Living Margin & Taxes

Saving cash flow for financial independence likely includes a 401K or other traditional investments. Under this school of thought, you work a lifetime collecting a paycheck, and if you’re wise enough, you regularly contribute a portion of your earnings to a savings plan.

Then, some glorious day, you cash in on those investments when they have matured. While this method is a widely accepted approach for wealth accumulation, it isn’t your only option.

Most of us have been taught to invest in a tax-deferred account and pay the tax when we withdraw this money at retirement. But do you think your taxes will be higher or lower when you withdraw this money?

If you are going to be financially free, you must not only spend less than you earn and invest the difference, but you must be able to protect what you have and capture the growth for yourself.

Staying with agriculture as an example, imagine that you’re a farmer and the tax collector gives you two options: (1) you can pay tax on your seed, or (2) you can pay tax on your crop.

Which do you choose? Most people will choose to be taxed by (2) the crop, and you’ll pay for it. In fact, it's quite possible that you should've chosen to pay tax on the seed because when you pay tax on the seed, your harvest and its growth are yours to keep.

Farmers have always been challenged by seasonal cash-flow extremes. It is the nature of harvesting. Farmers generally have to borrow money to buy farmland. Then, they’d have to borrow more money to plant their crop and even more to live on while they waited for the harvest.

If crops were good at harvest time, farmers took their crops to market and used the money to pay off the debt. This system worked well for farmers and those who sold to farmers on credit pending the harvest.

While it will work for everyone, it especially works for those with uneven or seasonal cash flow (like entrepreneurs). Setting up your living margin strategy will help you secure your liberty and assets and thrive in every financial or economic situation.

Instead of using a tax-deferred strategy, if you pay a little tax now, you’ll likely be able to keep more of the growth (harvest) later. If you’re not paying taxes on your cash flow along the way, you are choosing to share the spoils of your harvest with the tax collector.

So, why not pay a little tax now and keep the fruit of your labor for yourself? You can remain flexible about how you manage and control your savings. You can manage your cash flow in a way that works well for you and your family for generations.