Posts by Keith Taxguy

Recovering from Burnout

End burnout. Review the symptoms and remedies to work related stress. #burnout #work #job #retirement #life #happinessIt can happen to anyone: burnout. 

Long hours conducting a repetitive task increases the risk. Not enjoying the work also increases the risk (though it could be more to do with drudgery than burnout). Not controlling your environment on any level is sure to increase stress and the likelihood of burnout.

Burnout is not about working a lot of hours. Rather, it involves stresses on the nervous system similar to PTSD. While a soldier in the field can suffer massive stresses to his nervous system, the same can happen to anyone who feels trapped in a dangerous (even perceived) situation. 

Elon Musk is a perfect example of a person who can handle significant stress without feeling burnout or worse, Musk loves his work and believes he is making a difference that will outlive him. He handles stress differently as a result.

However, when stress built in areas he could not control he showed classical signs of burnout. Shareholders demanded profits and more production or they would sell the stock, adding stress to an already full plate for Musk. 

Normally Musk is a pretty happy guy living his dream. But when market conditions outside his control pressured him hard he started to crack as everyone does when they struggle with a situation they are in. Tweets and other outbursts were counter-productive. Smoking weed on a podcast didn’t help either. (We may have assumed he smoked weed, but doing so publicly in his position put his business at risk.)

Musk survived in large part because he retained a massive amount of control. He made changes to Tesla and worked relentlessly until a resolution presented itself. 

Not everyone is as lucky as Musk. Stuck in a job you hate will sap the life out of you. If the job has high demands and stress it will start you down a path that doesn’t end pretty.

 

Symptoms of Burnout

Burnout is only one step on a road to hell. Left unchecked it can cause serious damage to your health. 

If you experience burnout and take no remedial actions you can start to exhibit symptoms of something much worse. 

The first step toward a nervous breakdown is burnout. Fatigue lowers your mental defenses. When the situation continues to pound, feelings of desperation can set in. Helplessness is a large factor of burnout.

When you really love what you are doing fatigue and stress are handled in a manageable way as long as you have some control over the situation. (You can take a break when needed.)

Exhaustion is natural when you work hard at a task. A short break, a nap, a good night’s sleep, are all rejuvenating. When time off doesn’t reinvigorate you something is wrong.

End stress and burnout. No more feelings of hopelessness and helplessness. Get your life back #stress #burnout #nervousbreakdown #problems #helpBusiness owners can experience burnout from long hours coupled with the demands of running a business. Even if you love the work you can feel trapped inside the demands you don’t care to handle inside your business. It is this trapped feeling that stresses the nervous system without a release.

In a world where financial independence is possible at a young age for many and dreams of early retirement coat the internet it is easy to think burnout should be a thing of the past.

But burnout can affect you in retirement, too! You might feel trapped living the dream of a significant other. A goal of world travel can turn into drudgery when travel doesn’t give you what you hoped. Eventually you can feel trapped and then the nervous system feels the accumulating stress.

It can even affect pleasant pass times. Golf might have been a great joy every weekend and holiday when you had a traditional job. You might have longed for vacation time so you could enjoy the links. 

Then you reach your financial goals and retired. Now you spend all day knocking the ball around the greens and it is no longer an escape. Golf was what you did to get away from a situation (work) you didn’t want to do at the same level as golf. Now golf drags on day after day after day after . . . 

Any task can stress the system. Work is a common stressor. Unemployment is too!

Burnout, since it is a close cousin to PTSD, doesn’t require an unpleasant task to experience it. A soldier gets trapped in a situation and his nervous system begins to struggle. The same can happen sitting alone in a room. If you don’t believe it, ask a prisoner locked in solitary confinement for an extended period how much stress he feels and see if it doesn’t sound a lot like burnout, a nervous breakdown or PTSD. He is feeling burnout from being locked in a small room without any control over his environment.

Burnout symptoms can make the situation worse. Depression and anxiety increase. Irritability can cause outbursts. Sleeplessness hastens the descent. Violence, as you struggle to gain some control of your environment, directed inward or outward, is likely to get an unwanted societal response. Rarely does situation improve without professional help.

There is also a tendency to self medicate. Drugs/alcohol  might seem like a solution while struggling with burnout. Unfortunately, it only makes it worse.

A common work tendency when burnout surfaces is procrastination. You want to avoid the stressor at all costs and all costs it could be.

Left unchecked, burnout can leave lasting wounds even after the stress is released.  Damage to those around you may never heal. You may never heal as burnout can progress to a nervous breakdown which can take years to recover from. Post traumatic stress is common at this point. Your nervous system eventually starts to rewire as a coping mechanism. And when the rewiring is no longer needed the nervous system is permanently damaged.

 

Recovering from Burnout

A soldier in the trenches easily can feel trapped with bullets flying and bombs exploding. There is very limited control over the situation which is why so many military personnel suffer from PTSD.

Thankfully most people reading this will ever experience such a situation. We might get trapped in a job we hate or find ourselves in an uncomfortable situation. In most cases the walls, feelings of being trapped, are more self-imposed than real.

Recovering from burnout requires removal from the stressor. A vacation (extended, if necessary) frequently does the trick. 

Burnout finds roots in helplessness which means it is loss of control over the situation you find yourself in causing the problems. The first step to recovery, therefore, requires you to gain some semblance on control over the outcome.

Bring joy back to your life. End stress and burnout; embrace happiness. Learn to do the things that make you strong. #stress #burnout #fatigue #helplessness #hope #happiness #joyBusiness owners can find business overwhelming. Reduced hours, fewer client or more staffing can bring life back into balance. Just knowing, acknowledging,  you have these controls over the situation can alleviate symptoms of burnout. 

A job is worse than owning your own business. In business you can adjust the size of the company and still put bread on the table. A job is an all-or-none financial situation. If you lose your job you take a serious income hit. This lack of control could be a leading reason people hate their jobs so much. It’s not that they hate the work or the people they are working with, but that their life can be turned inside out at the snap of the fingers and you may never see it coming.

The FIRE (financial independence, retire early) movement focuses on this very issue. The goal is to get out of the traditional work environment as soon as possible.

However, it isn’t about hedonism. The happiest people in the FIRE community continue doing meaningful activities. Some write blogs, others take up side hustles, others start a business. It wasn’t work that was the problem, it was “meaningful” work and control over your destiny that was the issue. 

Burnout has serious long-term consequences if left unchecked. You can change your job, pay down debt (another area where it is easy to feel loss of control), design the life you enjoy most. Refusing to acknowledge you can change your situation can cost you your health, family, happiness or worse.

Regain control. A side hustle can be started while working in a traditional employment environment. Traditional work can also be rewarding. Many enjoy the traditional framework. If you are one of these people and feel the stress, you want to be more, not less, involved. Your involvement is a level of control that helps you engage while lowering stress and the risks of burnout.

And if you are retired and feeling burnout you need to take a long, hard look. It is likely you are living some else’s dream of retirement. Don’t emulate a blogger just because it looks like they have a cool lifestyle. (It is for them, probably not for you.) Travel if you want; don’t is you don’t want.

Live your life on your terms. It is hard to experience burnout, regardless the workload, in these situations.

Diet and exercise play a large role in avoiding burnout. Take time to exercise and make good food a priority.

Once anxiety, depression or suicidal thoughts start it is time for professional intervention. Seeking help is not a weakness; it is a strength.

 

Dealing with Burnout

I had a different post planned for this week. However, I was feeling the pressure from tax returns on extension and blog traffic.

A tax return in my office was causing me no end of grief. Every time I made progress another problem arose. I was feeling the loss of control bad. Six interconnected tax returns were occupying my life for months and I couldn’t break through. I spent long hours at the office doing avoidance work. Procrastination was killing my productivity. 

Add to that the  normal summer traffic slowdown on this blog and burnout started running wild. Why bother writing if nobody is going to read it, I surmised. Except people are reading it and interacting. It was a pity party doing me no good. 

Finally I decided I had enough. I came in on weekends and evenings to find a way to break the problem. I was taking control! 

This post is slightly delayed because I just couldn’t get the energy to write Sunday night. The good news is I made massive progress on the problem tax return Saturday. Yes, another wall showed up, but this time I have a head of steam. I’m taking control. I should finish Monday. (Whew!)

No matter how dire the situation you have some level of control. And since loss of control is the first step to burnout and worse afflictions, control is where you need to focus.

The soldier in the field can focus on what he can control. Elon Musk took control like a boss and broke through the problems and ended many of his burnout symptoms. Musk never eased up a step on his workload. He loves what he does and made sure it stayed that way. 

You can also take control. There is always some aspect of your work or business situation you can manipulate to your advantage. (Don’t think of this as bad manipulation. Manipulation of a situation for the good of all is more than acceptable.) 

In the end you might choose early retirement or a different job or a side hustle. I’m here to tell you, it’s okay.

Keeping yourself locked in mental solitary confinement is not good for you, your family, friends or community. If you need professional help, seek it. Or, you might find you just need to acknowledge what you can control and then use that to move forward. 

Nothing is worse than the helplessness of burnout; the feeling of quitting and running away. You can do better than that.

 

 

More Wealth Building Resources

Credit Cards can be a powerful money management tool when used correctly. Use this link to find a listing of the best credit card offers. You can expand your search to maximize cash and travel rewards.

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. 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.

cost segregation study can reduce taxes $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. 

Investing in a Retirement Account is Like Taking Out a Loan

Traditional retirement plan contributions come with a loan attached to it with a variable rate of interest, to be determined at a later date by the tax code and your income level. #interestrate #interest #loan #IRS #taxesEver since the FIRE (financial independence/early retirement) movement hit the scene I started to question conventional financial wisdom. 

Most of the advice preached was re-purposed from generations past. A penny saved is a penny earned turned into a variety of frugal anecdotes. You can’t read Proverbs (from the Bible) and not recognize the many similarities in advice. Sound money principles have ancient roots.

For a time the FIRE community welcomed me as one of their own before I stepped back a bit to cut my own path. (No sense in another voice calling out the same message.) I’m still part of the community, but gave myself permission to question the dictums of said community. The hope was to build a bridge from where we are to a higher level.

It also became clear my net worth was near the top of the demographic. This bothered me and caused me to conclude something was wrong.  How could a backwoods farm boy with nothing more than a high school education, a few college courses and a full personal library do better than virtually all within a community so dedicated to wealth?

I don’t trust luck to carry me that far. It had to be something else.

Then I started reading what was published in the tax field and felt a great disturbance in the force. While the advice was fundamentally sound, it also lacked in effectiveness if brought to task. All too often blogs were using IRS publications as their authority. (The IRS is NOT a tax authority; they are a bill collector.) If people followed this advice and the IRS ever challenged (likely with so many people tempting fate) there was a real risk of loss. (If you go to Tax Court and say you used an IRS publication as your substantial authority you lose automatically even of you a right! IRS publications have zero authority in Tax Court.)

Sometimes the math was fuzzy. A blogger might claim a certain level of frugality when it didn’t add up. Some claimed a level of wealth that also didn’t add up. Either the rules of mathematics were suspended or someone was trying to pull the wool over their reader’s eyes.

The biggest area of concern involved retirement accounts. The mantra of filling retirement accounts to the hilt for long periods of time has some obvious issues

Some retirement account problems are less apparent. Everyone keeps saying this is the best thing since sliced bread. But is it? 

So I started running some numbers and it wasn’t as clear as most are led to believe. There was something fundamentally wrong with the advice.

 

Numbers Game

The issue is with traditional retirement accounts (IRA, 401(k), 457, 403(b), Keogh, profit-sharing and cash balance plans); Roth type retirement plans don’t have this issue.

Don't lose your retirement account to hidden taxes. Current tax savings are dwarfed by future taxes on all the gains at the highest rate allowed by law. It's your money! Don't give it to the IRS. #retirement #account #hidden #taxesRoth style retirement plans don’t get an up-front deduction, but grow tax-free. Most financial blogs consider this the best animal in the yard. I agree.

A close cousin — if you qualify for it — is the health savings account where you get a deduction and tax-free growth, to be used for qualified medical expenses. The biggest drawback of the HSA is the amount you can invest annually is relatively small. 

Roth retirement plans are limited in many cases based on income on if the employer has the option in their 401(k) . The maximum Roth IRA contribution is also relatively small. (Exact limits are excluded from this post so changes in the limit don’t distract from the evergreen content.)

The mega-backdoor Roth (a favorite of the FIRE community) allows for sizable Roth contributions with one caveat: it’s probably illegal (according to the IRS). The IRS hasn’t attacked the mega-backdoor Roth because there is no current revenue to be raised by taking such action; Roth investments are not deductible.

However, once these accounts grow in size the IRS could come back and disallow the tax-free advantage, plus interest and penalties. If the IRS has a kind heart (ahem) they could forgo the excess contribution issues which would certainly mean penalties several hundred percent of the entire investment. You decide what course you wish to take. 

The safest retirement plan route means traditional retirement plan investments after you maximized your Roth contributions. Or is it?

 

Loan Document

Traditional retirement plan contributions come with a loan attached to it with a variable rate of interest, to be determined at a later date by the tax code and your income level.

All you debt-free warriors should feel a bit nervous at this point. Just as a mortgage-free home still has loan-like obligations (property taxes, insurance, maintenance), a traditional retirement account has an unannounced interest-like expense and it is a big one.

And this is what disturbed me so much that I had to publish a post on it. 

We all know that traditional retirement accounts get a tax deduction at your ordinary tax rate up to the retirement plan contribution limits. We should also know that these accounts grow tax-deferred and that all distributions are taxed at ordinary rates.

This is a real problem if your goal is to maximize your net worth. In the early years the tax benefit makes it seem like it is the best deal on the planet. But as time passes the math tells a darker tale.

Let’s start with a simple example to get a fundamental understanding of this matter:

Joe contributes $10,000 to his t401(k). This is subtracted from his income on the W-2 and never reaches his tax return. His tax bracket is 30%.

We will disregard actual tax brackets as they change over time and we are more interested in a workable formula for determining the best course currently and for future readers as well.

The good news is Joe saved $3,000 on his taxes this year. However, in 40 years, when Joe retires, he discovers his investment in a broad-based index fund performed as index funds have over long periods in the past: around 7% per year on average. Joe is a very happy man! He now has $149,744.58. 

If Joe were to take the entire amount in one year it would be a fairly large tax. However, Joe decides to take the money out over a number of years. As a result his ordinary tax rate is only 15%. (We will disregard taxes on Social Security benefits and other similar issues to make calculations easier.)

Joe now has a tax bill of $22,462. (Numbers are rounded.) That is $19,462 more in additional tax! Call the 19 grand a tax or anything else you want, but it looks like interest on the $3,000 to this accountant.

Even though Joe saw his tax rate decline by half in retirement he still saw his tax bill increase over 700%. His interest rate would be slightly less than 5.2% annualized in this situation assuming Joe never saw his account value increase after he started taking distributions, an unlikely event.

 

Early Payments

If I approached you and said I would borrow you $20,000 at 5.2% would you take it? Unless you have bad credit that is a high interest rate, especially since it in not deductible. Worse, you can’t make early payments to get out of the deal! You can’t jump ship until you are at least 59 1/2 years old. And if you are stubborn I’ll kick you overboard at 70 1/2. 

The good news is I’m a nice guy and will not do that to you. On the other hand, Congress has passed laws the IRS carries out doing just that.

And we haven’t seen the worst part yet! Retirement plan distribution included in income can cause more of your Social Security benefits to be taxed and can also increase the premium you pay for Medicare once you reach age 65.

A small tax deduction today can do real damage in the future. This is why I say I want multiple tax benefits before I get excited about a tax deduction

All this assumes your tax bracket drops when you retire. Considering the massive government fiscal deficits during a strong economy, it seems to this accountant taxes will go up in the future. And if your income remains high in retirement your tax bracket will also be higher.

Consider this: If Joe had a 30% ordinary tax rate on his retirement plan distributions his taxes would have climbed to $44,923, a full 7% annualized rate. For people with good credit this is a massive interest rate and almost nobody is thinking about this.

 

The Cold Equations

Joe’s example is unfair. First, Joe will put a lot more into his retirement plan over his lifetime, therefore, the damage will be much larger.

Second, retirement plan distributions happen over a number of years. While this might sound like a solution to the problem, it actually makes it worse as the investments continue to grow over time.

Third, smaller account balances experience the same issue only with smaller numbers and that tax rates might be lower due to the lower income level.

Fourth, early retirement does not solve the problem. Yes, you can take a limited amount of money from a traditional retirement account before age 59 1/2 without penalty under Section 72(t). This only reduces the amount of time the money has to grow; it doesn’t resolve the issue.

No matter how you cut it, traditional retirement accounts are best viewed as loans from the government, due in retirement. If you don’t pay the piper, your beneficiaries will.

 

 

Alternatives

Your experience will differ from that of others. You can use the simple example above to determine your implied interest rate assessed as tax in the future. You may discover this isn’t an issue for you. Or, you might need a moment for reflective prayer.

We saw that greed for a current tax deduction produces a 5%+ interest rate loan from the government, payable in retirement. So, what alternatives are there?

The best comparison is doing nothing at all (investing in a non-qualified account). You still invest in the same index fund. Dividends and capital gains are taxed at the lower long-term capital gains (LTCG) tax rate (15% or less for most taxpayers) instead of ordinary rates later (up to 37% federal, plus state income taxes). 

Since the money is outside a traditional retirement account you don’t have to worry about early distributions or required minimum distributions. And if you die your beneficiaries get a step-up in basis the retirement accounts don’t get. Gains on these investments are also taxed at the lower LTCG rate. 

 

Matching

I can hear the complaint already: What if my employer matches?

A valid argument. We’ll go back to Joe again and assume his employer matched his contribution 100%.

Joe invested $10,000 of his own money and his employer matched his retirement plan contribution with another $10,000. 

Joe still gets a deduction worth $3,000 for his contribution. The employer’s match is free money and not taxed until Joe takes the money out.

In total, Joe has $20,000 invested in his retirement account. His account grows to $299,489 in 40 years. The tax on this at a 15% tax rate is: $44,923. 

The initial tax benefit to Joe is $3,000, plus $10,000 from his employer, for a total of $13,000. The implied interest rate in this situation is around 3.15%.

The lesson of this part of the story is that using your employer’s retirement plan up to the match maximum is still a good idea for most. After hitting the matching maximum you might be better served putting the rest into a non-qualified account, however.

 

Smart readers will also be quick to point out the extra tax savings means you have more to invest which mitigates any of the extra taxes owed in the future. This would be true if people actually did that.

When was the last time you invested your tax savings from a traditional retirement account investment? Where did you invest it? Uh-huh. Thought so. You spend the tax savings as most do.

(If you are one of the few who actually pull the tax savings from the family budget and invest it in a non-qualified account my hat comes off to you. You still need to run the numbers to verify the best course of action.)

 

Facts and Circumstances

You can’t read tax law for more than a few minutes before running across the words “facts and circumstances”. And this situation is no different.

The IRS has hidden interest-like charges on retirement accounts. Here is how to avoid them. #avoidtaxes #taxes #retirement #IRS #interestI gave you the tools to build a working plan based on your facts and circumstances. Use a future value calculator to determine the interest rate the tax code is forcing you to pay if you use traditional retirement accounts. 

Employer matching is a real benefit that is diminished by the tax code after very long periods of time. (I would focus on the employer match closely as real value can be found there.)

After the employer match and available Roth retirement plan contributions allowed are exhausted you might find non-qualified accounts the best course of action, for you

The important thing is that you are reading this. That means you are more likely to run your numbers for the best options, for you

There are a lot of factors at play. Index funds still kick out dividends and some capital gains which are currently taxed. This slightly reduced the implied interest rate of the traditional retirement plan if you are prone to investing tax savings. It also assumes you keep your fingers off the pile until retirement. 

The one thing to remember is that deferred taxes frequently come with an implied interest rate paid as a higher future tax.

This is the kind of stuff I think about in the dark of the night. It might also be the prime reason I top the net worth list at Rockstar Finance.

 

 

More Wealth Building Resources

Credit Cards can be a powerful money management tool when used correctly. Use this link to find a listing of the best credit card offers. You can expand your search to maximize cash and travel rewards.

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. 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.

cost segregation study can reduce taxes $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. 

Profiting From Climate Change

Global warming and climate change offers many investing opportunities while doing good. #climate #globalwarming #investing #climatechange #profitIt is unfortunate that climate change is such a political hot button when it is such a good tool to build wealth. Much of what I say will cause righteous indignation from both sides of the political isle. Good thing we will have a full wallet to sooth our nerves.

Too much focus is on “if” there is climate change and how much is “human” caused. These are the wrong questions to ask and the reason why so little is being done to remedy problems climate change can bring.

Since we are discussing a difficult issue I will start by outlining where I stand on climate change (no throwing tomatoes). Then I will show some reports of fear mongering that are really exciting economic reports we should all want if that is as bad as it gets. We will finish with an actionable plan to deal with climate change on a personal level and investments.

 

Biases

Everyone has biases and I’m no different. My education, background, experiences and research all color my opinion, and how I interpret facts as it relates to our subject. So the reader understands where my biases are I will list where I stand on climate change. Be aware my opinion changes as time passes and as more facts present themselves. Like climate, my position changes. 

Here are some facts the author tends to believe are correct:

  1. Climate change has always been happening and always will be. 
  2. The planet is warming as whole, but some areas — the Upper Midwest of the US, for example — are seeing a cooling trend. 
  3. Some of the current warming is from natural (non-human) causes; most is the result of human activities. 
  4. Humans are modifying their environments around the world and it does affect the planet.
  5. Human caused climate change is happening. The two real questions to ask are: How much? And, is this really as bad as we fear it is?
  6. Climate change is not all bad.
  7. We are currently in a warm period of the 2.6 million year Quaternary glaciation. We are still in an Ice Age! We are spoiled because we are enjoying a rare interglacial warm period called the Holocene. Many of these climate changes are caused by the Earth’s slight variations of its orbit around the sun called Milankovitch cycles.
  8. The current warm period in this ice age is probably the longest and we are also probably at the warmest point of this ice age.
  9. Climate change (people are actually worried about global warming) is unpredictable.
  10.  Could humans — a natural part of Earth’s ecosystem — be nature’s way of ending this very long ice age?
  11. Fear mongering isn’t helping.
  12. Denial isn’t either.
  13. Some life will lose and some will win. That is the nature of life.
  14. You will not save the planet. The planet will do just fine. “People, on the other hand,” as George Carlin once said, “are {beeped}.” 
  15. It has been warmer in the past.
  16. Colder, too.
  17. We can all contribute to mitigation of human caused climate change without breaking the bank. In fact, we can make the world a better place for all life, including humans, with intelligent planning. Better still, we can profit from doing the right things.
  18. We need to be careful our remedies for climate change are not worse than the disease.

I’m sure I have other biases that will be clear to some readers as they read on. The only alternative is to say nothing and that seems to be a bit of denial I don’t accept (Bias #12). 

Both sides of the argument have valid points. What I find unproductive (and unprofitable) is the all or nothing philosophy. Denial is not accurate; it’s just denial. But claiming the Earth has 10 years max before it is too late for the last 30 years isn’t helping either. When extraordinary claims of doom are made that don’t come true and the date keeps getting pushed for doomsday, it causes more people to just not care about the issue. We want people to care about changes in the world. We also want as many people to benefit, along with other life. 

 

Fear Mongering

Climate change doesn't have to be a problem, but rather, an opportunity to make a difference without suffering or losing money. Global warming could be the investment opportunity of a lifetime. #climatechange #globalwarming #profits #investments #alternativeinvestmentsThe biggest two problems with climate change is fear mongering and denial; fear mongering is the worst of the two. Denial seems silly and most deniers acknowledge climate change once politics is removed because they understand climate is always changing. How fast the change is happening is the real concern. 

Fear mongering is a different issue. Rather than using common sense we get claims so outlandish they boggle the reasonable mind. 

Take David Wallace-Wells’s book, The Uninhabitable Earth: Life After Warming

Wallace-Wells’s book is a fear-fest from beginning to end. Almost all facts provided came from the most outlandish claims of other researchers who want us to believe climate change is real and terrible. Before I had 50 pages turned I came to the conclusion there is no reason to even try solving the problem because it is too late anyway.

But then Wallace-Wells turns to my arena: economics. He repeated a whopper several times that if he would have thought about it before he published he would have realized his fear mongering was actually one of the most powerful reason to pump as much greenhouse gas into the atmosphere as possible. 

Here is a quote from page 61 of the book:

If no significant action is taken to curb emissions, one estimate of global damages is as high as $100 trillion per year [italics his] by 2100. That is more than global GDP today. 

This scary statistic is repeated several times in the book in some fashion. He does add after this: “Most estimates are a bit lower: $14 trillion a year. . . ” But the damage is done with such an incredible claim! Worse, his whole book is filed with these zingers. If it was a novel it wouldn’t be believable and considered a terrible story as a result. But passed as fact it doesn’t scare, it cause people to stop trying and that is too bad since we should always work hard to improve the human condition where ever we can and for that of other life, too. Even if climate change is not a problem it doesn’t mean that we shouldn’t try to keep our environment as “clean” as possible.

On page 122 he says:

Should the planet warm 3.7 degrees, one assessment suggests, climate change damages could total $551 trillion — nearly twice the wealth as exists in world today.

On page 117 he tells us there is a 51% chance (according to research) climate change will reduce economic output 20% or more and a 12% chance we get nixed by 50% per capita. The numbers boggle the mind and the fear mongering keeps coming. 

For those of you wondering why the claim is so outlandish, here are the facts derived from Wallace-Wells’s numbers. First, Wallace-Wells claims that GDP will be reduced by as much as 50%. Seems scary until you realize how big the economy has to be for it to fall $100 trillion “per year”.

According to the World Bank, the global economy was $80.7 trillion in 2017. Now if the economy will lose about half its value ($100 trillion per year, as Wallace-Wells reports from his research) it looks like this:

$200 trillion global economy in the year 2100, minus

$100 trillion in losses due to climate change. (Remember, if we lose half of economic output of $100 trillion per year it means the economy would have been $200 trillion to start with, or should have been.

This means climate change, according to the reports Wallace-Wells cites, will cause the economy to continue growing at a healthy pace for a planet already with the highest standard of living in the history of humanity. Except for the rapid economic growth after World War II, this predicts an economic growth rate in excess of growth rates during most of human history! 

And to experience $551 trillion in damages is such a large number it indicates a total economic value several orders of magnitude beyond what we have today. According to Wallace-Wells, life for humans will be really, really good if we can just keep pumping greenhouse gases into the atmosphere. But I don’t think that was the message he wanted to send.

And if the economic numbers are not big enough, we still need to consider demographics. Darrell Bricker and John Ibbitson in their book, Empty Planet, give clear evidence the human population will decline globally later in this century. Japan, South Korea, Russia, and many European countries are already suffering from population decline. The US would have a declining population if not for immigration and current trends are not encouraging if you prefer population growth.

With the fertility rate around the planet falling below replacement value, the only thing holding population up is increasing longevity. Eventually people will die and when fertility rates are below 2.1 (the replacement level for steady population) the population will fall and fast. According to Bricker and Ibbitson, China’s population will fall to near the level of the US by 2100. (They get much of their data from the United Nations.)

This means the standard of living for individual people will continue to climb at a fantastic rate under the fear mongering model of climate change. It’s a terrible argument Wallace-Wells makes because his worst case scenario actually sounds like an enviable goal!

 

Truth from Fiction

Before we dive into profit-making we need to clear one more thing: not all change is bad!

Another excellent book you should read is: The Ends of the World: Volcanic Apocalypses, Lethal Oceans, and Our Quest to Understand Earth’s Past Mass Extinctions, by Peter Brannen. Brannen’s work provides examples of past mass extinctions on Earth and possible reasons for the mass extinction event. 

On page 21 Brannen writes:

The Cambrian Explosion — though it might have been devastating for the strange Ediacaran creatures that came before — was an unambiguously good thing for life on earth.

Later Brannen tells us trees were the biggest challenge to life on the planet early on and there was no reason to believe it would work out. The point is, not all change is bad. For some reason trees are consider good nowadays. (Read the book for more of this fascinating story.)

As we discuss ways to profit from climate change, we need to understand profiting from climate change isn’t a crime or even a sin! We can make money, build wealth and do good all at the same time. We can have a win-win situation, even involving environmental issues.

The books the short excerpts come from are only a taste. These books are required reading if you really want to understand the situation. Yes, climate change is happening and it is a problem. But, it doesn’t have to be the end of the world! There will be winners and losers as long a man lives. The same can be said if man is removed from the planet. It’ll just be a different set of winners and losers. 

This is not a bad thing! Homo sapiens are a very successful species. This is the only time in Earth history when the top of the pecking order felt bad about their success as a species. To say all human caused climate change is bad is to hate humanity and to act as if humans are not a natural part of Earth life. This is unacceptable nihilism.

 

Profiting from Climate Change

And so we have finally arrived at our destination. We better understand where this accountant stands on climate change issues and that all climate change is not bad. 

Handled properly, we can benefit from the solutions to problems caused by climate change.

My suggestions will not single-handedly solve all the problems cause by the changing climate. Even is every person on the planet stopped emitting all greenhouse gasses there would still be other natural forcers on the climate. 

What I provide now is opportunities to profit financially while taking a course best suited to dealing with climate change in your personal life. 

 

Personal Lifestyle

Nothing we do as individuals will make a difference. It is a depressing thought, but true. However, our concerted efforts will make a difference. As Zig Ziglar once said, “No raindrop blames itself for the flood, but they all play a role.”

Worried about climate change? Think it isn't an issue? Maybe everyone can win in the new economy. Be frugal, profit and do good things for the environment. #environment #profit #climatechange Climate deniers.When we understand our personal decisions will not solve the entire problem we can let go of the anxiety and make good decisions that “play a role.” 

Waste: Frugality will not save the world, but it will do wonders for your net worth. Since the problem isn’t one person wasting, but billions of people wasting every day, each of us plays a powerful role. Less packaging and less consumption is the best way to lower your carbon footprint. 

Some people say biking is the solution, but long distance travel is not always conducive to biking. And biking isn’t a free ride either. The more energy you burn biking, the more you need to eat which means the activity has at least a modest carbon footprint. This isn’t a reason to avoid exercise or to bike whenever possible. 

Electric vehicles are a good option. Unfortunately, too much electricity is still produced with polluting sources, especially coal. 

Reducing your carbon footprint is not a sacrifice! Many good environmental choices are also healthy choices and save you money! Walking and biking are excellent choices for health and saves you money while reducing greenhouse gas emissions. 

Household: A home energy audit is an excellent way to save money by reducing your utility expenses, increasing your comfort and doing environmental good. 

Some tasks are painless. Switching to LED lighting has a fast payback and added insulation increases home comfort. Many steps you can take to reduce your contribution to climate change are not painful at all. Even if climate change were not an issue you should do these things to reduce costs and improve the household financial condition.

Geothermal heat pumps for heating and cooling are extremely energy efficient (to the tune of 500% or more as the extra energy gain comes from the heat of the earth).

If you are building a new home or remodeling, now is a good time to plan for low carbon emissions or a zero-energy home. South facing windows can reduce winter heating bills. Where possible, have some of the structure below grade (basement). This allows natural heating and cooling from the earth to regulate your home’s temperature. 

Energy production: We detailed several options for reducing waste and lowering energy consumption. Now we turn to something even better: producing energy. The best part is the IRS gives you a juicy tax credit of up to 30% when you install alternative energy equipment. (The credit is currently 30%, but not refundable. You need an income tax to reduce before you benefit.)

Wind and solar are the two best option for most households. These choices require an investment, but are partially offset by tax credits and have a reasonable payback period which is getting better all the time as technology advances. 

Where you live also determines the best course of action. Sunny locations are better served by solar, for example. Local zoning ordinances also play a role.

I’ve read reports on fuel cells as a good alternative without being convinced. You can do an internet search if you want to explore this option. It works better on a commercial scale from what I read. Small garage units are not there yet in this accountant’s opinion. Maybe, soon. 

 

Investing

Frugal living cuts costs and reduces greenhouse gases a bit. Solar and wind installations leverage your activities some. But if you want to make an outsized difference while filling your wallet, consider this . . . 

Companies want to save money and increase profits where ever they can. Many companies are pushing the envelope far and fast.

Consider Wal-Mart.  Wal-Mart has upgraded lighting in stores to reduce usage while installing solar on their store’s  and corporate headquarter’s roofs. The gains are massive and growing. You can review their website with the link to see more things Wal-Mart is doing to reduce their energy consumption and production. 

Businesses you never thought were changing the world for the better are doing so as a part of their standard business practice. Think of Amazon. Amazon requires fewer stores to sell a massive amount of stuff all over the country. Yes, all that stuff is shipped which consumes fuel. However, if you traveled to a local store you would also consume energy in the process. It is generally cheaper to buy online and have it shipped than to run around town looking for what you need. So Amazon, by design, is more environmentally friendly and it shows in their stock price.

We don’t have room to discuss a long list of companies doing environmental good deeds. The examples above are to help you see how companies you choose to invest in might also be good environmental citizens. 

There is even more you can do, however. As an owner (if you own shares) of a company you have some say. Write to the board of directors or CEO. People do read these letters and pass them on to the intended recipient when good suggestions are sent. 

Better yet, start your own business! Steve Jobs once asked if you wanted to change the world. Say yes! You can profit with a business that helps all your clients realize their goals of reducing costs and environmental impact. Lead by example! And get rich in the process. Maybe that was what Wallace-Wells was talking about.

 

Coda

This is a difficult discussion by nature (pun intended). This isn’t about politics or taking something away from people. I’m not a big fan of the carbon tax. There are better solutions.

The more advanced the society the less impact on the environment they tend to have. (Think deforestation in poor countries as an example.) Rich people can afford solar and wind energy systems. In the end, wealth is good!!!

There is no need to deny climate change, even human caused climate change. Life has always affected the environment. That isn’t a bad thing; it’s just a thing that happens. The alternative is a lifeless rock in space. 

Those who are very concerned over climate change need to understand we can make a difference without fear mongering. Yes, it is bad. It is always bad! Understand, humans have always risen to the challenge. That is why we as a species have done more than all species ever to exist on the planet have done combined. 

We are a miracle and can keep living the good life for a very long time.

Perhaps Winston Churchill was correct when he said:

Now this is not the end.

It is not even the beginning of the end.

But it is, perhaps, the end of the beginning.

 

 

More Wealth Building Resources

Credit Cards can be a powerful money management tool when used correctly. Use this link to find a listing of the best credit card offers. You can expand your search to maximize cash and travel rewards.

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. 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.

cost segregation study can reduce taxes $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. 

 

I’m 19 and Bought My First Car, Cash

19 year old buys her first car with cash. No loans or liens. Living the debt free lifestyle is a sure path to happiness and wealth. #happiness #debtfree #noloans

Nothing like buying your first car cash. Lien holders: NONE! Just the way it should be.

My daughters are very different from the typical young adult. Growing up in the Accountant household was never easy. I preached the Good Word of financial responsibility their entire life without any indication any of it sunk in.

As they grew older the firsts rays of hope appeared when I overheard my girls repeating my messages on frugality, saving and investing. Still, parents always worry about their children and I am no different.

My oldest daughter, Heather, cut a path I never saw coming. She travels a lot more than this accountant would ever want to and teaches English as a second language. She will be in teaching in China again this summer before returning home to teach special needs children. She uses art as a way to facilitate communication. You can see her backstory here. Things have changed a bit since that last article, but that is how life works. All I can say is she is living the dream.

My youngest daughter, Brooke, always caused me more concerns . Major medical issues have always been a part of her life so there is plenty to worry about. It’s the price of love. I published the deeply personal story here.

Brooke was never much for school. Heather loves school and books; Brooke reads after several hours of torture. . . sometimes. I jest a bit, but only a bit.

Brooke was paying attention, however. She heard about all the other personal finance bloggers and their methods of building wealth. I brought my financial wisdom home from the office to spread the message, too.  Then, just prior to graduation, she decided she wanted to publish her story on how she plans to retire the day she graduates from high school. Okay!

While Brooke may have taken a tad bit of literary license, she has the right mindset. 

 

What is Work?

Brooke may not enjoy cracking a book unless she is specifically looking for something, but she isn’t stupid either; she just enjoys different work. 

Brooke turned 19 a few months ago and has been working almost from the day she graduated high school. She — wait for it — does landscaping. Yes, Brooke, standing a full 4′ 10″, loves digging in the dirt and planting things. And she makes good money at it.

She has good teachers. My parents have a landscaping business so it was the natural place to go. (I could not interest any of my children to pursue a life in the accounting field.) For 19 she really is starting to know her stuff. And she is fussy. Do it right or get the heck outta the way so she can.

And she saves money like it’s lifeforce (which it probably is).  Every penny (and I do mean penny) is saved and invested. This has grown to a fairly nice nest egg. And now it comes time to spend some of that cash.

 

Major Life Purchase

In May of 2018 the Federal Reserve issued a report on the economic well-being of U.S households for the prior year. The most shocking statistic repeated in mass media is that nearly half of all households struggle to save a mere $400 for an emergency. 

Is she old enough to drive? Yes! At 4' 10" she needs a car she can reach the gas pedal on. And she paid for it with cash. Here is how she did it. #financialindependence #wealth #money #buyingacar #nodebt

Is she old enough to drive? Yes! At 4′ 10″ she needs a car she can reach the gas pedal on. And she paid for it with cash. Here is how she did it.

Think about that.  Almost half of all households have a financial crisis if they get a flat tire or have a minor medical bill!

What makes this more alarming is that Brooke did more than deal with a flat tire this past week, she bought the whole darn car! Along with all 4 tires. Honest! 

And she paid cash. Like I said,my girls are not typical.

Yes, Brooke, at 4’10” (on her tippy toes), with serious medical issues, bought her first car cash.

Now granted, it isn’t a “new” car. The kid is smarter than to buy a high priced wasting asset. Bad enough she had to part with $4,800 (plus licenses and sales tax), say, $5,300 when all added together) to purchase a vehicle with utility.

But it is better to want than to have. Sure, dad’s 2000 Honda Accord is almost undrivable so it was time to buy her own car. But cars cost money. Real money!

The car purchase wasn’t as bad as the insurance. A newer vehicle not part of dad’s policy is slightly — to put it politely — more than what she was paying. 

She was up earlier than ever the next day to get digging in the dirt and planting trees. The car isn’t going to pay for itself.

 

Lessons Learned

Brooke needed a car and we spent plenty of time looking for one fit for her needs. She still lives at home so her other bills are practically zero. She helps around our house, too, so mom and dad are open to her staying until she decides where (and with who) she wishes to move forward in her life.

The next day Heather confided in us that she caught Brooke in the bathroom fighting back tears. She might have paid cash, but this is the first time her account value declined because she spent it. It wasn’t a good feeling.

A valuable lesson was learned. Spending is okay to get things that benefit you as long as you realize the price for such luxury. She could have biked to work or hitched a ride. Winters would have been hard, but manageable. 

Brooke also figured out real quick what the real cost of a car is. After she added the purchase price with insurance, license, gas, oil, other maintenance and the eventual need to replace the car it became overwhelming. Then she used dad’s secret formula to determine how much that money would grow into by retirement age if you kept it invested in an index fund instead. Then the tears had to be held back.

She is one tough young lady. She bounced back and knows the car is a tool. The greatest news of all is she will never pay a penny in interest. And she still has quite a large nest egg for such a young adult. 

 

Growing Up

I share Brooke’s story because so much of my children’s lives are not traditional. Heather just graduated from college with no debt, including student loans. (Think about that for a while.) Brooke managed a cash cushion that allowed her to by a fairly cheap vehicle at the ripe age of 19 and she wrote a check. (And it cleared!)

When most people are borrowing to the hilt for an education, my daughter was getting an education and not amassing debt to achieve her goals. I mean, come on! Heather has traveled the world more at 24 than I have in nearly 55 years. And Brooke is living the dream her own way, yet on another path. The common denominator is they did it with fiscal responsibility.

And that is why I wrote this short post. To show you that anyone can do it. Even Brooke, with medical issues that may make her life very short, she is living her life on her terms. 

She is the kind of role model you want to follow.

 

 

More Wealth Building Resources

Credit Cards can be a powerful money management tool when used correctly. Use this link to find a listing of the best credit card offers. You can expand your search to maximize cash and travel rewards.

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. 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.

cost segregation study can reduce taxes $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. 

Solutions to an Accounting Industry in Crisis

Hire and retain the best accountants and tax professionals. Find the best tax consultant to save on your taxes. #tax #accountant #employment #labor #jobs #hiringIn the middle part of the last decade I found myself standing in line at the grocery store waiting to checkout. Before me were two women in their late 50s discussing work.

One woman said to her friend, “Last year I worked in a tax office and it was the hardest job I ever had!”

I had to turn away as I suppressed a smile.

Later, as I reflected on that conversation, the smile faded. Is working in a tax office so hard? Did I really choose the of the most difficult of professions as my career? 

It would explain a lot. Hiring qualified tax professionals has become nearly impossible over the last decade. Robert Half recently reported the unemployment rate for accountants stood at 1.8% in Q1 of 2019. The news isn’t any better if you plan on hiring a tax professional.

 

Crisis in Review

The crisis in the accounting industry is self-feeding. The worse it gets the more workload is shoved onto the desks of the remaining souls. Stress is taking a toll.

Several support groups for tax professionals exist on social media platforms. Tax season reveals a serious level of stress for practicing tax professionals. Complaints of long hours and clients unwilling to pay higher fees to compensate for the added complexities of the new tax laws has more professionals looking to leave the industry.

And it isn’t the tax pros facing the worst pinch. The ultimate loser is the client. With fewer experienced tax professionals accepting clients it has put taxpayers at risk. The IRS knows taxpayers have limited choices when defending themselves in an audit which means the IRS’ advantage is larger than ever.

Tax preparers are becoming more selective, too. Clients with documentation a mess are being turned away. Even clients with their documents in order are finding it hard to secure an experienced tax professional who understands the Tax Code and is willing to take on additional work.

 

Growing Demand

Experienced tax professionals are like rock stars in many environments. An accountant in my office recently joined her mother for a Bingo event. She made the mistake of telling the lady next to her she was a tax professional. From that point on the questions came rapid fire with several people around her asking for her card and if she was accepting new clients. The relaxing weekend with mom turned into another afternoon of stress.

The best job in town is helping people reach their goals and dreams. Accountants do that every day! Join the team. Make a difference. #accountant #taxpreparer #professional #accounting #jobWhen I attend conferences (or on vacation or in the park or . . . )I get the same reaction. It becomes nearly impossible to enjoy time off if the people around me know what I do. They all have a quick question. They don’t understand an afternoon of quick questions is not time off to recharge.

People don’t care; they want answers their accountant can’t or refuses to answer. Or worse, they do their own tax return and want top quality answers without paying for it (until the IRS letter arrives).

It has gotten so bad that when I’m on vacation with Mrs. Accountant I tell people I’m a farmer (because I grew up on a farm and currently live on a hobby farm) so my vacation isn’t ruined. People are intensely interested in powerful tax strategies, but for some reason don’t want to pay the tax professional $500 for saving them $10,000. And have no problem consuming an accountant’s entire vacation. 

And we wonder why the profession is shrinking.

To put it in further perspective: My office turned away over 20 new clients on April 15th this year. They just walked in and wanted us to drop everything so their return got filed on time. We don’t advertise; they just show up. Experienced tax professionals — even inexperienced tax professionals — have no problem filling their book. All they have to do is let people know what they do and it’s all over.

 

Greasing the Squeak

There are three groups who are willing to pay tax and accounting professionals well: government, big business and the wealthy. I see this even in my small tax office. Wealthy people and large businesses (I have even consulted large hedge funds) approach me in a different manner than typical clients. While they are acutely aware of the pressure tax Accountants make the world go round, are a part of all business and personal wealth creation. Be a part of the solution. Be an accountant. #accountant #accounting #retirement #earlyretirement #financial independence #FIprofessionals face, they make it clear they will pay for my time and information. In many of these cases I’m paid a fee versus and hourly rate. The incentive is to get me to stop watching the clock and focus on the Holy Grail: lower taxes coupled with higher returns and increased net worth.

While government watches my work, they don’t necessarily engage me. I’ve made it clear I don’t work for government which is probably why I haven’t been invited to do so. Businesses and individuals need my services more even if they pay less.

It is easy to see who is on the path to financial freedom and those who will doubtfully ever make it. The questions and the approach scream failure or success almost from the first words. Wealthy people want to learn while those allergic to wealth want confirmation they are right. 

As self-serving as it sounds (and is), you need a tax professional. Finding one is the chore. I understand. When it comes to legal issues the wealthy (and smart) hire an attorney; when sick they see the doctor. When it comes to taxes — the largest expense you will have in life — too many hire a commissioned salesperson for guidance. That is like hiring the pharmaceutical sales rep if you are diagnosed with cancer! Or they go it alone when they are dealing with the sum total of all their income and wealth. Boggles the mind.

 

Solutions

It is easy to cry about the crisis in the accounting and tax industry. I’m a solutions guy so I prefer to look for answers instead. The outline above expressing the stress professionals in the industry face is only to set the stage so you understand what is going on behind the curtain. There are actionable solutions professionals need to know and the public needs to understand so they can gain the maximum advantage to the benefit of all.

Several goals are necessary to improve the performance of the industry: reduce stress on the accountant, adequate compensation to encourage more to enter and stay the profession and more responsiveness to the client. 

While salaries might be the easy culprit, money isn’t the overriding problem. Money would salve many wounds within the industry, especially at the entry level, and would encourage more to pursue an accounting career, but it will not alleviate the stress from endless deadlines and demands from clients. Let’s look at a variety of solutions, starting with salaries and fees, then addressing stress followed by industry trends sure to improve performance and reduce stress.

Salaries

Money motivates. . . to a point. Offering tax professionals and accountants a larger salary is always nice. But if the stress is never-ending and job satisfaction is low more money will only make it easier for more to retire early and leave the rat race. 

While there is an acute shortage of qualified tax and accounting professionals, many in the industry tend to work up to and beyond what is typically considered retirement age. People attracted to the industry love the work and the challenges even when it is demanding. Helping people manage their business, taxes and life is a powerful draw. Working with clients as they reach for their goals is addicting.

Accounting: A profession that pays more than you think. Might be time for a career change. Be a mover, a doer, a shaker: be an accountant. The career for the best people. #accountant #accounting #money #clients #career #jobsLarger firms have the advantage to segregating pricing from the front line accountants. Fees are negotiated between the firm and client by the sales teams. The tax and accounting professionals doing the work only need to record their time spent working on the account and serving the client’s needs. I do oversimplify a bit. The important takeaway is that the larger the firm the more distant fees and their collection are from the accountant doing the work.

Small and mid-sized firms are another story. Frequently the accountant working with the client in smaller firms is instrumental in the fee determining process. The client always wants a lower fee. What clients need to understand is a lower fee means a pay cut to the accountant in many cases, especially if she is also a partner or the owner of the firm. Nothing demotivates faster than a pay cut while the workload increases.

Fees and salaries go hand-in-hand. Clients need to be educated that lower fees mean fewer qualified candidates will seek a career in accounting and fewer qualified professionals available to work on their account in a timely manner.

The tax end of the profession feels the pinch hardest. Finding people willing to work a seasonal job at a high level of knowledge and experience for a seasonal salary has always been difficult.

Tax offices can best meet demand with adequate fees to cover the salaries of their professional team with a reasonable profit for the partners/owners. Tax work comes in various sizes. Business returns are different from individual return. For a tax office to be most efficient they need to focus on the type of client they wish to serve. It is difficult mixing very simple returns with complex return without dedicated staff to handle each type of return separately. Very small office are best served when focusing on a niche. Highly experienced accountants working on simple returns is a poor use of resources and an under qualified preparer working on a complex return opens the firm to litigation risk.

The right compensation package allows you to attract and retain high quality employees. Robert Half provides an excellent salary guide for the industry and there are several resources for compensation of tax professionals. Where you are located also determines how far you deviate from the averages. One thing is clear: Tax and accounting professionals can earn very substantial salaries with excellent work-life balance when handled properly. You want to be one of these firms or work for one.

Accounting and tax firms can maximize their efficiency by dealing with the next area of concern: stress. Reduced stress should lead to higher salaries and profits while providing optimal work-life balance and provided the client with the best value.

Stress

Stress is a constant in many accounting offices with deadlines constantly bearing down. Tax offices are even worse during the filing season. There are several way to reduce stress and improve your team’s well-being. 

It starts with the client. Some clients increase the stress in the accounting and tax office. Paperwork hastily tossed in a box and missing paperwork tops the list. Everyone in the industry can tell stories about clients from hell: bad records, difficult to work with, constant interruptions. These clients increase stress massively and can drain the lifeblood out of a firm, harming all clients. The faster you disengage these clients the better for your firm and remaining clients. If you are that client you want to reevaluate, as it will become increasingly more difficult to secure a place at a quality firm.

Once you have a clean book of clients that value your work you can now excel at serving your clients. 

Certain activities are more valuable to the client than others. Data entry is a low value task that also tends to add to stress when conducted for too long. The high value tasks are the most valuable to the client. High value tasks include planning and consulting.

Clients enjoy constructive conversations (planning and consulting) with their accountant because they feel they are getting value. And they are! No tax professional or accountant has ever created any real value plugging numbers. Business and personal planning — consulting — is a high profit activity for the firm that clients are happy to pay since planning with an experienced professional can yield a return into the three and four digit range. Smart clients are happy to spend $1,000 to save $10,000 or more in taxes or increase their net worth by orders of magnitude.

Consulting is a productive activity that also reduces stress. Professionals want to do more highly productive activities and avoid low value activities as often as possible. Productive is fun and makes clients happy; unproductive work is drudgery.

The issues boil down to managing the rote work activities and workflow

Automation

Stress-laden work (data entry and other mindless tasks) can be addressed with automation, outsourcing or a combination of both. 

I recently attended the XCM Users Conference in Nashville. I found XCM while researching outsourcing options and tried their services. 

While I viewed XCM as an outsourcing possibility, I missed what XCM was really all about: workflow. 

Workflow is part of the automation process. Efficient workflow reduces stress and errors. GruntWorx and similar services complete many of the basic entries on a tax return. As the technology improves less and less time will be required by the accountant for data entry. This frees time to provide value-added services to the client like deeper tax return discussions, financial statement review and planning/consulting services to increase client’s net worth and reduce taxes.

Drake Software has Secure File Pro (it integrates with their software) as a portal to transfer documents between client and accountant. (Accounts complain endlessly behind the scenes over how much they hate it when clients take a picture of a document and text it because these are so hard to read and save. Document managers solve most of this problem.) SafeSend is another option that works with many of the most popular commercial grade tax software. 

Automation reduces stress by reducing the amount of time buried in paperwork only punching numbers. Even if there is no time savings it is worth the added expense just for the reduced stress. 

As automation technology evolves into robotic automation, computers will be able to enter more and more of the data on a tax return. The tax professional’s job in five years will be to review returns and consult with the client; the computer will handle the original preparation of the return. This will free more people in the field for more enjoyable and productive tasks, partially resolving the labor shortage within the industry.

Outsourcing

Virtually all large accounting firms outsource a portion of their workload. In the last two tax season I worked on applying outsourcing a portion of my office’s work with less than exciting results

I’m not willing to give up on the idea yet as outsourcing coupled with automation will consume a larger and larger part of the industry in the near future. Even people self preparing will find in the small print some or all of their tax return outsourced (the online software is probably programmed overseas). Fighting the inevitable will leave you stressed with lower profits while your competitors have lower prices, higher profits, fewer errors, spend more time consulting with their clients and have a better work-life balance.

Accountants do it with balance. Joking aside, accountants have the best job in town helping people and businesses build a better community. Accountants are vital to the health and growth of families, businesses and the community. Make a difference. Become an accountant. #career #job #accounting #salary #wage #accountant #analyst #taxOutsourcing can be integrated with automation and probably should. 

Outsourcing also comes in two flavors: domestic and international.

Domestic outsourcing most clients have no problem with. Tax returns are either e-filed or mailed. In either case the data is handed off to another human being outside the firm for delivery to the IRS. This is all domestic and most feel comfortable with the process. 

Real domestic outsourcing, however, involves your tax firm getting help from another tax office within the U.S. It might be a branch of the same firm or an outside firm hired to do the work. Domestic outsourcing still has issues with staffing and costs tend to be prohibitive. 

International outsourcing is a whole different animal. Before an individual return can be outsourced in this manner requires approval by the taxpayer. Stiff penalties are a strong deterrent for a tax office to play it fast and lose. 

Wealthy people and corporations generally are more comfortable with international outsourcing because they frequently have operations and/or investments in international markets. When proper security precautions are in place (using a reputable firm only) there is no reason to fear international outsourcing. I will test this process deeper in the upcoming tax season with clients who give authorization and report back to you. 

When I attended the XCM conference I met many smaller firms that are using international outsourcing and making it work. (My first two years were false starts that were also expensive. If you can avoid the problems, especially the expensive ones, you may wish to consider learning from my experience.) 

Individual clients are the most apprehensive. My goal is to get 100 clients next tax season to authorize outsourcing. I never outsource any client work unless I disclose to the client first and get their approval. We’ll see how it goes.

Industry Trends

With the tax/accounting industry set to grow by 10% over the next decade, more professionals will be needed to complete all the additional work. As fewer people pursue accounting and tax as a profession automation and outsourcing will play a key role in completing work and managing workflow. Without these efficiencies more highly talented people will leave the field for less stressful work and from burnout. 

The demand for solid information has never been higher. The Tax Code is complex and getting more so every year. Without automation and outsourcing there will be no time for your accountant to spend quality time with you or they will need to raise fees massively to seduce more people to work for them. The trends are a gift that reduce stress and increase accountant productivity. This is really good for the client and the accountant alike.

 

If you demand your tax and accounting work be done the old-fashioned way, don’t call me; we are full-up. We use computers to prepare returns, e-filing to file tax returns, use automation where ever we can and would love to find an outsourcing solution so we can handle more of the clients we currently turn away. And less stress would be nice before burnout sets in.

And if you demand I punch all the numbers by hand or you do your own return, don’t ask me any tax questions if you see me at a conference or at the park. I’m just a farmer. I have no idea what you’re talking about.

 

 

 

More Wealth Building Resources

Credit Cards can be a powerful money management tool when used correctly. Use this link to find a listing of the best credit card offers. You can expand your search to maximize cash and travel rewards.

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. 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.

cost segregation study can reduce taxes $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. 

 

Why You Should Rent to Your Business

One of the most powerful tax strategies a small business owner has is the S corporation. Under most circumstances when a small business has grown beyond $30,000 to $50,000 of annual profits it is time to consider organizing as an S corporation or LLC electing to be treated as an S corporation for tax purposes. 

The tax savings can be significant. A sole proprietorship is taxed at ordinary rates, plus self-employment tax. For 2019 the SE tax is 15.3% of the first $132,900 of partnership and/or sole proprietorship profits. (If you have wages from other sources this is included in the $132,900. Once you exceed that limit from all these sources combined the SE tax declines to 2.9%.) Partnerships pass profits to the owners where they pay the SE tax along with income tax. For partnerships, guaranteed payments to partners and profits are both subject to the SE tax. 

An S corporation does not pay income tax. Instead, all the profits are passed-through to the owners of the entity and taxed as ordinary income only; SE tax does not apply to profits passed to owners of an S corporation. Owners of an S corporation are required to be paid reasonable compensation. The remaining profits avoid payroll taxes (FICA and FUTA) and SE tax. 

Small business owners usually want some legal protections as well. The corporate or LLC structure is available to accomplish these goals. The LLC is more flexible with additional legal advantages than straight corporate entities.

Once organized, the LLC can then elect to take on the characteristics of other types of entities for tax purposes. The LLC does NOT have a tax form at the IRS. The LLC either defaults to a disregarded entity (sole proprietorship or partnership if more than one owner) or elects to be treated as a corporation. The LLC can elect S status if they inform the IRS they want to be treated as a corporation. These are two separate elections: electing to be treated as a corporation (Form 8832) and then electing to be treated as an S corporation (Form 2553).

I discussed these advantages in greater detail in the past.

 

Proper Allocation of Assets

If you had an attorney handle your LLC set-up and a qualified tax professional handle the structuring of assets inside and outside of the business you already know the S corporation rarely, if ever, has real estate inside it. 

The proper structure of a business where the owners also control the real estate is to organize the business LLC, treated as an S corporation, to hold the business only and a separate LLC, defaulting to a disregarded entity, for the real estate. The business LLC then pays rent to the LLC holding the real estate. 

Recently a reader on this blog asked why this is important:

Comment from Hobo Millionaire:

Keith, would you mind explaining the benefit of you renting to your business vs your business buying the building and paying a note over time. Is there a tax issue with the depreciation? You can depreciate/offset your taxes and the business can’t? A specific post on this setup, showing actual numbers, would be great.

We will discuss why you never want to own real estate inside an S corporation or an LLC treated as such. 

Most of the time it is a mild inconvenience only. Then there are instances where the legal and tax problems are significant and serious.

Every issue surrounding separating the business entity from the real estate holding entity are easily remedied. 

 

Legal Problems

There is no law requiring you to separate the business from the real estate. However, the LLC is a legal structure designed to protect the LLC owners. If the real estate and business are held within one LLC, the real estate is at risk if the business gets sued. Depending on the industry, this can be a serious issue or a low-risk probability.

Separating business from real estate also makes it easier to sell fractional ownership of each easier. If the real estate is held inside the business LLC it is impossible to sell the real estate (or business) without selling the same fraction of the other at the same time. 

Example: If you sell 10% of the business LLC and the real estate is held within that LLC, you have sold 10% of the business and real estate. 

Held separately you can sell all or a fraction of either the business or real estate in any fraction you want. You can also add another member (or have fewer members) to the real estate investment without also including the individual in the business side of the equation. 

Once real estate is inside an S corporation there is no easy solution to removing it. Tax issues of holding real estate with a business inside the same LLC can be significant. 

Removing real estate from an LLC is deemed a sale of the real estate for tax purposes. This means all the gains and recapture of depreciation are currently reported and taxed accordingly. Even if you are a 100% owner of the LLC and remove the real estate from the LLC to your name only (ownership really hasn’t changed, now has it?) you will be taxed on the gains! 

Therefore, if you have real estate inside an S corporation it might be better to keep it there even though it isn’t an ideal situation. You should consult a qualified attorney and/or tax professional with experience in this area of practice to avoid making a bad situation worse.

 

Serious Tax Issues

S corporations are not taxed except in a few situations. In each situation where an S corporation does pay tax the S corporation was a C corporation first for a period of time. (Electing S status at the time the corporation is organized means there was no time when the company functioned as a regular (C) corporation.) 

Holding real estate inside an S corporation with accumulated earning and profits (AE&P) from when it was a C corporation has tax consequences. 

S corporations are subject to tax on Excess Net Passive Income (ENPI) when :

  1. The S corporation’s passive investment income is more than 25% of gross receipts, and
  2. At the end of the year the S corporation has AE&P from when it was a regular corporation.

The ENPI tax rate is 35%! Lets look at an example of where an S corporation might pay the ENPI tax.

XYZ Corp elects to be an S corporation with AE&P. XYZ has $100,000 of gross receipts this year. Of the $100,000 of gross receipts, $40,000 is passive investment income (dividends, interest, rents, royalties and annuities). Directly connected expenses to the production of the passive investment income  is $10,000.

The net passive income is: $40,000 – $10,000 = $30,000

25% of gross receipts are: $100,000 x 25% = $25,000

The amount by which passive investment income exceeds 25% of gross receipts is $15,000 ($40,000 net passive income – $25,000 25% of gross receipts).

ENPI calculation: $15,000 / $40,000 x $30,000 = $11,250.

XYZ as an S corporation with AE&P pays a passive investment income tax of $3,938 ($11,250 x 35%)

 

Easy Tax Problems to Fix

The good news is that all deductions related to real estate ownership remain intact even when you separate the business entity from the real estate entity. You can still borrow against the building and deduct the interest on the real estate holding LLC tax return, as well as, depreciation and other expenses paid and related to the property. 

You can still have a triple-net lease between the real estate LLC and the business LLC. This means the business LLC can still pay and deduct insurance costs, repairs and maintenance, property taxes, utilities and so forth. Only the interest and depreciation goes with the real estate LLC. Rent is paid by the business LLC and deducted; the rent is claimed as income by the real estate LLC. 

There are times where the real estate LLC might show a large loss due to a cost segregation study or some other tax strategy. This means your business might be earning a large profit while the real estate LLC gets a special tax benefit that allows a massive deduction which causes that LLC to show a loss.

Passive activity rules tell us we are limited in some instances, especially when our income climbs above $100,000. This is easily solved with a simple election on the individual’s tax return. (The LLCs don’t make the election. It is taken on the personal tax return level.) Having a large loss on the real estate LLC if you are a high earner would be a problem if there were no outs. 

The good news, again, is you can group the activities. By grouping the real estate LLC and business LLC activities you are allowed all the deductions as if they were one entity on the personal tax return. This resolved the passive activity rule issues.

 

Final Notes

There are no drawbacks to separating the real estate and business into separate LLCs that I’m aware of. Every attorney I’ve ever spoken with agrees with me on this. Real estate should never be held inside an S corporation or LLC treated as such. Any tax negatives are easily resolved with elections.

The issues involved with combining real estate and a business under a single S corporation are many. Legally you limit your options and put assets unnecessarily at risk. The tax problems are hard or impossible to resolve without inflicting additional tax pain.

Structured properly your business and assets can enjoy legal protections while basking in the light of lower taxes.

 

 

More Wealth Building Resources

Credit Cards can be a powerful money management tool when used correctly. Use this link to find a listing of the best credit card offers. You can expand your search to maximize cash and travel rewards.

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. 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.

cost segregation study can reduce taxes $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. 

3 Steps I Took to Reach Financial Independence by Age 32

Do what this man did to become a millionaire by 32, starting from nothing. This man's story of growth is moving as we went from poverty in a rural area to massive wealth in a few short years. See what he did to accumulate his massive wealth and become a millionaire.The news feeds seem to be filled with story after story of people retiring at a very young age and how they did it. Most of the stories are very similar and goal always seems to be retirement and world travel. 

But what about the rest of us who want to continue making a difference in the world and refuse to bow to hedonism? 

Most people, I think, are unhappy doing nothing for long periods of time. Travel is fun until it becomes your full-time job. 

There are the hyper performers — the Steve Jobs’, Elon Musks’ and Warren Buffetts’ of the world — who never stop working and then there are the folks we see in the news feeds looking to check out at the earliest date. 

Most folks, however, are somewhere in the middle. They want financial independence for the freedom and security, but enjoy the social and productive nature of gainful employment. These people might work a traditional job, run their own business, consult or volunteer. 

That is what this story is about: How I reached Financial Independence (FI) by age 32, defined as net worth north of $1 million, and the steps I took to get there while retaining a happy and productive life.

The finish line will not include exotic travel. Instead, I focused on what I considered important: family and community. I still run the same business I did back then and I’m married to the same woman (31 years and counting and it just keeps getting better!). I’m most proud of my successful and happy marriage, though that doesn’t seem to sell considering the number of stories on long and happy marriages in the news feeds. 

So this is my story of how I accidentally discovered I was a millionaire.

 

Humble Beginnings

I never inherited a penny in my life and if I am so blessed in the future it will make no difference in my lifestyle. Born to a poor family in the backwoods of Nowhere, Wisconsin, I learned of family and hard work from little on. When Vince Lombardi said “Winning isn’t everything; it’s the only thing”, he gave my dad the adage, “Family isn’t everything; it’s the only thing.”

And good thing, too! When you live on a farm in the middle of nowhere there are not many folks to socialize with other than family.

We never had much money growing up is what I’m saying. We always had food on the table, but I remember when I was very young my dad put a piece of plywood across two sawhorses as our kitchen table. (Well, it seemed like luxury living to me!) We were happy because the outside world had not yet crept in to educate us to how backward we were.

Somewhere in this utopia I decided I wanted to be rich some day. It was probably the outside world sneaking in and corrupting a certain accountant in the room, but I had to be receptive to be tainted.

But there was trouble in paradise. The late 1970s were a difficult time for farmers. By 1982 when I graduated high school the writing was on the wall and I was oblivious. 

Less than six months out from graduation the farm was gone. I had no skills to sell in a world not hiring. In 1982 no employer was hiring in the county I lived in. It was so bad employers no longer kept up the illusion and didn’t waste paper giving you an application. The answer was NO!

I managed to save a bit in this environment. I turned 18 with a couple thousand to my name and no debt. 

 

Budding Entrepreneur

The money I had came from a variety of sources, a common theme in my rise to FI. In high school I got up every morning to milk cows at 4 a.m. After school I started milking cows again for 4 hours. I pulled a lot of teats, folks. You might laugh at that, but you would lose that grin if you were there.

For 56 hours per week I milked cows, plus other farm chores, and was paid $40 per month for the effort. I spent nothing! Not because I was smart, but because there was no place to go to spend the money. Town was a long walk and there weren’t many stores in the closest towns.

My freshman year of high school I joined the Future Farmers of America (FFA). To raise money members of FFA sold light bulbs. (Back then we only had the incandescent bulb which burned out a lot.)

I took to selling like a duck to water. I talked to everyone in town and every farmer within a day’s drive (I might be stretching the truth a bit). And when the light bulb drive was over I had sold more light bulbs than anyone in FFA history by a very large margin. 

I could sell. That is an important trait other articles on FI don’t mention. Working a job with good wages and benefits and living a frugal lifestyle has several glaring problems.

First, you might not have a high paying job. Minimum wage is not going to get you there by age 32.

Second, you might live in a high cost area of the country. 

Third, formal education and high IQ — and EQ — also make a difference

Forth, it assumes you are in good health.

Fifth, that you never lose that high-paying job while running for FI.

I certainly wasn’t connected and let me be honest here. I, ah, ahem, don’t have a college degree either. {cough} 

You heard me! I did take some college courses, but not enough credits or the right combination for even an Associates. And here I am with my enrolled agent license (the EA is a licence, not a degree) teaching other tax professionals and hiring highly educated people, some of whom have moved on and work for the IRS now.

Not being the smartest guy in the room or with the right education (or pedigree, I might add), I wasn’t on anyone’s radar as Most Likely to Succeed. So what did I do to reach FI so young?

 

3 Steps to Financial Freedom

From graduation day to my 22nd birthday I put those selling skills to work and managed to accumulate a $200,000 nest egg. And remember, this was back in 1986 when $200,000 was serious money. A $10 an hour job was good money in those days. (And I walked up hill to school (both ways) in snow all year around. Just sayin’.)

FFA decided to expand their light bulb fundraising to include garden seeds. There were no records to break as it was the first year offered. Needless to say, I sold a lot of seeds too. (Would you like some light bulbs with those seeds, sir?)

Ditch the job and start living. No more daily grind for the man. Instead, use these 3 steps you build your fortune. #retirement #job #finance #work #wealth I bowed out of selling for the school my junior year and started selling imported goods wholesale to retailers (and anyone else who would buy). I got my supply from a company called Specialty Merchandising Corporation (SMC). Oh yeah, those were the days. And, oh what a lesson I learned.

You see, people will buy over-priced cookies from young girls when it feeds corporate headquarters of a non-profit. But start selling stuff to line your own pocket and the number of “yeses” to “nos” changes radically!

So I improved my skill sets.

By the time I reached the age of majority I accumulated more experience than wealth. Sure, I had some money, but I wasn’t flush. The family farm was gone and that avenue of gainful employment with it.

I worked a short time in my dad’s agricultural repair business. It was tough sledding for dad back then, too. He’s doing well now, but in 1982 it wasn’t a pretty sight.

While working for dad earning a meager wage (money was preserved to pay other employees and to get the business profitable enough to feed a family of four) I worked 80 or more hours per week (record week on the job: 122 hours). I supplemented my income preparing taxes in the winter months. 

Before we knit our eyebrows in dad’s direction, understand it was survival back then. I worked long hours 7 to 9 months of the year (depending on the weather); January and February were light so I had time to prepare taxes. Late May got really busy and for the rest of summer and autumn. So I could earn more in a few months doing 50 or so tax returns than I could working day and night the rest of the year.

To be fair, dad paid me $40 per week, if memory serves, and later, $100 per week. (After I got a raise I quit. Ungrateful kid.)

Readers quick at math will realize this doesn’t add up to $200,000 in 4 years. And that is where we begin our journey of Steps to FI:

 

Step 1:

Unless you make a lot of money at your traditional job you will need multiple sources of income

Let’s count where all my money came from. 1.) Dad was paying me $160 a month, 2.) I was still selling SMC and profits were growing, 3.) I was preparing a small number of tax returns with virtually no expenses (gross margins approached 100%!) and, 4.) interest and dividends.

Interest rates were sky high in the early 1980s. Passbook savings accounts (remember those) paid a minimum of 5%, but most bank products yielded near or over 10%.

While bank interest was guaranteed and the rates mouth-watering, I decided I wanted to own a piece of America by owning stocks. I fondly remember one of my first purchases, a company called, ah, what was that now, oh, Phillip Morris (MO). And I owned a piece of Wrigley, too, until Warren Buffett screwed it up by funding the buyout of Wriggly by Mars, Incorporated for cash. 

I still own those shares of Big MO, now called Altria. The dividends were and are a growing part of my income and don’t think for a moment I didn’t realized the value of getting paid for not working; just for own a piece of a business.

I can’t stress enough how important it is to have more than one source of income. If all your income sources are in one basket and that basket withers you are screwed. You might put all your eggs in one basket with a business since each client is a separate income stream, but relying on one traditional job as your only financial resource is problematic. A simple layoff can destroy all your plans.

 

Step 2:

A few years later I got it in my head I would invest in real estate (RE) and go full-time as a tax professional. SMC died on the vine as I focused on building my practice and managing my RE investments.

Which leads to the second step I took toward FI: I owned income producing things (RE and the business) that I had a reasonable amount of control over. 

A job can disappear just like that through no fault of your own. The company can go belly up, the economy can slow, or your job gets outsourced.

Business and real estate have plenty of risk, but it was risk I could control. The Tax Code is never going away and when people try to stop paying less in tax I’m in trouble. Until then I’m golden. 

RE is also risky and comes with a mortgage to increase the incentive to get those units rented. Doing proper research before buying and joining your local apartment association (as I did) and applying some sweat equity increases your chances of success.

I used Step 1 above in RE as well. One vacant unit, if that is all you own, is a 100% vacancy rate. I bought several properties fairly quickly because I knew a few vacancies would only be a nuisance then rather than a catastrophe. 

I worked hard at my businesses. There was no free ride for this backwoods boy. Sometimes it hurt, a lot. There were times I didn’t know what to do. But I never stopped learning and never backed away from labor: manual or desk work.

In Step 2 I structured several income streams into something I had at least some control over.

 

Step 3:

You would think after my business was profitable and the rentals started throwing off reasonable income I could lean back and enjoy the ride. And if you think that you are wrong!

Retire early with these 3 steps used by a wealthy accountant to retire at 32. Early retirement can happen if you follow the simple steps this man used. #FIRE #financiallindependence #money #wealth #earlyretirement Before it was made popular by the tech industry, I always pushed my business into new territory. My goal was to create the company that would replace my business before competitors do.

I was the first in my community to offer free electronic filing. That might not seem like much now, but back then it caused my tax practice to grow explosively. When Wisconsin offered e-filing I was first on the list because the state knew I offered it for free and had no fraud cases. In other words, I could offer State of Wisconsin e-filing in my Wisconsin community for free before competitors could even offer the service. By the time e-filing was rolled out for all I had a commanding lead.

I also sold life insurance in the business for a while. I was never big on traditional life insurance, but key-man and for buy-sell agreements it made sense.

I was also a stock broker for a number of years before I realized I’m a tax guy first and hawking high-fee investments rubbed me wrong.

You can read this blog and see example after example of things I tried. Some ideas worked great; others I’d rather not mention (but share anyway so you benefit from my experience). 

And that is Step 3: Try an idea. If it doesn’t work, step back and reevaluate, then try again until it works. Never over-commit. Test small before jumping in with both feet. You don’t want to do something that destroys what you’ve built to-date. Once you determine you have a winner you can expand. Remember, most ideas don’t work! Trying a lot of ideas to see what works best before committing serious resources is a better way to reach FI at a young age.

 

Accidentally Get Rich

Of course, you need to avoid debt as much as possible and pay it down quickly when it arrives. You also must spend less than you earn if you are ever to build real wealth. You’ve heard it all before. It’s really simple. Spend less than your earn; invest in index funds; wait. If you want faster you better be good at sales or business; preferably both.

And this is where it gets interesting and how I discovered I blew past a $1 million net worth without even knowing it!

From age 22 to 32 a lot happened. My business grew and I got married. (Marriage brings in additional considerations.) Mrs. Accountant was open-minded, allowing me to funnel excess cash into investments rather than a higher lifestyle. I went from around $200,000 in cash to $1.2 million.

Remember the real estate investments I had? Well, eventually my dad, brother and I started a partnership with one-third ownership each. We bought a lot more properties. 

The bank that funded our RE holdings required we provide a personal financial statement every year or so even if we were not borrowing more money.

So I sat down to figure out what I was worth. I valued all RE holdings at what we paid for them rather than what I thought they were worth minus mortgages. I added retirement and non-qualified accounts. I valued my tax practice at zero and the practice had no debt (I only had real estate debt at the time).

As I added the values of all the accounts it started to dawn on me I might be a millionaire. I had a good idea what my share of the mortgages were and the assets were climbing too far above $1 million to drop below that level once mortgages were subtracted. 

When I struck the double lines below the bottom number it was clear I surpassed $1 million by a large enough margin to say I was a millionaire. 

Mrs. Accountant was in the dining room clipping coupons. I shared the good news. All she said was, “That’s nice,” and kept clipping coupons.

You see, I was more important to her than any amount of money. She lives frugally as I do and enjoys every day we are together. She saw, better than I, what was really important.

It was a let down in so many ways. Mrs. Accountant wasn’t excited about the money! I didn’t feel different either. I missed the big day when I crossed that magical seven-figure number. There was no bump or turbulence to indicate I crossed into another zone of existence. In reality nothing had changed; only my mindset.

Once I digested that it was only a number I decided to do what I always did. I tried lots more things, grew my business and expand my sources of income, much of it passive.

You see, I learned the most important step of all: It’s the journey that matters, not the destination. And I had the best mate in the world along for the ride.

It was that day when I was a 32 year old man that I learned to live life for the first time. Live, for Real. 

And I discovered I was always wealthy as long as I had my family.

 

 

More Wealth Building Resources

Credit Cards can be a powerful money management tool when used correctly. Use this link to find a listing of the best credit card offers. You can expand your search to maximize cash and travel rewards.

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. 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.

cost segregation study can reduce taxes $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 Best Rental Property You Can Buy

Fool-proof real estate investing. Investing in real estate is easy and profitable if you know a few secrets to success. Buying right is the first step. Real profits are found by renting to the right tenant and keeping them.It’s official. I’m back in the real estate business!

Before you get too excited, let me explain. Waaaay back in the day I was a third owner of a real estate partnership with my dad and brother. We bought investment properties of all kinds. We specialized in single-family homes, but owned plenty of multi-unit buildings, storage and rooming houses. 

My partners were more along the lines of the silent kind. I, of course, could bounce ideas off them, but the workload fell on me. I hired maintenance staff and crews and was always interviewing potential property managers. Before we closed shop we had taken an interest in 179 buildings (not all at once). At the peak we had somewhere north of 80 units scattered all over NE Wisconsin.

We sold properties frequently once our inventory grew. We held some properties longer — our first property was one of the last to be sold.

After we were in the business a few years we gained a reputation for renovating run-down properties. I used these as a way to generate cash for long-term real estate investments.

Eventually a few local cities had us on speed-dial when they condemned properties. We picked up these rat-traps for pocket change ($5,000 or less). Spent $40,000 or so renovating and sold for $70,000 or so; rinse and repeat.

Buying and selling (and managing) so many properties eventually caused me to burn-out. It was a good (if not sometimes a dirty) business. I washed my hands of investment properties and sold en masse.

For years we were buying and selling multiple properties per month. Now I was just selling. 

 

Investing with a Purpose

The last rental property in the partnership was sold in the year 2000. I never thought it was more than a passing phase of my life. I did the real estate thing and was content. 

Except I wasn’t really out of real estate.

When $40 million of real estate transactions cross your desk in 12 years you learn a few things:

  1. Real estate agents are full of schmoo. They are in the business of selling real estate and will say whatever necessary to earn a commission. (I have changed my opinion on this and think agents are vital in the buying, selling and managing of RE.)
  2. Real estate investments are “passive” only in the Tax Code! Buying the right property takes work. Maintaining properties — even with a property manager — also takes work. Index funds are truly passive.
  3. Real estate isn’t a free ride to wealth.
  4. Tenants are people and people are not always fun to work with, especially when they owe you money and while they live in your property.
  5. Good tenants are awesome and should be considered for inclusion in the next family reunion.
  6. Bad tenants cause normal accountant’s to reconsider bringing back debtor’s prisons.
  7. People are destructive, especially when they don’t own it.
  8. No money down deals are not the best deal going unless you’re selling a real estate investment course on late night TV (back in the day) or on Facebook (today’s version of late night TV).
  9. Work doesn’t get itself done so stop crying.
  10. All this said, RE can be a powerful income source with plenty of wealth building qualities. And that is why I am back.

The Best Tenant

As I alluded to earlier, I never really got out of the RE business. In 1995 I bought the current office building I rent to my tax accounting practice. This building generates $36,000 of annual rental income and the tenant is the best I ever had! For some reason the tenant and I always agree. Go figure!

How to find the best and most profitable tenants. Buying a rental property is only the first step. Finding an keeping the best tenants is vital to success. Supercharge your real estate profits and make it fun at the same time. #realestate #investmentproperties #tenants #rentals #profitsSo, the best tenant you will ever have is you. But if you don’t have a business (treated as an S corp, I might add) this opportunity is unavailable.

There is a runner up option nearly as good, however.

To understand this second option I need to explain my mindset. When researching an investment (or tax deduction, or investment or. . . ) I prefer more than one out.

What do I mean? More than “one out”.

As an example I recently commented that I prefer more than just a deduction for my retirement contributions. This means the tax break isn’t enough on its own. When planned correctly, a retirement plan contribution can open up additional tax breaks. This is the doubling and tripling of benefits I call more than “one out”.

In real estate it is the self-rental concept that provides multiple values: a dream tenant, fills a business need, rental profits and tax benefits all go to my best friend (me) and no bad tenants. Under the Tax Cuts and Jobs Act of 2017 it also opens the opportunity for more of a Qualified Business Income deduction. 

 

Another Awesome Tenant

This Sunday my oldest daughter, Heather, graduates from college. She had a lot of false starts as she found her way and daddy refused to provide a free ride. (The first test of college is getting there. Loans and daddy are not a part of “getting there”. Scholarships, a job or business and hard work are.) 

The best and most profitable investment properties to buy. No matter how high real estate prices climb, profit is made by renting to the right tenant. This fool-proof method of property management can send your profits to the highest ever while virtually eliminating problems. Make being a landlord fun. #landlord #rentals #profit #realestate #investmentpropertiesHeather won several awards along the way and served as an officer in PTK this last year. She has matured a lot.

She also fleshed out a business. She is returning to China this summer after finishing a tour in South Korea teaching English as a second language. 

Her business involves tutoring and she has several product ideas and services coming online. And, smart girl she is, tested everything and never quit just because an idea failed. She learned and grew with each step. And now it is time to move out and tackle the world for real.

And this is where my renewed RE adventure begins.

Heather tried living near the campus while in college, but got an eyeful of the idiocy of the average young adult. She also experienced bad landlords and roommates.

So Heather took control and decided she would pick her roommates this time versus the school or landlord. She wants to keep costs low, sharing the expenses of renting with a roommate, while being closer to her clients (she’s been invited to several local schools and universities to teach). 

She found the right roommate after screening out several. Then she started researching accommodations and running numbers. 

Then she told daddy. Daddy almost lost it!

Rent has changed in the last 20 years! (God, I’m getting old.) Rents were from $850-$1,200 per month on average and they were nothing fancy either. (Yes, we live in a pretty reasonable market yet.)

This caused my accountant mind to start shaking out the rust and think about this situation a bit. It became clear, after a cursory review of available local duplexes and 4-plexes, that it would be better if I bought a property and rented to Heather and her friend. 

And that is where we are at. I’ll purchase a property this summer before Heather returns from her South Korea/China trip and her friend starts her next semester of classes. Both have jobs and adequate income. 

 

Doing it Right This Time

All this assumes you have a responsible child. There are plenty of horror stories of parents buying a home for their child and getting killed financially. 

I would not have considered this even a year ago. (She could have remained living at home with mom and dad if necessary.) But Heather has finally reached the tipping point. Her business has reached critical mass and she has a waiting list looking for her services. 

Heather was ultra picky when vetting potential roommates. She wanted two roommates, but could only find one worth keeping. For now.

You might be tempted in a situation such as this to have your child manage the other units. It’s an insane thought so drop it fast! Heather is a teacher and business owner with no skills in — or desires for — property management. 

Heather and her friend will pay rent to me with a regular rental contract like any other landlord/tenant relationship. We do it by the book.

The remaining unit/s (I have my eye on a 4-plex, but will settle for a duplex) will be managed by a professional property manager.

I have no interest in managing RE ever again so a manager is a must. The only advantage of having my daughter live there is the updates on the needs of the property (something needs fixing or updating). Unless she says anything, the other tenants will not know her relationship to the landlord. Squeak, squeak. 

 

Final Notes

This wasn’t a numbers post on how to buy the right property at the right price; I did that previously

This post should help you start thinking about the additional benefits of RE ownership beyond the mere rental income (the doubling and tripling of benefits). 

Renting to your own business is a no-brainer in most real estate markets. The high-priced coastal cities of the U.S might be an exception, along with Denver. Of course that could change over time.

Rent has an element of profit (or at least it should). Slumlords take shortcuts to keep their rents lower, but you don’t want to live there. Good properties, good apartments, cost money. And good landlords are as hard to come by as good tenants. There are plenty of them out there but they are already renting their apartment from a good landlord and have no intentions of leaving anytime soon.

The next best option is renting to a responsible family member. This isn’t an easy road. My youngest daughter isn’t close to being there. Heather made the leap recently which gave me the idea and hence this post.

Doing it right means buying the right property that cash flows out of the gate and having a property manager handle the rest. 

Heather may find additional tenants for me from her work, but it still will all go through the property manager. I’d rather pay a fee than spend time managing the property

It’s the right thing — and profitable — thing to do.

And, of course, this assumes you buy a quality piece of real estate and maintain it.

 

 

More Wealth Building Resources

Credit Cards can be a powerful money management tool when used correctly. Use this link to find a listing of the best credit card offers. You can expand your search to maximize cash and travel rewards.

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. 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.

cost segregation study can reduce taxes $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.