The two greatest wealth destroyers, hands down, are divorces and taxes. By reducing your tax obligations and chances of getting divorce, you will be able to accelerate your financial independence.
Divorce is Incredibly Expensive
Divorce is the largest wealth destroyer that can happen. The top expenses are litigation, child care, and work expenses. Due to these costs and more, divorces result in an average wealth reduction of 77%.
Ideally this will never happen. If it unfortunately does, we have recommendations on how to minimize your costs.
Taxes Can Really Add Up
Taxes are also one of the greatest wealth destroyers. Income from salary is subject to high federal and state income taxes – as your income increases, these taxes become greater as well.
There are many legal ways to lower your taxes, and we have recommendations on how to minimize them. With that said, there is one common theme. Taxes are typically assessed on your income or consumption, not on your wealth. For example, if I make $100,000 in salary, I will pay roughly $40,000 in state and federal income taxes, leaving me $60,000.
If I take that $60,000 to buy a car, I could then be assessed a sales tax of as much as 10%, which will cost another $6,000.`
But what if I invest in stocks instead? Or make a down payment on a home? In that case, I will only be assessed taxes on when I sell the investment, or for any income from dividends or rent.
Ideally you will first maximize your tax-deferred options such as your 401k and IRA first, since these investments can grow tax free from capital gains and dividends. Once you maximize these, continue investing in your brokerage account or real estate.
Simply put, there is no tax on wealth. The more you invest, the more you will reduce your tax bill to your net worth.
Wealth Destroyers – The Bottom Line
While many things can drain your net worth, the absolute highest are divorces and taxes. By reducing both, you will be able to achieve financial independence far faster.
Ideally, divorces will never happen. With that said, they are an opportunity to set yourself free and love again. If it absolutely needs to happen, do everything you can to keep minimize the expenses.
For taxes, we live in a system where income and consumption are taxed instead of wealth. Instead of beating them, we suggest joining them. Invest as much of your cash as possible to minimize your taxes to net worth. Maximize your after tax deductions such as your 401k and IRA, and then invest the rest in stocks, ETFs, and real estate.