I recently read an article where the state of New York was considering raising taxes. According to the article, the governor of New York received a phone call from a very angry Donald Trump. According to Trump, if the governor insisted on passing the tax increase, this would prompt him and many other wealthy New York residents to take their business elsewhere. While it remains to be seen whether or not the taxes will be raised, the fact that a billionaire angrily contacted the governor about it tells us a lot. First, it tells us that the rich hate taxes. Second, it tells us that the rich are willing to take drastic measures in order to avoid being taxed.
Most of us have heard the quote that “the rich get richer, while the poor get poorer.” However, most people don't know why this is true. Well, for one thing, taxes play an important role. The rich are geniuses at either avoiding or greatly reducing their taxes. In contrast, the poor and middle classes pay the highest taxes of any segment of the population. To give you an idea of how much damage taxes can do to your finances, lets use a simple math problem where we determine how much money you lose over a period of twenty years by paying taxes at the highest rate.
For example, lets say you make $100,000 per year, and you pay a tax rate of 32%. Each year, 32% of your $100,000 is paid to the government. This means, after taxes, you only have $68,000 left over, meaning $32,000 was paid to Uncle Sam. How much is this over the course of 20 years? $32,000 multiplied by 20 comes to an astounding $640,000! This means in a twenty year period, the government earns more than half a million dollars from one person who makes $100,000 per year, who pays the highest tax rate.
The rich are very aware of this, and they would much rather keep the $640,000 for themselves than give it to the government. Some are brazen about it, and avoid taxes altogether through tax evasion. Others play by the rules, but lower their taxes to the point where most of this money stays with them. For example, lets say that you used many legal loopholes like the rich do in order to lower your taxes from 32%, to only 12%. How much would you have left over after 20 years? The answer is $400,000. Instead of paying Uncle Sam $640,000 in taxes over a twenty year period, you would only pay $240,000.
The rich are experts at avoiding taxes, and some of them are taxed at a rate which is much lower than 12%. In fact, many of the super rich are taxed at a rate which is much lower than even those who fall under the “low income category.” Are you starting to understand why the rich get richer while the poor continue to become poorer?” Part of the answer is taxes, and I have some bad news for those of you out there who work for others, even if you do have a higher than average income: if you work at a day job, even one that earns a higher income than average, at the end of the day, you are still taxed at the highest rate for your income bracket “before” you get to keep what is left over.
This is just one more example of why employees are at a huge disadvantage. They make the lowest wages of any group within the company, yet at the same time, they also pay the highest tax rates. In contrast, the CEOs and board of directors make the highest wages of any group in the company, and have the resources to hire the best tax planners in order to allow them to reduce the taxes they pay. As you can see, it pays to be the owner of your own business instead of being an employee working for someone else.
The government rewards the entrepreneur and the business owner. When you're an employee, you get your taxes and social security taken out of your check “before” you're allowed to have the rest. When you're the owner of the business, it is just the opposite: you get to pay yourself first, and then you pay the government. This contrast is very important, and it is a key factor that you should keep in mind at all times. If you want to get rich, you have to get past the idea that working for someone can allow you to get there. Both statistics and common sense show that this is not true. It isn't true today and it won't be true a thousand years from now.
Most people who work for others do so because they want security. If you're like many people, you've probably heard people use the phrase that “they want a nice secure job.” Perhaps you've found yourself using these same words. The problem with having a secure job is that you lose freedom in exchange for security. The more security you have, the less freedom you get, and vice versa. People who own their own businesses have much more flexibility than those who work for others. To give you an example of this, think of the issue of travel. Personally, I consider one's ability to travel to be an important component of their freedom and wealth.
During the Middle Ages in Europe, peasants rarely left the villages in which they lived. Many peasants lived out their entire lives in the village, never venturing more than a few miles from the place of their birth. The nobles, in contrast, often traveled extensively, and had great freedom as a result. Today, people travel more than in the past, but statistics show that the rules remain largely the same: the richer you are, the more mobility you have. For instance, statistics show that at least 70% of Americans never leave the United States. I know this to be true, because most of the members of my family have never left the country, and have no intention of ever doing so.
Employees are often given “vacation time” by the companies they work for. Each year, they may be given a week off, or if they're lucky, they may be given from two to four weeks off. Those who are really fortunate get paid during their leave. While this may sound impressive, when you compare it to the guys who run the company, it isn't. The CEO can often take off whenever he or she chooses, and when they fly, it is usually either on a private jet they own, or through a jet charter service. The boss has much greater mobility when compared to his subordinates. Among the wealthy CEOs of the world, taking private flights to exotic locales for business or pleasure has become common.
However, travel is just “one” of the areas in which your freedom is restricted if you choose to become an employee. Another area in which you are restricted is your choices when it comes to where you live. Even if you have a job were you make a high income, if it is like most jobs, you are restricted to living in the city in which that job is based. If the company is international in scope, you may have the option of relocating to an office in a different area, but in general, the basic rule applies.
The problem with being an employee is that you can't live where you want; you have to live where your job is based. This has a number of implications that most people don't pay attention to. First, it means that even if you make a high income, you will often pay a higher cost of living as a result. For example, a $100,000 annual salary in the United States is considered to be a very high income, particularly when you consider the fact that the average income ranges from $33,000 to $40,000 per year. However, I was recently reading at report that inflation is so high in New York City that you need to make at least $123,000 per year “to be considered middle class there.”
This phenomenon is an effect that I will call “cost of living modification.” With this effect, even if you migrate to a big city like New York for a higher paying job, the higher income you make from this job will often be reduced by the higher taxes, overall cost of living, and inflation. This is why many people in the U.S. who make an above average income still continue to struggle financially. Being an employee will not give you the flexibility that you will have by working for yourself. The only answer is to become self employed. So far, we've stated our case, and we've drove home several strong points. We've showed you the many pitfalls of being an employee, and as we move further into the future, these pitfalls will only continue to become more pronounced. Since the end of the Second World War, we have all basically been taught the same things, to study hard in grade school, go to a good college, and get a secure job. The problem with this view is that it has become extremely outdated.
Technology and information are growing at such a pace that many colleges and universities can no longer keep up. The problem with the college system is that at the most basic level, it is a bureaucracy, and it is vulnerable to the weaknesses of group think. When advances are made in technology or some other area of knowledge, a body of college heads must decide among themselves whether or not this information should be included in the course curriculum. However, with technology and information moving at such a rapid pace, by the time they decide to add the information, it may have become dated, or already disseminated into society.
Perhaps the best example of this phenomenon in action is SEO, which stands for Search Engine Optimization. SEO is the method Internet marketers use in order for their websites to rank well in the search engines, bringing them a great deal of traffic, and thus profits. A closely related field to SEO is SEM, or Search Engine Marketing. SEO has been around since the late 1990s and early 2000s, but despite this, colleges are “just now” starting to provide courses on them. When I was in college in the late 90’s, early 2000’s, nothing was available on SEO or Internet Marketing.
The problem with this is that an entire industry has already been built around SEO, and there are a bunch of people out there who have known about it for years. Some of these people built websites back in the late 1990s, and today dominate their areas of expertise. Those people that choose to go to college to learn SEO are wasting time and money. They are wasting money because everything they are being taught can be learned on their own time, for a fraction of the cost. They are wasting time because by going to school, they are learning the subject “on the schedule of the college.” By becoming self taught, they can learn it at their own pace, and they can pick it up much faster.
The point I'm making here is that college, in many instances has become too slow for the Information Age. While it is still necessary to get a college degree for fields such as law, medicine, and the hard sciences, I believe that in the future, the college system may be phased out in favor of a new system, which is faster and more independent. Perhaps society will go back to an apprentice like system, where students learn under a skilled tradesmen who provides them with real world experience, at a fraction of the cost of the college system with more speed. Such a system is much more suited to the Information Age.
However, regardless of this, you must understand the power of being self taught. Those who are able to teach themselves skills will thrive during the 21st century and beyond. A person who is self taught is will be far ahead of someone who spends years in school. They both reach the same destination, but one of them gets there a lot faster. If you want to become rich by working as a freelancer, you must become familiar with the power of being self taught.