Do you know what your biggest unavoidable expense is, and are you paying too much?

For the average person, their biggest expense is not their home, their car or the kids education. It is taxation.

As at July 2021, if you are earning over $45,000 per year, then every dollar you earn above the $45,000 mark is taxed at 34.5%. If you are eaning over $120,000 then congratulations... you are in the 39% tax bracket! There are a couple of people I know (salaried employees), that earn over $180,000, making them the "priveleged" ones in the 47% tax bracket! Awesome! Lucky them!!! (Tax rates cited include 2% medicare levy and came from the Australian Taxation Office).

Now, as a salaried employee, you have little control over your tax situation. Your salary will dictate the tax bracket you are in.

However, you DO have control over what tax you pay on earnings OUTSIDE your salary.

For example, if you invest in a positively gearered investment portfolio in your own name, and you are in a 34.5%, 39% or 47% tax bracket, you are wasting money and potentially pushing yourself into higher tax brackets (with the exception of those already in the 47% bracket - those "privaleged" people have maxed out their tax rate and now give away almost half of every dollar they earn - lucky them!)

Do you know that if you own a private company, which invests on your behalf, and owns your investment portfolio, your company will pay a maximum of 32% in tax? The government allows you to run your portfolio this way, so why would you want to pay any more tax than the government legally requires you to pay???!!!

Why would you invest in your own name and put yourself in a higher marginal tax bracket and pay more taxes?

Why not invest through a company and/or trust entity, and save a fortune in unnecessary tax? This way you own nothing but control everything (refer to Keys to success #6).

Speak to an accountant, get all the information you need to make wise decisions.

If you aim to create wealth, you need to do it effectively, efficiently and protect it.

The right advice will help you achieve this - DON'T do it on the cheap side (it will cost you in the long run)! Be willing to pay for good advice because, it will make you more than it will cost you in the long run.

Protect what you have. There is no point building up wealth to then have a predatory law suit against you and you stand to lose everything because it's all in your name. Proper insurances and the protection of entities is something to consider. Again, a good accountant and insurance broker will help you here.

By the way, don't fall back onto the old excuse of "I have an investment property in my own name so I can negatively gear it and reduce my tax"! The term "negatively geared" means that you are LOSING money (negative cash flow) and hence getting a tax deduction. In other words, if you are in the (say) 47% tax bracket, and have a negatively geared property, then you are choosing to LOSE money on your investment.

When negatively geared, then for every $1.00 you lose, you can claim a tax refund from the government of 47 cents...... In other words, for every dollar you lose on a negatively geared property, you get a 47cent refund.... but it is still a loss of 53 cents no matter how you look at it!!! This is NOT a great way to invest at all!

The idea of investing is to both create POSITIVE cash flow AND generate a CAPITAL GAIN. Investing is NOT about losing money, and as such, negative gearing is for the financially uneducated.

Lesson:

1. Understand what marginal tax rate you will be paying when your plans come to fruition .

2. Work out your tax strategy BEFORE you begin your wealth creation journey. Savings on taxes can be reinvested to produce more income, which will get you to your end goal faster.

3. Own nothing, yet control everything (refer to Keys to success #6).

4. You work hard for it and take the risks to achieve what you want. Be sure to protect it and maximise your returns too.