it’s okay no matter where you are or what happens.
Joy is about living in the moment. The best way I know to feel joy is to stop feeling vested in the outcome. Sporting events and political dramas are things you have no control over. None. Placing your bet on the outcome is a sure way to destroy joy. And joy is the reason for living.
Art is such a huge part of your life, Heather. You create such works of beauty. Never let it die. Your life may take another path, but you can still create beauty. You can see it in your mind before it becomes real. It is a gift. Cherish it.
Computers mesmerize you so much, Brooke. The future is artificial intelligence. What excites you is what the future of the human race will become. You will help determine that future and how humans will live. It is an awesome responsibility. Like Heather, you see things in your mind before it turns real. You also create beauty, only in a different way. You are young now, but in time you will define how you wish to pursue your dreams. Allow it to flow.
Joy is bred in optimism. There is a guy, Warren Buffett. He is really rich. You heard me talking about him more than once. Well, as the years go by you may forget who he is, especially once he dies. Warren is a remarkable man. I never met him. What you don’t know is that I have a client who is on the board of directors of one of his companies. Small world.
Warren is the most optimistic man I know. Regardless the situation, he always proclaims it will get better. And he is right. Look what the human race, especially the United States, did in the 20th Century. The car, airplane, nuclear power, radio, TV and the moon landing were all achieved in one short span of time. Yet the planet suffered two world wars and nuclear weapons. The stock market crashed more than once, a Great Depression swept our planet and AIDS decimated many countries. And still, Warren said we will be okay and we are. Learn from his optimism.
Joy is found in peaceful thinking. Worry about disease or nuclear Armageddon is wasted time. If it happens, it happens. Live each day until the end. In the end we are all dead. What defines us is how we lived before we died. Too many people die while they are still breathing. Don’t be one of them.
Joy is contentment. It can be had anywhere. You decide, you choose. And when you feel joy, you are generally happy. If nothing else in life works, this one thing, joy, makes it all worthwhile.
I know you struggle hard with this, Heather. And Brooke, don’t knock education.
For you Heather, don’t demand education to be as you want it. Allow it to happen. Read good books daily. Forced education is worthless. Very little education comes from the classroom. Most learning is done out in the real world as you gain experience. Remember, all the stuff they teach in college someone though of on their own. Many more read the books and learned the same knowledge as taught in school without a formal education. When the time is right you will get your college degree. You are an intelligent young lady. You try so hard, only to hit the wall. The truth is, you don’t know what you want yet. Ask the questions. The answer will come to you. Then do it. Then live it.
If you are to reach your dreams, Brooke, you will need a college education more than Heather does. Focus on your studies. Steve Jobs, he is the guy who started Apple Computers, dropped out of college. And look what he did. But he did take classes that interested him. He found a way to learn and grow. For you, Brooke, education will be more about not reinventing the wheel. You need to learn where everyone else left off so you can take the ball and run. You have an awesome future. Always stay focused on what fills your mind when you close your eyes.
Learning never stops. Read good books. Find ways to have as many experiences as possible. The failures teach more than the successes. And think of all the stories you can tell. Look at all the trouble dad got into and never quit! Makes for some good stories, doesn’t it? I can see you smiling now. Knowing dad like you do, would you want me any other way? Yeah, I feel the same about you girls. You are just perfect as you are. Always be you.
If there is one thing that can destroy happiness and joy, it is debt. Debt is a harsh taskmaster. Debt is the acid which destroys the vessel which holds it.
Some debt is worse than others. Consumer debt is the worst. Credit cards and similar debt has no reason to be in your life. The worst parts of my life generally included money I owed someone else, usually the bank. It’s not worth it. If I can convince you of one thing, it is to avoid debt.
Student loans are a tough one. I still say you should avoid student loans. I am willing to spend what I have on learning, but paying interest means you will have less later to spend on learning and experiences. With rare exception, student loans must be avoided. If you find yourself in a situation where a small student loan makes sense, pay it off as fast as possible. No games or gimmicks to avoid paying the debt at all. Life is too short to waste on such burdens.
Business loans sometimes are the right thing to use. Again, use business loans sparingly and only for things that currently bring a profit. Borrowing for a speculative business venture is gambling and that always ends badly. Pay down the business loan as quickly as possible. Profits and cash flow are always better when the bank is not getting a piece of the action.
Mortgages are the biggie. Buying your first home probably requires a mortgage. I am okay with a mortgage as long as it is not a tool to buy more house than you can afford. Make extra payments. Kill the mortgage as fast as possible. Never fall for the tax deduction trick either. The mortgage interest deduction is a joke and really worthless. You still get the standard deduction if you don’t itemize, so paying off the mortgage can sometimes be like double-dipping. Of course, the tax code will probably change by the time you get that far. You understand what I am saying. Keep debt low and retire it as quickly as you can.
Debt is a lot of stress, stress you don’t need. Debt will distract you from the things that bring you the greatest happiness and joy in life. It will take you away from family and friends. Tie you down to a job you hate. Debt causes people to do things they would never consider otherwise. If you never had a penny of debt in your life you will not have missed a thing.
Society wants to convince you you need stuff now. Don’t listen to society and marketers. Most stuff, most things you spend money on you don’t want! If you don’t buy it you will not remember what it is you wanted a year later.
Be slow to purchase. Spending is best done later, if at all. Some spending is wise. Fixing a leaking roof will prevent greater expense later. But leaking roofs are not the problem. The latest gismo is. I’m talking to you Brooke. Choose a limited amount of electronics and buy no more. Learn to say, “Enough.”
“I want” are the two words preceding most suffering in life. Want causes pain. Heather, you can walk out of a store without buying something. Looking at something does not require purchase.
Major purchases are especially important to delay. The fewer cars you own in life the wealthier you will be. Only simple minded people are impressed by a fancy car! Too much home is a drain on wealth and will force you to work more than is necessary. Then you will have less time to enjoy the big house. Smaller is better. Trust dad on this one. I wish we had a smaller home. It is more than I ever wanted or needed.
The trick is to be satisfied with what you have. Dissatisfaction in one area of life spills into other areas. Wanting more destroys relationships. I think the reason mom and dad have such a happy and fulfilling marriage is because we were always satisfied with what we had. So neither of us desired another bed. And we are still human. We notice other attractive people. We just realize we already have what we want.
Saving and Investing
This is an easy one. The world makes this out to be some great big challenge. It isn’t. All you do is save half of what you earn and invest in broad-based index funds with enough money in short-term vehicles (bank accounts or short-term government bonds) to handle current needs. In short order you will accumulate a modest fortune. The best plan is an automatic one. Set it and forget it. Markets will go up and down. Neither matters to you. What interests you is the income stream of the investment and that doesn’t change much day-to-day.
You will read about retirement. Society has a clear vision of retirement. It’s a trap. You never really retire until you die. You’re retired at your funeral. One of the things they say about someone who has died is they expired or retired. Don’t rush it. It happens easy enough on its own.
How much is enough? That is another pressing problem the world seems to have. It takes only a small amount to live. No matter where you are, even traveling, you can always turn some coin. Heather, you could always do caricatures in the park; Brooke, you could help people set up and fix computers as a side hustle. Your interests will change with time, but you understand what I am saying. You don’t need a massive nest egg to set aside the grind society demands you pursue.
Personal finance preachers talk about the 4% Rule and similar advice for determining when you can give up the rat race. It’s all garbage. I know you hear me talk about the 4% Rule or sometimes telling people they need 25 times their spending in investments. I say it because people believe it and I need to go where people are to get them to where they need to be.
Follow your great-grandfathers advice instead: Never take off the pile. Your invested capital is sacred. Never touch it! The income stream from the capital is all you use for consumption. Never more. The 4% Rule and similar advice can fail under certain circumstances, even unlikely circumstances. Great-granddad’s rule never fails, ever. If your broad-based index fund fails only consuming the income stream, there are bigger problems in the world affecting you. There is no advice I can give to deal with such an unknown other than to encourage you to embrace the Stoic philosophy. Keeping a copy of Seneca and Epictetus at your bedside is always a good idea.
Find Fulfilling Work
The world will have plenty of advice on how you should live your life. Disregard it. Only you know what is fulfilling work. Look to dad and grandpa as examples. Both of us started businesses in a very untraditional manner. If you follow all the rule society tells you to follow, your business will fail.
Find what you enjoy doing. The search for meaningful work is not as hard as you make it. Stop looking! It will come to you. As you go through life there will be more fun things to do that generate an income than you will have time for. Pick what works for you and go with it.
Don’t be Afraid to Change Your Mind
And when something different shows up you can either incorporate it or change course. You are not locked into one path. I have been accused in the past of changing my mind a lot. It sure beats sticking to a path not working. Changing your mind is a good thing. It means you are growing. Never allow someone to lock you into the past when, after careful consideration, you wish to change direction. Think, then act.
Consume Less Commercial Media
I can see you girls rolling your eyes already. This is a case of do as I say and not as I do. Reading is awesome, but most news is less than worthless. Immersing your mind daily into all the crises of the world sends your brain the wrong message. It feels like the world is always crumbling when it isn’t doing so any more than in the past. Worse, you can’t do anything about it!
As bad as watching/reading news can be on the brain, commercial media is even worse. The constant repeating of a message built to serve a large corporation is not in your best interest. As much as you try to avoid the influence these commercials have, they still have an effect. Best to avoid them. Besides, life is best lived doing things. Spending your precious time as a lump being spoon fed drivel is a bad idea.
Good books, even novels, are generally not a part of commercial media. Take time to read each day, but only a modest amount of time. Read, then do. Reading is important. I’m talking to you, Brooke. Leaving the house and doing other things is important too. I’m talking to you, Heather.
Remember, balance in everything.
Dating, Marriage and Sex
Oh yes, the sex talk. Amazing as it sounds, I feel I have something to add on the subject. Once again, societal norms will mess with your head and the push is much stronger when it comes to interpersonal relationships and sex. People allow emotions and lust to guide their actions. It is a toxic mix.
I only knew one other woman in my life. Mom can say the same with men. Neither of us was ever promiscuous. I think that is important and both of you seem to be following in our path. It goes back to that feeling of enough. I wasn’t looking for something better; I was looking for someone I could spend my life with happily.
When dating, look for certain traits. Attractiveness is important, but time will take care of that. Instead, focus on what is inside. Avoid people with thin skin or who are easily offended. There is always something to be offended by. People like that don’t change. Their dramas will suck the pleasure out of your life.
The best place to find a mate is where you live life. When you are doing things you enjoy you will find like-minded people. Since you will spend more time talking and sharing than in bed, best to find someone pleasant to talk with and do things with. Sex is just window dressing. I know, I know. I am turning sex into some rather boring subject. But it is. It goes in and out until the explosive moment, usually within ten minutes or so. Now you need to fill the other 23 hours and 45 minutes of the day.
Sex is one of those awesome things in life. People want to make it dirty. Is isn’t. The human body is marvelous and beautiful. There is nothing wrong with pleasures of the flesh, religion aside. I’ll get to that in a moment.
But sex is also personal. Spreading it around takes away the specialness of it. Sex is more about intimacy than lustful desire and pleasure. The tenderness between a couple after sex is more nurturing than the actual act. Lust, or more to the point, hormones, drive us toward sexual contact, but afterwards is the beautiful part.
Use birth control and protect against diseases. As much as I avoided sexual contact with multiple women, I also know things happen. It isn’t worth dying over.
Limit your sexual partners. More is not better. Mom was a lot more puritan when she met me. Poor girl. She never saw it coming.
You girls laugh when I say all guys are perverts. Well, we are. Guys all too often think with the wrong appendage. It doesn’t make us bad, only human. Guys like to act tough, but we are just as emotional and tender underneath as you are. We feel acutely. We cover it up with false bravado. Always know we hurt inside, too. Let us act strong. We do it to provide support for the woman we love. Give us that.
Women are perverts too, if you haven’t noticed. It must be a people thing. Don’t worry about it. It is okay to be what you are. Love and lust, especially lust, are part of the human experience. Tell your partner what you want. Guys don’t automatically know. I was married for years before I discovered certain things people with more experience know. It happens. Encourage your partner to share the same. There are things they like. Get them to share what those things are. It makes the experiences more fulfilling.
Always remember, sex is not dirty. There is nothing wrong with sexual intercourse. Intimacy is an important part of the human condition. Always be kind and gentle. Allow your partner the same intimacy.
Don’t withhold intimacy. Sometimes life or illness reduces the drive. It is okay to abstain then. Even intimacy declines at certain times. Just never use it as a weapon. Sex, love and intimacy are not bargaining tools. Sometimes the best way to work out a problem is to start with a romp. I know, hearing this advice from dad is a bit, um, awkward. But trust me. The greatest gift I ever received in my life was your mother.
Long-term relationships are something I know I have something to say about. As I write this mom and I are weeks away from our 29th wedding anniversary. My greatest success is life is my relationship with your mom. She is an awesome woman.
People don’t get married as much today. I am fine with that. You can still have a fulfilling life-long relationship. I wish I had a magic formula to give that led to mom and dad surviving for so long. All I can say is that I look to mom for guidance and trust her and she reciprocated. We share everything; we are open books to each other. Talking is vital. We talk a lot about everything. Even crazy stuff. We have fun while allowing each other to live their life.
Mom and I both changed over the years. Our interests evolved, sometimes in different directions. Rather than try to manipulate mom into a path I find more familiar or similar to mine, I allow her to find her own path. We are different, but so alike. We enjoy being together. We planned our life together. We are always satisfied with what we have. When I started the business and I cut spending to poverty levels, mom never once complained. She was as happy then as she is now with what we have. That is what you want in a mate; it is how to live your life, to be a mate. Notice I did not say perfect mate. There is no such thing. Each side will make mistakes. It will happen! Forgive quickly. Get the hurt out, then forgive.
Do these things and you will have a long and happy relationship with your significant other. And the sex will be awesome. Okay, enough grossing you girls out with sex talk from an old person. (Remember, you will be older faster than you realize.)
One last thing on interpersonal relationships. I don’t think either of you are gay, but if you discover you are, know I will love you all the same. If you are in a loving, nurturing relationship and happy, then I will know I have done my job as a parent.
God and Religion
Religion is always a tough issue to discuss. My parents were very religious and the rigid demands eventually destroyed my faith. When the words were not backed up with actions I quickly learned religion was a tool to manipulate people.
Having said that I still have faith, only in a different way. Organized religion is a weapon used to control the masses. I stand opposed to such manipulation. At the same time there are many Bibles around the house and I read them on a regular basis. The words of Jesus are straight from the Stoic philosophers. Most of what Jesus said was not new when he said it, but who cares? They are good words. Even to live by.
I gave up church a long time ago. You may wish to return to my roots. I am okay with that. Remember, at some point in the past one of our ancestors was not Christian. If you go back 2,000 years they certainly were not Christian. At some point they decided to follow the Christian teachings over their own. Probably at the point of a gun. Better to read the Bible than take an ounce of lead to the skull. What I am saying is that man has come up with a lot of gods over the generations. They all thought they were right only to be replaced by another god. Don’t be so certain you are right. Instead, seek to learn from the message while always questioning. Questioning is always a good thing to do in every part of life.
You need to find your way on your own when it comes to religious thought. You will evolve as I have. The one thing I encourage you to do is avoid fanaticism. That absolute determinism you are right is what sickens most people to religion. Allow others their faith and self-discovery. Even mom and dad took a different path for a long time. We maintained a solid relationship as we each made our way.
Learn from Mistakes
You will make them. I certainly did. Some were doozies. Mistakes don’t define you, how you handle the mistake does.
Learn from your own mistakes, but also those of others. Learn from dad’s mistakes. You may want to try the same thing anyway with a slight tweak. Fine. Just do it knowing the risks. Repeating the same mistake again and again is insanity. I know you girls are not insane. Dad might be a little and since it could be genetic. . .
This letter is getting long and I want you to know you can laugh at any situation. Even death. It’s going to happen anyway so why not make the most of it with some hearty laughter.
I’d start a chronological list of all the mistakes I made in life, but by the time I reached the end I would have more to add. What I am saying is: Don’t be afraid to fail. You learn more from failure than success. Success causes us to believe we are right. It takes a good beating to force us to up our game.
Never use failure as an excuse not to try. People will ridicule you, even arrest you, for doing the right thing. Do it anyway. Better to live ridiculed, better to live in a prison, than to not have lived at all. I am not encouraging criminal behavior either. What I suggest is keeping your mind open to ideas which help you grow.
People laughing at you is a sure sign you are on the right path. Nothing is more common than everyone in agreement prior to a disaster.
And here is where I come to an end and you begin. You are young girls as I write this. Maybe you will read this long after I am gone and you a very old. This letter will be more powerful then than at any other time. My words echoing down the corridors of time to talk with you one last time. I know. I am here with you.
Don’t rush life. Relax. Enjoy each moment. Once the moment passes it will never return. Make now the most important time. Share it with people you love. Always live. Learn. Love. And remember. It is all any of us really has.
More Wealth Building Resources
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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.
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Instant gratification is the hallmark of a good economy according to the government wonks and marketers. It is also the hallmark of the impoverished souls forced to work forever in a soulless job to cover the debt payments.
Watching clients for decades has made it clear there are only a few golden rules to wealthy. Automatic investing is one; deferred gratification is the other. Deferred gratification is what funds the investment account so I think deferred gratification is by far the more powerful of the two traits.
Instant gratification is sometimes hard to see. Today I will point out all the signs you are satiating your lusts a bit too quickly for your own good. By recognizing your overzealous spending habits you can delay gratification to your benefit. You give up nothing, but gain plenty of freedom, less (or no) debt and financial independence. It is a stress-free way to conduct life.
Signs You Are Not Delaying Gratification
Charlie Munger, Warren Buffett’s partner at Berkshire Hathaway, said in a recent CNBC interview, he believed in “deferred gratification”. Munger is 93 years old. And he still believes the best way to live life is by deferring gratification. Does he know something most of us miss? Perhaps the secret to wealth AND happiness is delaying gratification, if not outright ignoring certain gratification permanently.
Even frugal people are guilty of instant gratification. The most obvious tell-tale sign someone is not deferring gratification is debt. Spending more than you earn is a direct result of satisfying lusts without proper thought. Every pretty trinket draws your credit card from its nest without regard for consequences.
Then we have the so-called “good debt”. Try to run that one past Dave Ramsey. Common practice says business and mortgage debt are good debts, along with student loans. Wrong! Debt is the acid which destroys the vessel which holds it.
Before anyone goes and accuses the friendly accountant writing these words of hypocrisy, I confess I have a small loan on my personal residence. Let me give you the excuse first. I have the cash to pay it off and the interest rate is so low my investments earn more. Now let me tell you a story about why my theory is 100% wrong.
Back in 1978 inflation was rocketing higher. Banks convinced farmers borrowing more money was wise because interest rates were lower than inflation and commodities were moving higher. (Interest rates would soon catch up to reality.) It’s the same argument I make today with my home. Inflation is 3% and my mortgage rate is 2.375%. Back then inflation was 8% and interest rates 7.5%. Same BS story when you think about it. Heck, dividend yields were darn near as high as the interest rates around 1980.
My family bought the line. We were dumb farmers and dumb farmers go broke. Interest rates moved higher, the economy stalled and commodity prices collapsed. The family farm went into bankruptcy in 1982. Here is why.
No matter how bad things get you can always cut costs. You can grow your own food, sew your own clothes, turn down the heat and eliminate any spending not 100% necessary. You can live on almost no money if you really have to. The one thing you can’t cut the cost of is debt. Those payments are due each month and there is no way to reduce the cost without coming up with the cash to pay the debt in full. And the money to pay the debt off in full has been spent long ago on something you don’t care much about anymore.
Student Loans and Mortgages are Required
No they are not! I understand most people starting out can’t pay cash for a home. I get it. However, once a home is secured, mortgage retirement must be a priority. No one ever lost their home to the bank without a mortgage. It sounds like a stupid comment, but I keep making it at the office and people keep ignoring the advice and losing their homes. Trust me, it’s not a crime to retire your mortgage. And don’t get me started on the tax deduction argument. I do not have to explain giving the bank $10,000 in interest to get $3,000 back from the IRS is industrial strength stupid.
Student loans are the other popular debt today. Gotta get a student loan so ya can get smart and earn mo money. It’s just another error in judgment and refusal to heed Munger’s advice: defer gratification. Spend today to pay it back later with interest. Dumb.
The first test of going to college is getting there. Putting it on the credit card is not earning the right to attend. Scholarships would qualify.
Debt as a Cash Management Tool
By now you must think I am cold and callus. I get it. My attitude can rub some wrong. But I have watched for too many decades client after client suffering the consequences of not following this simple advice, to live debt-free.
But debt can be a tool. Short-term use of debt in business frequently makes sense. If the money is there but using it would cost more than borrowing, then debt is the proper course as long as you retire the debt in short order.
Just like a mortgage, cash management debt is acceptable if a shoulder is put into killing the debt as quickly as possible. The same applies to student loans. If a modest amount of debt is needed to finish a degree it is usually the proper course to do so. But if you have no scholarships or personal cash to fund the bulk of your education expense you are engaged in instant gratification at the future’s expense. Student loans lingering five or ten years later is a problem. If you have to change your lifestyle to deal with the debt you might need to rethink the reason behind acquiring the debt.
Don’t get suckered into the leverage argument either. Of course leverage increases the rate of return on an investment. It also magnifies the losses when thing head south.
Defer Without Pain
Deferred gratification only hurts if you let it. Munger is 93 and still talks about delaying gratification for something he will never live long enough to see. That is the mindset that made him rich, mentally well adjusted, happy, and never feeling like he missed out on anything. Munger has enough money to buy anything he wants. But as Buffett said, more homes would not make him happier. In fact, it probably would make him less happy.
The only path to wealth is deferred gratification. If you buy everything you want when you first want it you will be broke. And miserable! Use an old trick when you see something you want. Sleep on it for three days. If you still want the item you at least can rest assured you want it enough to use it for an extended period of time.
Practice poverty, as Cato and Seneca recommend. It’s not that bad. Spending every penny you earn is the part that causes lasting pain and loss of freedom. You will find owning less stuff an important part of freedom. It’s not only the debt and lost opportunity cost of money you could have invested, it’s also the burden of storing, using, protecting and managing all the stuff you have. The weight of buying every trinket the moment you see it is quite a stressful lifestyle.
And you will not miss the stuff you don’t buy! All the toys and electronics are a distraction at best; a distraction from the truly awesome things life offers. When you buy something you also feel an obligation to use the item at least for a while to justify the purchase. Instant gratification is a harsh mistress. She demands your soul long after the transaction is finished.
Happiness is in less. The only time more is better is when basic human needs are unfulfilled. You need a minimum amount of quality food and water, clothing to keep warm and shelter. The shelter does not need any fanciness; the clothing can be old and plain to meet your basic needs. If you are not happy at this point more stuff will not fill the void as marketers would have you believe. After the basics, additional stuff is a job weighing you down. Only you can decide how much of a load you plan on carrying around for decades.
Charlie Munger still preaches deferred gratification for the country and himself. He refuses to buy just because he can. He knows buying will not make him happy or feel better. Munger enjoys good books daily and prefers a good deal over crazy spending even though it would make no difference to his wealth at this stage of the game.
I hope CNBC keeps the article up for a long time. You can read it here if they do. Munger’s comments were about the nation preserving natural gas resources while waiting for other parts of the world to exhaust their supply. His advice will not come full circle in his lifetime. It does not matter to him. Doing the right thing does.
This is an important topic people must hear. Please share, like and comment. Your small effort could make a difference in our modern world.
Readers of this blog are always looking for a side hustle. Seasonal tax preparation is a perfect fit for many early retirees. A small tax preparation business allows for an earlier retirement as the side income can easily be enough to live on for even a modestly frugal person. Another large reader demographic involves the accounting industry. There are plenty of blogs talking about tax issues, but few discuss the realities of starting, promoting and maintaining a tax practice.
I touch on the subject of practice building periodically, but my email folder is filled with requests for a more detailed post. A recent email from someone called Speed (I love it!) asked a series of questions that encompasses the bulk of practice management requests. Much of what I discuss can be applied to most other business ideas with only slight modifications.
Rather than give a play-by-play on starting and managing a tax practice, I will take each of Speed’s questions and answer them. The reason for avoiding the play-by-play is because there are many ways of starting a successful business. I don’t want to give the illusion you are locked into one pattern to win. Life is rarely that neat.
How exactly did you start preparing tax returns for others? Recommendations for someone wanting to do the same?
Preparing taxes as an occupation came by accident. You see, back when I graduated from high school the economy was really bad in NE Wisconsin. Not only were businesses not hiring, they wouldn’t even waste the time or paper allowing you to fill out an application. It was a good thing since I never intended on working for the man anyway.
What I did have was a work ethic instilled growing up on a farm. The family farm went bankrupt a few months after I graduated high school, however. My dad suffered but refused to quit. He started a business repairing bottom unloaders in Harvester silos, the blue silos you see around the country. Without any other employment options I took a job working for dear ‘ol dad. As fate would have it, dad hated bookkeeping and taxes so he left the task to me. Well, sitting in a nice warm office pushing numbers sure beat the hell out of busting ass in a dark silo room.
Things were tight back then with the economy and all. I worked long hard hours and came home from a long day of ball-busting work to balance the books. I was paid as you would expect an old farmer to pay his son. When employees asked me to prepare their taxes I agreed to do so for $20. As small as that sounds, it was a fortune compared to what my dad paid me per hour. Then vendors asked me to prepare their taxes. (Vendors paid more than $20.) Spring was a joyous time of year with all the extra cash flowing in. My first paid tax return was in 1982 when I was a senior in high school.
I hated the silo business so I quit a few years later. Investments and zero spending turned my nest egg into a tidy sum. It was 1986 by now and part-time tax work coupled with investments was enough to live a very Spartan lifestyle and I did. Then I met Mrs. Accountant. (Don’t laugh!)
A year later we were married and I was working as a custodian at her church for $7.85 an hour. (A respectable husband works, you know.) A year of that and I quit and went taxes full-time out of my home. I figured it was still respectable to work 2 ½ months a year and do what I want 9 ½ . Five years later I had a store front and more employees than I ever imagined.
For normal people starting today I would recommend working for an experienced tax professional for a few years and studying for the enrolled agent (EA) exam. You could also open shop out of a spare bedroom, accepting only basic returns until your skills improved which is what I did. After two full-time tax seasons I passed the EA exam and moved to the next level. I was beginning to learn how much I did not know.
Either a few years working for an established firm or starting with basic returns on your own will increase your tax knowledge and help you understand how tax returns flow. Tax preparation is a great side hustle or career. It is what drew me to the professional. That and my love of numbers.
Wondering if you can offer advice on how to start prepping tax returns for others (seasonally)? I have a similar philosophy as you regarding the role of finance and the tax code and would like to both learn more and maybe monetize this interest. Hypothetically speaking, if someone approached your company wanting to work for you, what strategies and know-how would they need to have expert knowledge of?
Starting a seasonal tax practice out of your home is easy. The initial investment is much smaller than in the past with the cost of computers much lower today. You will need a computer, printer and professional grade tax software. I recommend Drake Software for tax professionals. (Dear Drake Software: Please institute an affiliate program so I can get paid for all the business I am sending you. Thank you.) I recommend Drake because it is very user friendly and their support is awesome.
If I were starting today from scratch I would focus on a niche. I would focus my studies in one area and kill it. Rental real estate is a perfect example with the relatively new repair regs and cost segregation rules. You can impress landlords with stuff they probably didn’t hear before so you look like a god to real estate investors.
Someone approaching me for a job should have the following attributes: outgoing and friendly attitude (clients trust people they like); proficiency using basic software like Word and Excel; a working knowledge of tax software; a working knowledge of the tax code and how to apply it on a tax return. Tax knowledge and application are two very different animals. I know people with massive tax knowledge who don’t know where stuff goes on the return. A tax office deals in application. Learn it. You don’t need to know everything about the code. Get good at one area and expand from there. If you are a master at individual returns, you are hired. If you are a genius at business returns, you are also hired. Get good in at least one tax area and be willing to take direction.
Where/how do you train them from there? Specific resources you require or recommend? Can you offer any more details in your own education of working towards being an accountant (but not going back to school for the degree)?
I train differently than most. Once you have the basics down I make you review the work of other preparers and work with said preparers to improve their performance. Reviewing the tax work of others gives you a different perspective and grows your skill sets. Then I review your review until you can walk on your own.
Whether you intend to get your EA or not, I expect you to study for the exam until you have it down. The IRS EA program is exceptional. If you can master the EA you will be well on your way to being a top-notch tax professional.
Every part of the country has continuing education courses for tax professionals. Search engines will give you plenty of options. Most of the classes are one day with some going two or three days. These are power-packed programs. You will not absorb it all. Take the workbook that comes with the course and keep it next to your desk. CPAs need 40 credit hours of CE per year (none has to be in the tax field) and EAs are required to take 72 credit hours every three years with no year having less than 16 credit hours (an average of 24 hours of CE per year). All EA continuing education classes must be in federal taxation. Don’t take online courses! Sit in the classroom! It is important. The online programs are fast and easy credits but all too often provide no real increase in tax knowledge. You want to get good, not slide by on the minimum.
For the record, I have no college degree. Does that blow your mind? Enrolled agents do not need any other education degrees to have a constructive career, full- or part-time. Study for the EA. Study for the EA. Did I say that yet? You must study and pass the EA exam! Then you keep learning until the EA exam is old hat. Study. Then study some more.
Buy a Quickfinder (will any of these companies start an affiliate program so I can turn some coin referring them?) every year and read it. Use it as a reference whenever needed. It is a good start. When you use the restroom you have reading material. (Stop laughing! I’m serious.) When you want to watch TV, either read EA study materials or your Quickfinder.
If you do all these things you will not need me to tell you where to study next. You will know. You will have new questions all centered on complex tax issues where even the Tax Courts around the country don’t agree with each other. Then you should ask me for a job. Please.
Reaching financial independence requires a consistent set of skills and persistence. The habits that allowed you to amass a sizable nest egg don’t die just because you pass some arbitrary border. Education, job, and family life consume all your time in the beginning.
After college it is time to earn a living. After finding a job it is time to climb the ladder, all the while saving a massive percent of your income to reach your financial goals.
Family is a priority. A significant other and children take time and money. You increase your saving and investing skills. Raising a family is expensive only if you don’t know how to shop. You hit the rummage sales and thrift shops for kid’s clothing, toys, height chair, car seat and other stuff the youngsters will grow out of quickly. Later you sell the kid’s stuff for about what you paid for it at a rummage sale of your own, passing the same opportunity you had to another young couple.
And then it happens. Your hard work, intelligent spending and diligent saving pay off. You reached financial independence earlier than planned. Now you have another problem you never gave much thought to before: your legacy. If you reach financial independence early, how large will your net worth grow before you leave this world?
Thinking about your legacy when you are still in the building stages is hard. It requires looking into the eyes of the possible: early death. What happens if you die while the kiddos are still minors? A plan is needed. Even if the kids are grown, a plan of succession is necessary. And what if kids are not part of the picture? Then what happens to your legacy? Let’s explore the possibilities.
Ruining a Good Man
The worst thing you can do is have no plan. The second worst thing you can do is drop your entire net worth on your children the moment you are no longer there to provide guidance. The younger the children are the more damaging the impact of a sudden load of money falling in their lap will be.
Bill Gates is one of the richest people alive. He and his wife, Melinda, have stated they would not leave their entire fortune to their three children. The number commonly reported is $10 million. I think $10 million is still too much to leave to the kids.
The negative effects of large sums of money received by someone without the skills to manage it fill the newsfeeds. Sports figures, musicians and lottery winners are perfect examples of how often things go wrong when too much money shows up too quickly. There must be a better way.
Spread it Out
Money came fast for people like Bill Gates. Yet, somehow, Gates managed to remain productive without throwing his life away on cheap booze, wild women and drugs. It sounds funny to say it, but so many people who come into inherited money or fast riches via a sports contract give us ample examples of what will usually go wrong. For the sake of brevity I will refrain from too many examples. If you need more evidence just read the sports or entertainment news for three or four minutes. Shouldn’t take longer than that.
Many successful and wealthy business leaders handle the obligations of significant money better than other groups receiving a windfall. There is a reason for it. Much of the wealth business leaders acquire comes slower than you think. Most start out with very little money and build from the ground up. Elon Musk, Bill Gates, Warren Buffett and Steve Jobs all built from the ground up.
Money started pouring in for these men as their business plans grew and expanded. The difference between them and people gifted large sums of money is they had something to do and the money was more of an illusion. The net worth of a business owner is in large part the value of their company. Gates received a salary from his corporation and he held lots of stock in the company, a company without a dividend in those early days. Going on a four-year drug induced party was not in the cards.
My own story has a similar tone without reaching the lofty financial heights of the uber-rich. Coming from a poor family money was always a concern. Financial independence was a powerful dream. Then one day I tallied my net worth for the bank while seeking financing for a real estate purchase. I was floored when I saw the numbers. Even valuing my real estate and business conservatively, it was clear I crossed the seven figure threshold a while ago. I didn’t feel different! I kept thinking, This is it? I felt the same as I did yesterday and the day before. I did not feel rich. I felt like me; the way I always did.
And that is how larger nest eggs are formed. When you don’t walk around feeling and acting rich you continue to amass a larger and larger fortune. If you inherit a sizable sum before you earn any real wealth yourself you might actually feel rich and start acting it. This is the perfect formula to start destroying the legacy.
My Legacy Plan
My two daughters already know they are not getting dad’s stash. I think the $10 million Gates is giving his children is too much. There is no need to work or do anything of value if you have $10 million. Drop the whole thing into an index fund and you get $200,000 in dividends per year. Dividends grow about 7% a year, some years more, some years dividends drop, but the trend is consistently higher. And those dividends are qualified so they are taxed lower. I don’t know about you, but $200,000 is about eight times what I need to live a year.
My girls know from an early age dad is not giving them a free ride. Should I die early, my girls will not see a penny until they reach age 35. Then they get 1/15th per year to age 50. By that time if they haven’t figured it out I can’t help them. There are contingencies for a first-time personal residence purchase and for higher education. And I do mean limited: $10,000 for a first-time home purchase and no more than $10,000 for higher education. The education portion is limited to $2,500 per year and they must be full-time students to get it. The American Opportunity Credit could double that amount for them. The rest they need to find on their own. The first test of going to college is getting there. Dad footing the bill is not learning how to get to college.
There is one more point I forgot to mention. My girls will never see seven figures from their dad. One million each is as far as I will go. Even this is enough money to sit on your ass all day and end up a useless piece of protoplasm. The greatest legacy I can leave them is knowledge. This blog is part of that knowledge and part is the daily interactions and advice I give them. It is more than enough for them to achieve reasonable financial goals.
Life is More than Money
I hear you gasp! But it is true. Money is easy to get once you understand how it works in our capitalist society. Teaching spending habits is more important than ever as mass media gives the wrong answer consistently and insistently. The more commercial media you consume the poorer you will be.
It goes further. Once you reach a certain level of financial security you need to start living. For some this means traveling. Others want to continue growing their business. You may have a dream of helping people so work in a non-profit might be what lights your fire. Our differences are what make us stronger as a species. More money is not the driving force anymore.
If you hate your children drop your entire pile of money on them at once. The odds they will crash and burn rise exponentially. Your children will never need to learn or grow. Money will be there to pick up the pieces until either the money runs out or the drugs and alcohol takes their life. Regardless, their live will have been meaningless.
You love your children as I love mine. I want to protect them from harm. Therefore, I teach them how to fend for themselves, even if they hate me at the time for not funding their perceived dreams. They know I can snap my fingers and make it happen, but what has been learned then? Giving my kiddos experiences they can carry through life is far more valuable than any money I leave them. Money salves many wounds, but knowledge to do it on your own is a far more powerful a gift.
Where does the Money Go?
If only a fraction of my money goes to the kids, where does the rest go? For me, charities will receive the remainder of my legacy. My children are lucky. They were born in a home filled with love and possibilities. Not everyone is nearly as lucky. My life’s work will help more than just my children. My kids get a small fortune of cash and a massive fortune of knowledge. To those who do not have the same opportunity I leave you with the remainder of my financial legacy and this blog.
As ideas come to mind I will share my thoughts. I will not always be right. Parents can be that way. Clients ask these questions a lot so it is easy to keep a steady stream of posts related to wealth coming.
You and the girls will have to wait for your financial legacy. My legacy of experience and knowledge are here for you to read. The Wealthy Accountant is giving you your inheritance early.
When my accounting practice went from a part-time seasonal pastime to a full-time firm I needed to bring in talented employees. Bev, a close friend of the family, had many years of experience working for other tax firms so I asked her to work for me. She accepted the offer.
Decades started to pile up. The joke around the office was Bev worked for my firm longer than I had. It wasn’t far from the truth. Bev was always a talented and faithful employee. She did good work and I could trust her.
But time counts, and keeps counting. Bev had something few people ever possess: talent and personality. Clients loved Bev and for good reason. She knew her stuff and made people around her feel comfortable. In my darkest hours she was there to hold the firm together. When my youngest daughter was born with birth defects she kept the office open while my mental wounds healed.
I have fond memories of those days. I also remember how it ended. Bev comes from a farming background; solid German stock. What I mean to say is she isn’t a petite girl. Wisconsin winters can be brutal. Arctic blasts made it difficult for her to breathe outside. I was worried about her. It was the excuse used to force her to retire.
But that was a lie. The truth is something was changing in Bev. It started slow and steadily advanced. She wasn’t as good at taxes as she once had been. Once she was great at taxes, now she was merely good and rapidly approaching mediocre. It is a terrible thing to say about someone with such an honorable and distinguished career.
I noticed the changes in Bev when she reached her mid-60s. It was small at first. Little things were missed. Sometimes the tax return was correct, but little things around the tax return were forgotten. A note was not updated; a basis statement not completed. And clients still loved Bev.
Each year got progressively worse until the work was unacceptable. I had to review all her work at a much higher level. Bev had to go. It was not an easy choice. She accepted her retirement and took to it like a pig takes to shit, but she was hurt at the time. She still brings her personal tax work in for us to prepare.
Is that Footsteps I Here?
The Bev experience started me looking around the accounting industry. I noticed a trend. Great tax people were in their 40s or 50s. It seems numbers slip a bit as we age. When the 60s arrive the handwriting is on the wall. That single decade takes the edge off and then more. People can prepare taxes at an older age, but the sharp skills needed for complex returns are obviously truncated.
I am 52. I am at the top of my game. Not only do I have more experience than ever, I have the mental capacity to perform complex tax maneuvers for extended periods of time. My mind can cash the check my body is writing. But I know what comes next.
There is no doubt I am headed toward the twilight of my career, a career I love deeply. I am one of the lucky ones. Nearly all my adult life I worked the profession which gave me the greatest pleasure. But I can hear nervous footsteps behind me. The sound of hard-soled shoes clicking on the hard floor as the sound of a quickening walk is no longer distant. It approaches.
There is a possibility my years remaining as a tax professional are now in the single digits. The thought makes me shudder. Do I do what many do? Hang on as my abilities falter, doing poorer and poorer work as I grasp at a life no longer mine? I hope I am smarter than that.
The good news is that even as the numbers slip, the mind still has talents to share. Warren Buffett still has plenty to add. Teaching your skills is the important thing as the bell begins to toll. Albert Einstein did his greatest work as a young man. That is true of all great scientists and mathematicians. Buffett confessed recently he doesn’t remember the numbers as well as he once did. I understand. It doesn’t make him useless; he still has plenty to share.
Maybe that loss of a step is there for a reason. Mother Nature’s way of kicking us in the ass. For taxes at least, I think the loss of a step comes from the grueling hours of sitting. The worst part is thinking you know an answer when you should look it up. Death rattle in the tax profession.
But there is hope. The journey does not have to end in the next 10 – 15 years. I can still own the business and hire more of the work done. I will still be fine when it comes to research and training. Helping people with tax and wealth building concepts seems to be a skill that sticks with many people to the very end. Again, think Warren Buffett. Perhaps I will be so lucky.
And You My Dear Friend
I tell the story of Bev and my observations of my profession for a reason. Your story is the same whether you know it or not. There are things on your bucket list that cannot wait. Maybe numbers don’t get you all hot and horny as they do me. But something does.
Many people enjoy traveling more than I. My paternal grandparents enjoyed traveling. They saw a good part of the planet until my grandmother died at 70. My grandfather lived to 89. It is a long time to live alone. It was best they decided to travel when they were young.
Climbing Mount Everest, or any big hill for that matter, is a young man’s game. (Young lady’s game, too. Please accept my apologies for using the masculine in a gender neutral way to include all my female readers as well.) There are certain things best seen with young eyes. Only a fool waits until “traditional retirement age” to do these things.
You can hear the sound, too. I can see it in your face. Even young adults instinctively know time is counting. That is why early retirement has such a powerful pull. The ability to do almost anything can only happen when the mind and body are both capable. As the years go by the desire declines. Keeping your seat in the tour bus as the group visits a site is fine with you.
Stories of older people starting a business are newsworthy. It is newsworthy because it is rare. If you dream of your own business, of contributing in a meaningful way to your community, I recommend starting now.
Tomorrow is the worst day to do anything. Dreams are meant to be lived now.
A Clockwork Orange
A strange name for a strange book. The movie is okay, but the book is awesome if you can choke through the difficult text. You are well rewarded if you reach the end. I recommend the British version. It was felt American stomachs couldn’t handle the end so it was dummied down for folks in the U.S. With the internet we can get the best version now.
Regrets. They are mostly of our own choosing. We feel them when we reach a point where fulfilling certain dreams are no longer possible. Younger, we regret not asking the girl of our dreams to the dance. Later, we regret not working harder to retain and build relationships with our spouse and children. Later still, we regret not taking that business opportunity. And as the end approaches, we regret all these things and more as we finally have plenty of time to sit and think about how badly we fucked up in life.
I am living my dream. My business is everything to me outside of my family life. In truth, I have little life outside things business or business related. I had to make a choice, either dive into business 100% or not. Either choice has its drawbacks. I don’t have to prepare tax returns; I get to prepare tax returns. So far, no regrets.
Ten years. My best remaining years as a powerhouse tax professional could have just fallen below double digits. I race against a fucking clock that refuses to stop. The hours are brutal, but I can’t stop. Soon, stopping will not be by choice.
I am a deviant little fuck. I know how to survive. I’ve lived through hell and made the devil my subject, all for the chance to live a dream. Many have tried to stop me and failed. I am invincible. What? What is that sound?
Tick-tock, tick-tock, tick
Isaac Asimov, when he heard the sound of the clock, sat on the floor of his living room in his underwear bringing books together. He published over 500 in his lifetime. Many were massive volumes, others collections of short stories. I have started to feel what Isaac felt. Conniving little bitch I am, I plan. I plan for my attack. If my days as a tax preparer are numbered I can still run the business, teach people, train, speak at conferences. I don’t have to concede one inch to the ticking sound.
Tick-tock, tick-tock, tick-tock
No complaining about long hours by me. I have what I want. I am living the dream. I want so badly. I want to be better, to do more. If only there was more time!
Tick-tock, tick-tock, tick-tock, ti
Even if you read the news poorly you know healthcare costs in the U.S. are astronomical. The U.S. healthcare system is more than double the cost of the world’s second costliest health care system in the U.K. And what do we get for all this extra money we pay for healthcare? Subpar performance. The U.S. currently ranks 37 according to the World Health Organization, right behind Costa Rica and ahead of Slovenia. Pathetic.
Medical issues are the one area of life that can destroy early retirement plans or any illusion of financial independence. To make it worse, health insurance is now required in the United States and it isn’t cheap. For American citizens, you are forced to participate in this inadequate health care system by financially supporting it to your maximum potential.
To add salt to the wound, many medical procedures are not covered. Weight-loss programs, cosmetic surgery, teeth whitening and hair transplants are not deductible expenses on U.S. tax returns, nor is it covered by most insurance. If your insurance does not pay for it, it comes out of your pocket. Many deductible medical expenses are not routinely covered by insurance. Eyeglasses and Lasik surgery come to mind.
Better Health Care, Lower Cost
Where you live determines if you live! Saving money on medical care is worthless if you don’t get to live to enjoy it. Which brings up a good point. Since medical costs are so high in the U.S., you probably don’t mind the higher mortality rates. Reduces the pain and suffering of living.
This Wikipedia entry lists survival rates by country for certain cancers, strokes, and heart attack. The United States is #7 for heart attack and #4 for ischemic stroke. The U.S. ranks lower for all other illnesses and diseases.
The real difference is in cost. Bypass surgery costs well into the six figures in the U.S. while the same procedure can be up to 90% less in countries with high or higher survival rates. Lasik surgery for both eyes averages $4,400 in the U.S. and $500 in India.
Many American doctors come from other countries. They study in the U.S. and get their medical degree in the U.S. Some of these doctors return home to practice. High quality healthcare is found in surprising places.
The cost of travel increases the cost of medical treatment in another country. Many simple procedures, while lower in cost abroad, will not save you money after factoring in travel expenses.
Many insurance policies don’t cover medical treatment outside the U.S. However, with the growth in high-deductible insurance plans and a long list of uncovered procedures, medical tourism is a great opportunity to increase the quality of your medical care while reducing your out-of-pocket costs, including travel expenses.
You can research international medical costs easily before making a decision with this link.
Still Getting a Deduction
Most Americans are sold on the high quality, affordable medical services provided outside the United States. The questions I hear most often in my office revolve around taxes and deductions. I have good news for you. Most of the medical costs for out-of-country medical care are deductible, including travel. There are several issues to consider, however. Your personal insurance and medical situation will determine how valuable that deduction is.
Let’s start with a common situation where you have insurance with good coverage. If your insurance is footing the bill, it doesn’t make sense to travel to another country for medical work with two exceptions. First, quality is more important than price. The low ranking of service in the U.S. for many medical procedures might cause you to consider a healthcare system elsewhere for your needs. Living is more important than insurance coverage. Second, Even the best insurance does not cover all medical procedures. Even with insurance you can face a medical bill on your own. When this happens it is time to see if there are better and more affordable alternatives.
More common is the high-deductible health insurance plan. Insurance coverage is not enough. You need to meet the deductible before the insurance begins paying the bills and even then you might have co-pays. It is important to review all options before committing to a medical facility or doctor. Better and more affordable options might be available.
The uninsured should always consider alternative medical care options. With the exception of low cost procedures and medications, it is almost always more affordable outside the U.S. Travel does add to the cost, but with the U.S. so much more expensive in nearly all medical arenas, there are significant advantages to traveling for medical care.
So what is deductible on the tax return? As with most things in taxes, it depends. First, you need to itemize to deduct medical expenses. Then your medical expenses need to exceed 10% of your adjusted gross income. Example: if your AGI is $100,000 the first $10,000 of qualified medical expenses does not count. Anything over $10,000 will be added to your itemized deductions and if your total itemized deductions exceed the standard deduction you have a tax benefit. I know. Nothing is easy when it comes to taxes.
Many medical expenses not covered by insurance are a deductible expense on Schedule A as an itemized deduction. Travel and lodging, eyeglasses, and dental are qualified medical expenses, yet not covered by most insurance.
Then there are Health Savings Accounts. Attached to many high deductible plans is a tax advantaged savings account. Money contributed to an HSA is deductible whether you use it for current medical bills or not. The account remains invested, growing tax free, until you need the funds for a qualified medical expense. Generally, a qualified medical expense for an HSA is the same as qualified medical expenses for itemizing. Withdrawals from an HSA not used for medical expenses are subject to tax at ordinary rates, plus a 20% penalty prior to Medicare eligibility.
Travel expenses primarily for, and essential to, medical care are includable medical expenses as a deduction on Schedule A or for distribution from an HSA. This includes airfare to a foreign country. Meals are generally not a qualified medical expense unless it is while you are under the care of the medical facility. Lodging is also deductible at $50 per day for the person receiving medical treatment and for a person traveling with the person receiving medical care. Example: A parent traveling with a sick child is eligible for $100 per day for lodging.
Where expenses are high the opportunity for significant wealth building exists. Since medical care is better abroad for most procedures for Americans, it makes sense to consider these additional options.
In my tax practice I give my employees an option. I provide a set amount each employee can use for health care. A health insurance professional is brought in to review the options with employees. They can choose what is best for them. If they want cash, they have a larger paycheck, but no insurance. (This only works for small businesses. Employer penalties apply once the business reaches 50 full-time equivalent employees.) They can also choose an HSA qualified plan and withhold contributions for their HSA from their paycheck. (Always allow your employer to make the HSA contribution for you if possible.) If my employee has not used up the allotment I set for her I pay the remaining portion to the HSA; the employee is responsible for the remainder. Check with your HR department to review your health insurance options. There could be gold in that visit.
Money in an HSA keeps growing tax-free for future medical bills. As age takes hold, the extra funds are a valuable extra in retirement. The numbers are compelling. A study by the Employee Benefit Research Institute showed an HSA could grow to $1.1 million in 40 year, assuming a 7.5% rate of return. It is clear medicine is an integral part of the wealth building process.
My dentist recently informed me I have a cavity on a back tooth. Cost to repair: $1,800! Insane, I thought. So I checked around. Guess what? By the time a new dentist goes through their medical theatrics there are few cheaper options available locally. I will plan my next international travel accordingly. The travel expense may not count as a deduction if the trip is not primarily for the medical procedure, but the dental repair is deductible. Therefore, the dental work can be paid for from my HSA.
This is an important consideration. The less I pay for better quality healthcare, the larger my HSA grows. I wish I would have considered the alternatives when I had Lasik done. I would have saved a fortune and enjoyed a free trip, speaking from a tax standpoint.
Everyone has at least a few uninsured areas of medical care. Finding high quality healthcare is possible for Americans if they are willing to travel. Americans who do have a better chance of living longer and money to enjoy it.
Three books I read since the beginning of the year stand out as books readers of The Wealthy Accountant should find interesting and useful. Two books I recommend for purchase, the other can be borrowed from the library; I’ll indicate my recommendation as I introduce each book. The dividing line between borrowing from the library and purchase is the desire to mark the book with a highlighter as you read. Highlighted books are easy to use as future reference. All books I recommend in this blog are books I highlight and own.
A strong theme on The Wealthy Accountant is frugality. So why do I recommend the purchase of so many book? First, I have a weakness when it comes to books. I buy a third to half of all books I read. The percentage changes with time. Many times I start reading a library book and instantly know I want to mark the important passages for future research and use. Your need for research material may not be as high as mine if you don’t own a business or publish a blog.
Second, if a book is important I will find a way to own it. Knowledge is power; knowledge is freedom. My mind is my most precious asset. I feed my mind every day and reference back to previously read books often. A well-read person is almost always wealthier in financial terms, but is always wealthier in quality of life. I have never met a successful person who is not well-read.
Cutting costs is easy. Unnecessary spending is tossed out the window. But books are as vital as food. Some books, especially novels, are a one-time read so the library is a perfect way to consume these books without any financial outlay. Some nonfiction books fall in the same category. Then there are books which touch us deeply. A few works of fiction rise to this level. Flowers for Algernon comes to mind. Many nonfiction books are significant enough to own. If you are like me, you will find yourself returning to these treasures often.
On to our list of must read books to finish off the winter.
The catchy name of this book is the reason I used it as the title of this post. It grabs the attention. It is also the same reason I spent so much time avoiding it. I read enough about Mark Manson online to know roughly what the book would be about. Boy was I wrong.
The Subtle Art was recommended several times before I pulled the trigger, buying the book. My concern is this would be a fuckfest. I have no problem with foul language. It attracts attention and focuses the reader. But fucking this and fucking that gets old after a while.
The first half of The Subtle Art has plenty of f-bombs, but not overwhelming or gratuitous cussing. Manson starts with what he means by not giving a fuck. He points out: Not giving a fuck does not mean being indifferent; it means being comfortable with being different. The second part of his definition is: To not give a fuck about adversity, you must first give a fuck about something more important than adversity. He then gives examples of what he means by his definition of giving a fuck and when to give them.
As strange as it sounds on the surface, this is a book about living the good life. It has Stoic undertones throughout. Happiness is discussed, along with the crazy idea we are somehow special when we are not. A full chapter is devoted to why you are wrong about everything and so is he.
Manson drops hints of how the book will end early on and you have no idea how hard hitting it will be. He describes how much of a dick he was in adolescence and early adulthood. The second half of The Subtle Art tones down the language and takes a more serious approach. Manson explains how a single event changed his life. Though no fault of his own, a friend died. It was the wakeup call Manson needed to grow up.
I’ll leave the end for your personal pleasure. No spoilers today. What I will tell you is where I was when I finished The Subtle Art. I was in the Gainesville, Florida airport waiting for my flight home from Camp Mustache SE. As you probably noticed, I can be an emotional writer and reader. The Subtle Art finale had me fighting back tears. Life can provide subtle lessons or hit you in the face with a 2 x 4. Manson got the plank across the puss. How he came to terms with his best friend’s death is heartwarming as well as educational. The next time you see someone on the edge, remember, they may have come from a much different place than you have.
I recognized a piece of Manson in me as he had to make a choice. He was a party guy and I never was. But that does not mean we do not share common ground. The Subtle Art is a powerful message about living life regardless what is thrown your way. It reminds us how precious, and fragile, life is. We need to learn when to give a fuck and when not to. It matters.
Species: A Brief History of Humankind, by Yuval Noah Harari
Species is 416 pages of human history from the beginning of the Cognitive Revolution to modern times. I love the kind of material Species presented so it was all interesting me. Early human history fascinates me the most. How humans went from one of the myriad animals to the world’s dominant species is an engaging story. It is the story of us and how we got to be us.
We think of global warming and climate change as man’s first real manipulation of the environment. It’s not. The historical record is clear. Whenever humans, or more accurately, Homo sapiens, arrived in a new part of the planet, things changes quickly. Neanderthals and other humans did not have the same effect as sapiens did. The Earth once hosted several species of humans. Sapiens are the sole survivors. Wherever sapiens went, other humans and large animals lost ground.
But readers of this blog will be most interested by the invention/creation of money and how it changed sapiens forever. Sapiens explores what money really is and what it allows us to do. Without money, including fiat money*, most of what we see and do today would not be possible.
Also of interest is the review of The Capitalist Creed. History is interesting because it can give us clues to the future, what we are really interested in. Where sapiens go from here is always a mystery, but we can get a good idea by studying the past up to our own time.
In under 100 pages Godin outlines why it is so important to know when to quit. In fact, quitting is one of the most important things you can do to achieve success. Quitting before the dip or when you find yourself in a Cul-de-Sac is the only way to preserve the time you need to pursue worthy goals.
The Dip is not only about quitting, but about when to stick it out. All endeavors go through a dip. My tax practice has experienced several dips over the years. I rose to each challenge, transforming my business into something better than before. Even this blog is now going through a dip. All blogs do. Traffic doesn’t go straight up without end. Knowing when to stick with it counts. How you stick with it determines the outcome.
The best part of The Dip is about why it is so important to be number one in whatever you do. This does not mean you must be number one in the world. It means you must be number one in your micro environment/niche or you are irrelevant. The Dip shows you how to reach that goal.
On second thought, I recommend you buy The Dip. My copy has a lot of highlighted text I am sure to return to often.
* * *
Before the weather gets too nice you want to digest these three books. Normally I read a book per week; I managed over double that pace in January. Time on the road gave me more time to read. Tax season will dig into my reading time so I had to get it in when I could.
No matter how busy I am I always find time to read. There is no way I can serve my clients, and you, my dear readers, if I don’t continually educate myself with awesome books. As always, the best of what I read, I will share.
* The only value fiat money has is perceived value. The government declares fiat money’s value without backing the money with any real asset, such as gold. China was the first to use fiat money around 1000 A.D. All nations use fiat money today. The Swiss Franc was the last non-fiat currency to sever its link to gold in 2000.
Modern technology and automation is making our lives easier every day. Virtually every task humans do is also done faster, cheaper, better by some automatic process with a silicon chip inside it. These automation processes started showing up a few centuries ago and started changing human life in fundamental ways in the last 100 years. The pace started slow with a steepening incline of progress. Today, we face a challenge never faced by humans before: what to do.
Free time was always a part of human living. It took the Industrial Revolution to transform human stock into expendable machines. In hunter and gatherer days, man would spend large amounts of time idle, pursuing whatever created interest. We can still see a few remaining fragments of art at historical sites. Hunting parties might extend for days or even weeks. Once game was slaughtered and the meats cured, the pantry was full for an extended period of time. Weeks, even month were free to build monuments, create art, and tell stories around the fire.
Then the Agricultural Revolution arrived. Man had his first taste of what was yet to come. Humans were now slave to the ox and land. Working the land and domesticating animals kept man busier than hunter/gatherer days. Hunched over the plow all day brought the first lower back pain for the species. Humans worked more hours than ever. But once the crops were planted there was free time, followed by a flurry of activity harvesting the crops. Then, man settled in for a long winter season of leisure.
The Cognitive Revolution in man occurred about 70,000 years ago, the Agricultural Revolution 12,000 years ago, the Industrial Revolution a few hundred years ago. Now we are entering the Information Revolution.
The pattern is clear. Each revolution in the human condition is shorter than the previous. The difference this time is the revolution may change humans to the very core forever. Humans as we know them now may very well cease to exist.
Or the species may finally, after 12,000 years, be returning to its roots with technology allowing us to live longer and happier lives with plenty of time to explore our mental pleasures.
Think how our world is on the cusp of a change like never before. Name one job that can’t be replaced by technology or automation. There is one and only one. I’ll share that in a bit.
Cars now drive themselves. It is only a matter of time before self-driving vehicles become the preferred mode of transportation. There go all the truck driving jobs, along with Uber drivers.
Tesla is nearing completion of the gigafactory in Nevada. People do not understand how many batteries this factory will produce. When fully operational, the Tesla battery factory will produce more batteries in one year than all batteries produced from the beginning of time by man. You have to stand in awe on what that means for the way we live.
And batteries are still in their infancy! Technology will make batteries more efficient a decade than they are now. Tesla’s plant is like the first Model T Ford facility. More and better is to come. If automobiles fundamentally changed our society, what will this single technology do? And what about all the other emerging technologies? Artificial intelligence hasn’t even begun yet. But it will soon. A lot of very intelligent people are working on the issues and history tells us we will get there faster and faster.
The cost of energy will drop over 90% in only a few decades. Batteries will allow a smooth energy production schedule. No more expensive and polluting peaking power plants when storage technology makes alternative energy even better. Roofing materials now can gather energy and store it in a Tesla Powerwall and in your vehicle. No longer do we talk about the technology coming online in a decade. It is here now!
Learning to Live in the New World Order
Life is changing fast. Guys like Mr. Money Mustache show us how to retire by age 30. Tim Ferriss goes one step further and says you can have a 4-hour workweek a 4-hour body, and be a 4-hour chef. I’m only a country accountant, but I can do simple math pretty darn fast. If you work 4 hours a week, exercise 4 hours, and cook for four hours, you have a lot of hours to do what you want. There are 168 hours to a week. Take out the Tim Ferriss hours and you have 156 hours left. We all know we should get 8 hours of sleep a day so there goes another 56 hours every week.
Holy shit! We have a full 100 hours to do what we want. I don’t know about you, but I am not that good at sitting still. Wars have started from people with less free time on their hands.
There is a solution. Machines can handle routine work and technology can simplify our lives. Machines can even think. But there is one thing computers will probably never be able to do: think cognitively.
Humans became modern humans when they began thinking cognitively 70,000 years ago. The process was slow and took millennia for the species to reach the next level of mental growth. We are returning to those fundamental roots of our ancestors.
Cognitive thinking is more than learning. Computers are doing that already and will improve rapidly. The kind of thinking I am referring to involves reasoning and understanding. A computer program can learn to anticipate an action the more data points it gathers. But solving a new problem is out of a computer’s reach. The program doesn’t even know the question to ask. People tell the computer the question and set the learning parameters.
All future jobs will involve cognitive thinking. Every job you see today will be replaced in whole or in part by technology. Even your favorite accountant sees the handwriting on the wall. Thirty years ago I started my practice with some new-fangled BS I think they called, ah, e-filing. Good thing I didn’t throw my hands in the air and say, “That’ll never catch on.”
In the last 34 years my accounting firm has morphed into a different firm four times. The first company was the old-styled paper and pencil tax firm. Then I stepped forward with e-filing before my competitors saw me coming. Then I merged traditional accounting services like payroll and bookkeeping into a small framework. Now the firm is changing again. The payroll department was sold into a partnership, bookkeeping is radically changing into a point and click system, and taxes are more scan than enter. So what remains for the new company? Consulting. The computer can prepare taxes just fine. What it can’t do is think ahead in an all-encompassing way. Technology will do all the things my company did before. All I will do is thinking cognitively. And there will be plenty of that to do.
In the Middle
So how does Pete (Mr. Money Mustache) and Tim Ferriss do it? Well, I don’t know so much about Tim, but I do know Pete. Pete recently finished a studio and gave an awesome write-up in his blog. He loves construction projects. A few years back I mentioned an interest in moving out to Colorado. One day Pete tells me he had some properties I might be interested in. I said I was waiting until my youngest finished high school. He sounded depressed as he said he agreed with my decision. I think he was excited about a remodeling project he could work with me. I didn’t have the heart to tell him I had a change of mind. A change of venue to a better climate is a fond idea, but NE Wisconsin is my home and where my heart will always be. Pete, if you read this: I am sorry.
Pete and Tim are true trail blazers. They are showing us the way to a future we cannot avoid. Tim spends his time coming up with new ideas on how to live, same as Pete. Tim’s style is different, for sure, but it all comes down to the same thing: cognitive thinking. No computer has come up with a novel idea without a human behind the controls feeding in the question. Tim says we can get stuff done faster and better with his methods. Sure, but that leaves us with even more free time to do . . .
You better get comfortable with thinking; not always a strong suit of the species. The added free time means you can spend time with those people who live with you. You know, the one you promised to spend the rest of your life with and the little short ones you helped bring into this world. There will be loving moments, but the bulk of your time will be spent exploring the mind. Exploring the world around you with your family will be a large part of the future. Not only do you get to marry your lover, you get to spend time with them. What a concept! And those mini humans, they are hungry for your attention. You have the time to share with them.
What about Money!
Oh, yes. Money. My guess is the workweek will need to shrink to 20 hours on average. More than Tim Ferriss thinks is necessary, but what Keith Schroeder *thinks* will be the endgame. And retirement will come sooner than you think whether you are ready or not. You will work less and wages will remain stagnant. But costs will collapse. If energy costs drop 90% you need less to live. If it costs less to shingle the roof, it lasts longer, and produces energy too, there is another expense going the way of the dodo. The only economic issue of significance involves government debt. How they will pay it off is beyond me. Good thing we all will have more time to think about it. Computers and technology will not find the solution, but they will probably complete the task when some smart humans come up with the idea.
Money will still be needed. With fewer jobs and hours available the issue of a living income arises. The first mention of a living wage I can find showed up in the 1930s* as the worldwide depression raged on. The idea work would never return due to mechanization was premature. This time is not different; we just finally reached the endgame people intuitively knew we would.
We all will live somewhere between Mr. Money Mustache and Tim Ferris whether we like it or not. Early retirement stories are hot news stories now. In the near future early retirement will not be a choice so plan accordingly. Or we can work more years, but fewer hours per week.
I think about my own work as a business owner. If you take all the dead time and talking with people, I really don’t work that many hours. And until I got crazy and opened my doors to a worldwide clientele, my life was very simple. I worked reasonable hours for 2 ½ months followed by virtually no organized work the remainder of the year. I spent my days playing on my farm, reading, thinking, and planning. Learning is what I do. It is what Warren Buffett does. It is what Pete and Tim do. It is what you will be doing. It isn’t a choice. It is the world we live in.
Your favorite job is obsolete. You will create your job in the future. Get used to it.
* I am reading It Can’t Happen Here by Sinclair Lewis, published in 1935, and there is a brief mention of a living income. Warren Buffett also likes the idea of expanding the Earned Income Credit to guarantee everyone receive $15 an hour through a tax credit if their skills do not garner $15 per hour. The new EIC would provide a much larger credit to those without children too. Interesting ideas we will have to face in the very near future.