The 3 things that Erode your Wealth

The 3 Things that Erode your Wealth

Ok this time the post is not about gold/silver. But some basic financial education that shockingly, the majority of people have no idea. Once you view this you will be convinced the surest way to poverty is to just work a 9-5 job and save your money.

Sounds counter-intuitive right? Sounds like i'm crazy? Why this is dude criticizing the structure of society that 70%-90% of people are following.

I present you with the 3 Things that Erode your wealth

1. Tax

Since the ancient times of Kings, taxes were imposed on the common-folk to pay for the wars, lifestyles and plans of those in authority. Of course, taxes are also needed to pay for some public amenities and civil servants.

In Singapore the tax rate for individuals range from 3.5% to 20%.

http://www.iras.gov.sg/Tax%20Calculators/IIT/IIT.html

Simply meaning If you rely 100% on your income for your survival, payments and to sustain your lifestyle, the vampire called TAX will suck up to 20% from you.

Lets say you earn $4000 a month, a maximum of 800 dollars is lost to taxes and that does not include the CPF money taken from you. Take home pay will probably be less then $3000.

Things the Government CAN and WILL touch (as of 2011): Dividends, interests, Property Rent, gains of profits from an income, royalties and estate income.

Remedy: Do you know that capital gains are not taxable. Such as stock investments and commodities investments. An example is Gold, although physical gold is 7% GST taxable, if gold rises in value, the government doesn't tax you on that (for now)

Play it right: Do not rely 100% on your taxable income, do have some other forms of investments, property, precious metals and stocks.

2. Debts

Yes, i understand it is impossible to eliminate needing debts. You do need debt to survive, your first house, your university study loan. However the moment you take a bad debt without thinking, you have signed a form to financial suicide.

Lets say you buy a $1,000,000 dollar home, making a downpayment of $200,000 and you take a loan of $800,000 @ 8% interest for a 30 year term. Guess what, in 5 years, you would have paid $352,200 to the bank ($312,760 for interest and only $39,440 for debt reduction)

And that is assuming you can earn $70,000 a year (that excludes food, clothes, car payments and entertainment). If you can't pay on time, the interest will either pile up or you lose your house.

Play it right: If your going to take on debt, make sure you get paid for it, an easy example is rent out the million dollar house, let say it fetches at 6000 dollars a month, your mortgage is fully paid for and in essence, your getting a house for 'free'.

3. Inflation

Why saving all your dollars in a bank is pure ludicrous is simple. The interest rates you get is seriously near zero, even those that aren't, requires fixed deposits (your money is frozen for a time period if you want the interest).

We all can feel inflation, can your pay rise at least 5% a year to scale with inflation? Even if it can, it means your just surviving, your not getting richer. Your fighting over a money supply that is being printed for free.

Save your money, yea its a good idea, your 20 dollars today that can eat a nice meal in a middle-tier restaurant won't even buy you a mac donalds meal 3-5 years down the road.

Play it right: Invest at least 25% of your portfolio into stuff that will either appreciate or retain their value over time. An example of an item that has held its value for 3000+ years is Gold. An item that can appreciate is Silver, sugar, wheat, oil and other commodities.