Tag Archives: government

Why Sometimes More Taxes are Good for You

How can more taxes be a good thing? Well taxes are something you pay either out of your earnings/income or your spending/consumption or when you die. So if we just look at the first type, income taxes, we can see that the amount of income tax you pay is largely determined by how much income you make.

I’m guessing you’d like to make more income this year. Specifically either residual income or capital gains income. So paying more income taxes can actually be a good thing; it means you have made more income.

Before you assume that paying more taxes is universally good I want admit that more taxes isn’t always better. For example if you pay sales tax on the purchase of a new car, that’s not necessarily good. Or if you forget to deduct retirement contributions form your income, that’s not necessarily good.

To be clear, income taxes should be reduced as much as legally possible. However overall, an increase in taxes probably means you’re making more money.

In conclusion, avoiding income tax at all costs may actually be a bad thing because it’s keeping you from earning more money. Go earn more money and eventually you may find that you kind of like the implications of paying more taxes.

How Much Should I Put in Savings?

As interest rates have risen considerably over the last year or so, many people have come to wonder if saving now “makes sense”. The characteristic of saving as a give or take isn’t quite right because saving should always be a part of someone’s financial picture. Let me describe the reasons one would want to save and ways in which to go about doing this.

1. Emergency Fund

The emergency fund is one of the universally required parts of any financial plan. Without emergency reserves the risks of anything, whether a personal household or a business operation, increase exponentially.

Savings for an emergency fund need to be accessible at a moments notice. Keep them in either a bank account or money market account.

2. Short-term savings

Short term savings, for things like buying a house are usually best placed in a short-term CD or money market. For example if you know you want to purchase a home in three months or so, getting a three-month CD can make sense.

If the timeframe is less certain, stick with a money market or basic savings account.

3. Long-term savings

For savings intended for expenses that are further out in the future, your best bet is in either a CD, government note, or a combination of more riskier investments. For example if you’re saving up for a car in 3 years, it might make sense to put the whole thing in a CD.

However if you’re able to take a little more risk, you might consider putting 25% in an S&P 500 index, 25% in a short-term government bond index, 25% in a gold bullion ETF and 25% in a money market. These four together over the last forty years haven’t lost money over any 3-year period as long as their rebalanced annually. (However past returns doesn’t guarantee future performance.)

4. Other Savings Goals

Any other goals should be taken in a case-by-case basis. Talk with your financial advisor about any questions you have before making investing decisions that you aren’t sure about.