Why do we invest our hard earn money? What exactly are we investing for? If we ponder deeper, the only reason that we invest today is because we care about our future. Investing is about giving ourselves more possibilities and options in the future. As shocking as it may seem, the future is unknown to all of us. We all think that we can predict the future; we think that we know what will happen tomorrow, next week, next year, or 5 years down the road. The reality is, we don’t know anything. We are just making predictions based on what we know today. These predictions can be and are often wrong. If working for an employer, we cannot say with 100% certainty that we’ll still have a job 5 years from today; if self-employed, we cannot say with 100% certainly that our businesses will still be around 5 years from today. Future is a big unknown. The only thing we can do is focusing on invest today to provide a brighter future (this sounds like a line in the commercial).
Speaking of invest for the future, I’ve learned the follow 3 things after talking to a few people that have made it.
1. Becoming financial independent is a boring process
2. Investing is an intellectual sport
3. Stop paying the dumb taxes
Becoming financial independent is boring
To become financial independent is a really boring process. In simple terms, we live below our means, we invest, and we wait. We need to take full advantage of the power of compound interest. One dollar planted today will grow to something bigger 5 years down the road. There’s no shortcut when it comes to becoming financial independent. Speed kills and that’s the reality. We all need to learn to get in line and stay in line. We hear these overnight successes from time to time. What we don’t realize is that these overnight successes are really not overnight successes. People behind these success stories have been working on these projects for a very long time. The only reason why we think they’re overnight successes is because we didn’t hear about them before. We can’t do things super fast and achieve excellent outcome. The faster we do something, the easier/faster we will fail. Ever wonder why high percentage of lottery jackpot winners end up losing all their winnings and back to where they were financially before the winning a few years later? Speed kills.
Investing is an intellectual sport
Investing is an intellectual sport that we must spend time learning everyday to be good at. We don’t become good at it magically. We need to learn the basics of investing and become masters int the investing strategies that we are deploying. Thinking about investing in stocks? Read books and educate yourself. Thinking about investing in real estate? Read books and educate yourself. Thinking about investing in futures? Read books and educate yourself. Thinking about investing in FOREX? Read books and educate yourself. I can go on and on but you get the point. 🙂
Since I’m investing in dividend stocks, I have spent a lot of time reading books on dividend investing. Some books I recommend are:
- The Lazy Investor
- The Intelligent Investor: The Definitive Book on Value Investing.
- The Single Best Investment: Creating Wealth with Dividend Growth
- Common Stocks and Uncommon Profits and Other Writings
- The Little Book of Big Dividends: A Safe Formula for Guaranteed Returns
- Rob Carrick’s Guide to What’s Good, Bad and Downright Awful in Canadian Investments Today
Professional athletes become very good in their respect sports because they put in the time to master the skills needed to excel. Natural talent can only take you so far. Did you know that Michael Jordan was cut from the high school varsity basketball team? This set back only motivated him to work harder and the excellent work ethic helped him to become one of the best basketball players in the world. Since investing is an intellectual sport, shouldn’t we be like Michael Jordan and put in the time and learn about the sport?
Time to cue the Allen Iverson famous practice rant…
Stop paying the dumb taxes
I don’t mean stop paying your income taxes and anger the IRA/CRA. 🙂
We all want to become financial independent but that shouldn’t be the ultimate goal. The ultimate goal is to become financial independent and stay financial independent for the rest of our lives. We can do this by avoid doing dumb things and paying the dumb taxes.
We all do stupid small things here and there but the key is to avoid making these stupid things all the time. A collection of stupid things will cause the big loss. Stop telling ourselves that a few hundred dollar loss here and there won’t hurt us in the long run. If we are stupid when it comes to the small things, how do we know that we won’t be stupid when it comes to the big things too? We probably can’t.
As referenced above, becoming financial independent is a boring process but it can be a VERY LONG boring process if we keep paying the dumb taxes.
What are some dumb taxes?
1. Switching back and forth in investing strategy
2. Investing in high MER mutual funds
3. Not optimizing your income tax
4. Passing up tax breaks, for example, saying no to tax-deferred accounts like RRSP/401(k)
5. Switching your car every year or every other year
6. Saying no to the free money that your employer is handing out, like RRSP/401(k) matching
7. Racking up credit card debt
8. Purchasing a home bigger than your needs
9. The daily small “splurges”
10. Paying for ATM fees or monthly banking fees
11. Paying late fees
12. Listening to the stock hot tips or chasing the hot leads
Invest for the future, be OK with a boring process, learn, and stop paying dumb taxes. Easy peasy right?
13 thoughts on “Stop paying dumb taxes”
A nice article Tawcan!
I think we all wish we understood all that before, but as you said, such learning is made slowly. I’m glad I studied in finance so my interest for investment came up pretty early in my life. I really work hard to become FI next year… a goal I’ve set myself many years ago but never seemed as close as it is now.
Thank’s for sharing!
Tawcan, from now on, I am gonna take note of these dumb taxes practices. As a matter fact, I admit that I practice some of these. Thanks Taw.
Definitely a great list of things NOT to do. Basically all of those go against “buy and hold” and a long-term approach. I’m happy plowing money into Vanguard and “forgetting” about it. Makes me feel like its not there which is a good thing when it comes to spending.
Hi Fervent Finance,
Passive investing is definitely the way to go. Isn’t it strange that people check their portfolio more often than they go see their doctors?
I check mine at least once a day 🙂 and the last time I went to the doctor he told me to come back in three to five years, so I’m obeying his orders.
I did a lot of those dumb tax things back before I met Mrs. SSC, although not for investing of course, because I was in credit card debt with little emergency fund savings… Even though I’m not a big fan of reading up on investing, tax codes, or even some of the other PF stuff out there, it is one of the better ways to save yourself money. Just educating yourself can save a lot of money in the long run.
Hi Mr. SSC,
Education is key to becoming a better person. There are so much PF stuff out there, we just need time to absorb the knowledge.
Unfortunately quite a few investors I know of fail to learn about the tax code. As a result, they end up paying thousands of dollars more than they should be every single year.
One common misconception that will never die is that tax-deferred accounts cannot be accessed prior to the age of 60. This misconception will leave people hundreds of thousands of dollars poorer.
Hi Dividend Growth Investor,
Optimizing income tax is definitely a good idea. Should talk to a tax specialist for that though.
Totally true about tax-deferred accounts, you can certainly access them before the age of 60, you just have to pay income tax. But if you’re financially independent and no “working” income, it would make sense to touch these accounts.
In fact I plan to do tax arbitrage – save on taxes with tax-deferred accounts (401K = RRSP) when my income and tax rates are high while I am working.
Then when I am FI/retired and live off the income from my nest egg and in a lower tax bracket, I will pay much less if any taxes.
Good luck in your journey!
We are thinking doing something similar as well.
Thank you for your simple and easy advice. Sometimes we try to make things very complicated, but if we just sit back and think things through for a few minutes, we could easily stop paying the stupid tax in every one of those areas you mentioned.
We should focus on getting on with our lives and learning and enjoying whatever we do.
Great insight. Investing can be so simple if you plan for it. Thinking through before making any decision is a great tip.