The Hope of Problems

Problems on problems on problems. I recently have been grappling with financial problems. Shocker. At this point, I think everyone is grappling with some type of financial problem while attempting to gain financial freedom. Whether that be everyday living with inflation rising and nobody’s W2 matching the rise, or you’re trying to purchase a home, or wanting to save more, or wanting to start a business, or just struggling with the paycheck to paycheck life – we have all been here at some point so know you are not alone and change is possible. The “problems” are non stop. But perspective is so critical. I was talking to a friend on the phone a few days ago about problems and we had a discussion around how other people would love to have those type of problems in life. It got me to thinking about this preciousness of life. Life will be a constant cycle and loop of issues that arise but it’s those issues that continue to make us more resilient, more victorious and more wise. The poorest and wealthiest people in the world and everyone in between have problems issues. How we work through those is what changes the game. I think mentally this is what sets apart those who thrive in the face of obstacles. Honoring the fact that whatever is in front of you is there to teach you something, to grow you in some sort of way should aid you in taking heart and hope that you have what it takes to get past it.

Stocks & Capital Gains

As for the current money problems I’ve been facing, here’s the scoop. A few years ago, I removed money from a stock account (I sold some shares) to pay down debt. From that point, my tax bill was insurmountable but you know what I did? I sold more stock to pay those taxes. The next year, I had to pay for that removal again. And so this downward spiral of sell and tax became a loop for me. A horrible one albeit. For those that don’t understand capital gains, the government looks at your overall income and taxes you. When you have stock that appreciated and you sell, the profit you made from that sell of appreciation is taxed. Unless of course you lost money on a stock, but why would you sell at a lower rate than what you received it at (emergencies of course not assumed for here). So here I am, I’ve acquired these stocks through my company for doing well at my job, I sell the stock – because in my mind it’s my money that I earned – but then I’m taxed in a bracket that is not truly representative of my current status so I keep selling (and losing more of my hard earned shares) to try and stay in the good graces of the IRS. Now, I understand more than ever Rich Dad Poor Dad quadrant when it talks about how investors are the best class to be in, not the W2 folks because that income is heavily scrutinized. It feels like those in the middle mark of income take the brut of it. I’m not wealthy enough to get many tax write offs and I’m not poor enough to get any refund. I’m stuck somewhere in the middle where damned if I do and damned if I don’t.

Here are three things I’ve learned. I hope you take my lessons and do better than I have.

1. When working with a company that grants you stocks, Do. Not. Sell. This may go against popular belief but trust me, if you are going to pay capital gains on this money, it may not be worth it. Especially if it is just to pay for your daily expenses. Find another way. There’s always another way. We live in a time where creativity is at the tip of your fingertips so use technology for your benefit and allow this stock money to sit and grow.
2. But if you do sell and have to pay capital gains, work with the IRS to do a payment plan instead of trying to come up with a large lump sum at once (unless you just have it on hand). This would have prevented me from going through this endless loop of sell and pay, sell and pay, sell and pay and so on.
3. Utilize your HSA (Health Savings Account) for your benefit. Did you know you could invest your contributions in to stock? 🤯This is newer news to me! I recently learned this and will be taking advantage of this opportunity by nearly maxing out the contribution limitations for the year. You have to check with the company your plan is established through though – note: Fidelity does! How great that this is non taxable money that you can make more money from if invested well. Putting money here actually decreases my income aiding me in keeping some of the money I’ve made and adjusting my tax bracket if even by a little (every bit counts in my world). But then bonus, let this money grow too (this means you need to do your best to remain relatively healthy so you don’t have to actually utilize the HSA money).

I finished up my taxes last week and this is the first time in many years that I’ve broke even and have not had to pay anything. This is in large part due to the real estate that I own as rentals as I took a lost on those this year and spent my money on items to repair and maintain that business. I guess I have two more lessons for you here: (1) Find a really good CPA and (2) If you must spend money, spend it on things that will grow your current money by investing back in to your business. The second point here goes back to my referenced item around Rich Dad Poor Dad – had I only had a W2, I would’ve still been paying taxes but being a business owner and spending money on that business (to hopefully yield future revenue) is what aided me.

If you already make decent money, or about to start making decent money, or want to make decent money, you need to read a book called Tax Free Wealth. In it lies tools and resources and knowledge to aid you in winning on your journey to financial freedom. I’m learning if you want to win the wealth game, you have to win at the tax game. And know also that the government incentives you for making particular moves in this life. The book speaks to how to work with the government versus against them. Let us all learn and become more knowledgable so we can make decisions that change our future generations lives.