Sunday 28th May, 2006

 

Managing money after making it

 
 
 
 
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In John Steinbeck’s The Pearl, Kino finds the Pearl of the World, and discovers in response to the question: What will you do now that you have become a rich man? That the essence of pearl mixed with essence of men was a curious dark residue.

Today we need to focus on the measures of care and due diligence that are necessary in order to manage money after you make it.

In The Pearl, when the family acquired some wealth the poison sacs of the town began to manufacture venom Indeed the Song of the Family, died and the town’s greed led to murder, destruction and death. In the end Kino, flung the pearl with all his might back into the ocean, and everyone in La Paz remembers the return of the family.

The truth about money is that ultimately you do not want it all for yourself. After you’ve bought two or three things that you’ve always wanted, you really want to use it to satisfy the needs of others, members of the family, charitable causes etc. You see the nature of man is to be caring, loving and giving.

The problem begins when those who have no right to your money, want it more than you. So, as in Steinbeck’s novel, they begin to scheme and plan to take it away.

Wealth conservation and estate preservation are disciplines separate and apart from wealth creation. The tax man is the first who stakes a claim against your money. But taxation is revenue generation that supports public administration, and the society, so the tax man has a legitimate claim.

The ability to reduce your tax liability is usually tied into governmental measures to sustain long term financial viability in the economy. The benefit to the consumer is that of tax avoidance and tax deferral ie postponing the payment of taxes to a later date, legitimately.

For more than ten years I’ve advised individuals to save money in a tax deferred plan. One of the reasons was because the money would escape taxation during the savings years, but become subject to tax, years later. The benefit of such a plan would be that individuals would fall into a lower tax bracket when the money does become taxable.

That devise has materialised and many clients now enjoy not having to pay tax on the first $5000.00 of income in retirement. They didn’t pay any tax on their contributions then, and do not pay tax on those contributions and income derived from the strategy, now! They’ve won both ways.

This is an example of estate conservation. They’ve conserved savings that are not now subject to tax. This device is still available to consumers who have not yet retired. Needless to say, many persons doubted that the strategy will work. But it has!

In its simplest form conservation is the ability to let sum $X, remain $X, without erosion. Of course the purchasing power of $X years later is a matter of inflation etc but that does not erode the value of the devise for reducing taxes.

There are other avenues for estate conservation that we shall explore next time. Estate preservation is the ability to secure your estate against claims that erode its value. This can be achieved via devices that ensure that all debts, liabilities, and transfer costs can be paid off by money set aside for that purpose. The objective is to eradicate dark residue!

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Designed by: Randall Rajkumar-Maharaj · Updated daily by: Sheahan Farrell