Good day brilliant minds! I thought it would be helpful to do a recap of the conclusions from this past week’s posts given we had over 200 comments. Understanding happiness, taxes, and net worth is key.
The purpose of these articles is to get people thinking about issues so we can be more open minded. If anybody has ever participated in the case study method of learning in graduate school or elsewhere, you’ll know that there isn’t a right answer so much as a right direction.
It’s so easy to get caught up in your belief that your way is the right way. That’s a dangerous, dangerous path to take!
Understanding Happiness, Taxes, and Net Worth
The Ideal Income For Maximum Happiness
* Being satisfied with what you have and what you make is an incredible thing. The topic at hand isn’t whether you are happy or not as some debated. The topic is about achieving the maximum level of happiness based on a certain income level.
* We agree that a happy person will be happy no matter what level of income. Again, this is not the point of the article. The point is figuring at what level higher income stops bringing more happiness.
* Earning $75,000 is a solid figure in almost every city in the country except for NYC, San Francisco, Chicago, and LA. In NYC and San Fran, $75,000 is very average due to the extraordinary cost of living. Given that housing costs are local, but Federal taxes are nationwide, you can understand the issues. I’m here to tell you that happiness increases beyond $75,000.
* $200,000 is the level where incremental happiness stops because you are persecuted by the government and the media for being “rich.” Whether you are rich or not is besides the point. You are made to feel bad about achieving further as your efforts for progress are stunted.
You get frustrated by having to pay an ever increasing amount of your income to taxes the more you progress in your career since you are already paying a large absolute amount already. You start thinking if you can do it, why can’t others and begin losing some perspective of how lucky you are.
Taxes Are A Killer For Motivation
* The government is smarter than you think. Many of our leaders are millionaires and know what maximum happiness feels like. They are afraid that once people start refusing to be average, they can no longer control and manipulate you as easily. Believe in yourself, and believe you can do better.
* Many cities, counties, and states have budget deficits which need fixing. If 30% of Americans rent, why not introduce an annual renters tax that is paid directly to the city, county, or state from the renters? Practically all homeowners were renters before, and there is a part of me who believes renters do want to help. A Renter Tax would allow renters to help pitch in by cutting checks directly to the government. Unfortunately, the majority of readers, who so happen to be renters oppose this idea.
* Most opponents argue that renters are already paying for property tax with their rent. This is an incorrect assumption as a landlord can say his rent is for their annual Vail trip ski vacation for example. If there is any correlation with rental income, it is with mortgage expense. Remember, property taxes are paid to the local government, and not to the homeowner. If you are arguing against this, then you should also be a believer in the Emergency Fund Fallacy. You can’t have it both ways and need to get your mind straight.
Even More Taxes
* Double taxation is rampant in America – it is the American way. When you buy a new car, you pay the sales tax. When you sell your now used car, the new buyer pays tax and so on. As a shareholder, when you receive dividends, you have to pay dividends even though the dividends are after tax distributions already. When you rent a DVD, you pay a sales tax for the rental and so forth. There is no difference in the Renter Tax proposal.
* The next time you are pro raising taxes, and you are a renter, remember that if you aren’t willing to pitch in directly, how do you think those who are already pitching in the most will feel if they are asked to pitch in some more? You can make arguments for why you do pay until the cows come home, but you aren’t directly contributing. In order to be treated equally, it’s important to contribute equally. You can’t have your cake and eat it too.
* Understanding happiness means being able to successfully minimize your tax bill.
Net Worth Matters
The Average American Net Worth Is Huge
* The article has nothing to do with net worth at all. It’s a showcase of the incredibly irrational nature of human beings.
* How can the majority of readers believe the American average net worth of $182,000 as stated by the Wall St. Journal is too high, yet claim to ALL have net worths greater than $182,000? Silly is a silly does.
* We are nobody special. If we start feeling we are special and everybody else is average, we’re in for a rude awakening. Others are just much more modest about their wealth in this case than we are. There is much more wealth out there than you can ever imagine. There are many more millionaires than you think and fortunes are everywhere!
* Stop trying to make yourself feel better by keeping others down and discrediting statistics. It just makes you look petty and insecure. Instead, take the bright path and feel hopeful that if the average net worth is $182,000 per person in America. Americans have a tremendous cushion of wealth in case things turn for the worse again. Use the statistic to understand why consumerism is rampant. Is it any wonder why Americans keep thriving? No, because you now realize Americans have so much.
Related: The Average Net Worth For The Above Average American
Understanding Happiness Means Understanding Money And Motivation
We don’t have to agree on everything. We really don’t. What’s important is to always keep thinking in ways we aren’t accustomed to. This is why fluency in a second language for example is so important, because the language brings with you its culture and customs.
I’m proud that we have so many good thinkers visiting Financial Samurai. It’s what makes us unique in the personal finance world. Fight on illuminated minds! Understanding happiness, taxes, and net worth is a lifelong endeavor!
Related: Don’t Make $400,000+ A Year, It’s Not Worth It
Recommended Actions For Increasing Your Wealth & Happiness
Manage Your Finances In One Place.
Understanding happiness means getting a handle on your finances by signing up with Personal Capital. They are a free online platform which aggregates all your financial accounts in one place so you can see where you can optimize. Before Personal Capital, I had to log into eight different systems to track 28 different accounts (brokerage, multiple banks, 401K, etc) to manage my finances.
Now I can just log into Personal Capital to see how my stock accounts are doing, how my net worth is progressing, and whether I’m spending within budget. The best feature is the 401K Fee Analyzer which is now saving me over $1,000 a year in portfolio fees I had no idea I was paying! There is no better free online tool out there to manage wealth. It only takes a minute to sign up.
Start A Business.
Understanding happiness means being your own boss. A business is one of the best ways to shield your income from more taxes. You can either incorporate as an LLC, S-Corp, or simply be a Sole Proprietor (no incorporating necessary, just be a consultant and file a schedule C).
Every business person can start a Self-Employed 401k where you can contribute up to $54,000 ($18,000 from you and ~20% of operating profits). All your business-related expenses are tax deductible as well. Simply launch your own website like this one in under 30 minutes to legitimize your business. Here’s my step-by-step guide to starting your own website.
Updated for 2021 and beyond.
Khaleef @ KNS Financial says
Sam, it is not incorrect to say that because a landlord chooses to take the rent and pay for a vacation that property taxes weren’t a consideration when determining the amount of the rent.
Again with a store collecting sales tax. They do not have to take the exact $10 bill that you used to pay sales tax and hand that over to the government, they just better be prepared to pay up the full amount of taxes. They could have a pizza party and tip the delivery person with the $10 bill that you gave them for sales tax – it doesn’t matter. The state just wants their $10 when it’s due.
The same is true with a landlord. If his property tax increases significantly, then he will raise the rent whenever possible to make up for this tax increase. It doesn’t matter if he signs the rent check over to the local government, or if he goes to Vegas with it – he just better be prepared to pay the tax when it comes due, and the rent will make that possible.
Financial Samurai says
Wouldn’t creating a Renter Tax make renters more financially responsible and socially conscience and caring about the environment?
Please tell me you are a homeowner. Thanks.
Ken @Spruce Up Your Finances says
I’m with you Mike and Kevin, I also disagree. I am also a homeowner and a renter (try to figure it out). I’ve written an article as a rebuttal on this one
“if homeowners argument is about EQUALITY on the tax law where they don’t benefit, then they need to agree to give up the other tax relief that benefits them as well. This way there is TRUE EQUALITY between renters and homeowners. Don’t ask for equality on one end and ignore tax relief where you fully benefit!”
My point is, homeowners should not envy the renters if renters don’t pay rental taxes. This is the only thing good going for the renters while homeowners get to have more tax benefits. We’re talking about 3 great tax breaks for the homeowners versus one tax relief (no rental tax) for the renters and you want to take away that single tax relief for the renter? I just don’t get it!
Sam, I am a renter and I disagree with double taxation of renters. When I will be a homeowner in a few months, I will still disagree. Unless the landlord is renting at a loss or for free, then renters do pay for the property tax, regardless of whether the landlord pretends it’s for a vacation to Tahiti or not. If the property tax was eliminated, rents would adjust downwards in response (or the landlord would have that much more money to go toward a vacation).
Now, if what you want to do is make it so that the renters directly pay the tax instead of paying it indirectly through the rent but keep the total bill the same… then you can do it. It doesn’t increase government revenue, but maybe it makes the tax more “visible” to the renter. I guess that is not a bad thing.
Sunil from The Extra Money Blog says
see I agree with this, and this is what I was trying to say in my response to the original post. i do not think it came out right, so thank you Kevin for reinforcing the point. somewhere in the mix, we are all paying our fair share. just the presentation appears different . . .
The Financial Blogger says
That’s because you live in Qc and there is not more room for taxes ;-)
Seriously, I agree with you. There is no point of having 2 different inviduals with 2 different status (owner and renter) paying the same taxes. If the owner wants more money, he just have to increase its rent ;-)
speaking of happiness, it is much related to love and ideas as it is to money. in fact money doesnt make me happy at all but my ideas and my love for life sure do.
Mike Hunt says
Well right now property taxes are paid on the number of houses not the number of people living in an area. That seems fair as it is truly an ownership tax. If you are too poor to own the asset then no tax is paid.
Taxing all people for either renting or buying would be like taxing the 50% of Americans who pay no income tax. You could use the same logic that by getting more people to pay tax there is more ownership into our system. However you will face a lot of opposition if you do this.
You need to open your mind to the fact that a renter is already paying taxes because the property already has taxes being assessed that the landlord pays…So, open you mind to that fact. I am a homeowner, not a renter and I am sick of new taxes no matter where they are coming from. When I was a kid, our sales tax was 3%, now it is 8%. We have worse roads and worse schools than we had then! There is just too much government and legal issues that drain all the money instead of going directly to build roads and pay for schools. Don’t even think about suggesting more taxes! ugh (yeah, I’m a crotchedy old man who loves life more than taxes)
Still not buying the renter’s tax. I don’t own the land, I don’t own the building, renter’s rights are extremely limited compared to a homeowner’s. What exactly am I paying tax on?
Financial Samurai says
On living. If you are using the resources i.e. roads, schools, parks, it doesn’t matter if you don’t own anything, you are a user of resources and should pay.
The whole paragraph on why a renter isn’t paying property tax (albeit indirectly) is confusing to read.
opponents argue that renters are already paying for property tax with their rent. This is an incorrect assumption as a landlord can say his rent is for their annual Vail trip ski vacation for example.
But the landlord pays taxes. If one cannot assume that all costs the landlord pays are passed along to the renter, then what is the benefit of owning rental property at all? How would you make any money? People who rent their 2nd houses for the cost of the mortgage are coming out at a loss, and that’s really their problem, isn’t it? But they already pay property tax.
If there is any correlation with rental income, it is with mortgage expense.
And repair expense, and business taxes, and getting new renters by paying the salaries for those nice people working at the desk in the rental office. So really, I’m paying for taxes, salaries, and for people who can’t unclog their own toilet (seriously, the apartment complex management will send someone to do that!).
Remember, property taxes are paid to the local government, and not to the homeowner.
If you are arguing against this, then you should also be a believer in the Emergency Fund Fallacy. You can’t have it both ways and need to get your mind straight.
Are you arguing that because a landlord can choose to use your rental funds any way he likes, and he does not have separate money pools for “Taxes” and “Jackson Hole, CO”, that it’s the same thing? Because then your mortgage argument is just as false as the taxes argument.
I agree that there’s too much double taxation in the US. “What’s important is to always keep thinking in ways we aren’t accustomed to.” – I really like this. If people were never willing to open their minds and to thinking about things in a different way we’d all still believe the world was flat!! Sometimes it’s hard to think about ideas and opinions that may be so different from our own or what we were raised to believe, but it’s so important. Great posts!