Taxes and other headaches create a downside to being rich. " A MUST READ"
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  1. #1
    Senior Member newmonies's Avatar
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    Sep 2011

    Taxes and other headaches create a downside to being rich. " A MUST READ"

    Taxes and other headaches create a downside to being rich.

    Regis Philbin hit the TV jackpot when he debuted as host of the award-winning game show, Who Wants to be a Millionaire? in 1999. The show, an overnight sensation for ABC, tapped into a common American dream--becoming wildly rich. According to the IRS' Personal Wealth Statistics study (last undertaken in 2004), an estimated 2.7 million Americans hold gross assets of $1.5 million or more. If you have ever bought a lottery ticket or made an investment based on a "hot tip" just hoping you could be counted in that IRS number, consider that there may be some downfalls to becoming a millionaire. (Don't assume all prizes are free. Many come with enough costs to render them worthless.)

    1. Meet Mr. Taxman
    As a millionaire, you're going to be on the hook for doing a greater amount of (financial) good for your country. And it's not just Uncle Sam that will be asking for his (bigger) portion of your paycheck--an increasing number of states will have their eye on your bottom line. Last year, Maryland became the first state to impose a new tax bracket (6.25%) specifically for state income-tax filers who earn more than $1 million; eight other states--Connecticut, Delaware, Hawaii, New Jersey, New York, North Carolina, Oregon and Wisconsin--followed Maryland's example and hiked their tax rates on the wealthy.

    2. Taking On a Second Job
    Possessions take time to maintain. Whether you're talking about clothes, cars or chateaus, the more you have of anything, the more time it will take. Money is no different. Once you have millions, you won't be able to just pay a few bills and balance your checkbook at the end of the month. It will take a significant amount of your time to budget, pay taxes, invest, give, plan spending, meet with professionals, etc.

    3. Meet the Joneses
    Vaulting into another economic stratum comes at a literal price. Once you have the means to buy a bigger house, purchase a nicer car and join that nearby golf club, you're most likely going to meet a whole new group of people--wealthier people. And becoming their friends can open up a whole new world. That world, while enjoyable, often raises your expectations about your standard of living overnight. All of a sudden, dining out means a waterfront table for tapas, not McDonald's and a movie. Whether you intend to begin the "keeping up with the Joneses" game or not, once you make those more expensive choices and move in those more expensive circles, you're more likely to find yourself paying a lot more attention to what others are doing and join right in. It's easier to swim with the current than against it.

    4. "But You Shouldn't Have!"
    No more bargain-shopping for birthday presents. Friends, family members, co-workers and employees begin to expect bigger, nicer and, well, more expensive gifts. You'd better budget for that. See No. 2.

    5. They Come Out of the Woodwork
    Just ask lottery winners like Twila Shultz, who won the Super 76 Jackpot in 2001. After winning $8.4 million, her family had to deal with all kinds of people approaching them for money. She told the Pittsburgh Tribune that "one even showed up at the door wanting to borrow $100,000 ... she even (brought) pictures of her husband's feet. She wanted the money for (surgery on) his feet." Having money will attract people who need or want money. You'll have to have a plan for how to deal with them--who you want to give money to and who you want to turn away. And then you'll have to take action every time the request comes. See No. 2.

    6. Riding the Roller Coaster
    As your portfolio value increases so, most likely, will your anxiety over market fluctuations that could quickly erode your net worth. Never before did you lose sleep over a sagging dollar or what the Shanghai stock exchange did overnight. Welcome to a millionaire's world--where stocks and sleep don't necessarily mix well.

    7. Who Can You Trust?
    It's not just long-lost friends and family members who are bound to come knocking--it's professionals, as well. You will likely receive a steady flow of e-mail, snail mail and voicemail offers from lawyers, investment advisers and tax attorneys all eager for your money--ahem, I mean "business." If you don't have a strong background in personal finances, investing or taxes you could probably benefit from assembling a team of credible, experienced professionals who can give you some much-needed advice. The question, again, becomes who should you trust? You'll need to talk with trusted friends, undertake research and do your due diligence. Sounds a lot like No. 2.

    8. Suddenly Insecure
    As a millionaire, you are now a target for an unwelcome group of people: criminals. A bigger house in a nicer community could attract burglars. A more expensive car could attract the attention of car thieves. A fatter investment portfolio invites potential perpetrators of fraud and other crimes against people with a high net worth. Suddenly, Saturdays are spent checking out home and car alarm systems and your investment adviser's professional background to make sure your wealth and possessions are safe. Once again, we're back to No. 2.

    The Bottom Line
    If you've been squirreling away savings in the hopes that one day you can move out of your middle-class enclave and into that gated community one ZIP code over, remember that the grass isn't always greener--it may just be more expensive. And it will probably take more time to mow. The dreams in 4 Fatal Financial Fantasies are likely to burst--and may blow away your financial future in the process.

    [CENTER][COLOR=#b22222][B][SIZE=3]"Truth is everlasting, but our ideas about truth are changeable. Only a little of the first fruits of wisdom, only a few fragments of the boundless heights and depths of truth, have I been able to gather"[/SIZE] [/B][/COLOR][/CENTER]

  2. #2
    Just because there are stupid consumers that don't know how to manage money, doesn't mean being rich is a problem in itself. That's like saying rain creates a downside to life.

    If you've never had millions of dollars worth of cash and assets, you have more than likely adopted the habits of most consumers. Live on personal credit, get a job and let your employer “invest” your money into other people's debt (e.g. 401K). It's not my intention that you are offended by my label here, but I have a purpose. I call this typical example the “stupid consumer”. I'm included in this, most of us started out this way, it's the design of the system, or our culture, public education, subtle messages in popular movies, political themes, we just accept the premises as if there is nothing else.

    Rich people on the other hand, those who have learned to manage millions of dollars of net worth, have different habits. I also have a label for them, “rich people” (how creative). In fact rich people have dramatically changed our legal system to accommodate their needs and not the needs of the ”stupid consumer”. My purpose in writing this is to identify the differences between the two groups.

    There is no need to be discouraged from becoming rich, but it is important to realize that rich people are not devoid of any problems just because they have lots of money, in fact they simply have a different set of problems and responsibilities other than the “stupid consumer”. However, consumers of course have their own set of problems. And each group of course has its own benefits.

    Here are a few differences. Rich people might spend more money on products, shoes, furniture, cars, but they buy quality that lasts many years. Consumers buy cheap and have to continually buy the same products to replace the worn out, poor quality ones they bought cheaply. Consumers buy liabilities with their personal credit and wages or after-tax money, such as cars, a home, recreational vehicles, vacations, clothing, jewelry and so forth.

    Rich people buy assets with business credit and other people's labor (profit) and then use their pre-tax money to buy liabilities such as cars, homes, vacations, jewelry, etc. Rich people sell the labor of others and profit by the labor of others. This doesn't mean rich people always exploit the wage earners, sometimes, but not always. While rich people can also be “wage earners”, wages are not their only source of income.

    The fact that consumers pay taxes first before they get to use their money is a huge disadvantage in life. Having the ability to spend your money before it's taxed will make you rich and richer. The tax system is divided into four categories, there is the investor and business that pays taxes after income is spent. Then there is the self-employed and wage earner that are taxed before income can be spent.

    If you can spend your income before it's taxed, you can invest more principal and defer taxation and grow your investments much faster than if your principal were taxed before you were able to invest it. So if you continue to look at taxes as you did before being rich, you missed the point, taxes are different for rich people. The taxation system is designed to punish the poor wage earner and reward the rich person. Rich people use the tax system to pass off their risk onto the stupid consumer who doesn't have a clue. The rich are able to legally avoid the taxes that stupid consumers believe they have to pay because they don't know any better.

  3. #3
    You said, "The taxation system is designed to punish the poor wage earner and reward the rich person." This is certainly true. And as we will become way more monied that we ever dreamed with the RV of the IQD and the upward move of the VND, we have to look at taxation differently. I shudder to think what will happen to short term capital tax rates in the coming year, if the RV's take that long. Congress may act to keep the previous rates, we can only hope at this point. I now the IRS will be wanting at least 35% or so of our windfall (all our are less than a year held). Yes I am a newbie, but I am tryng to open my eyes as much as possible.

    Thanks for the great post.

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