“I’ve never seen someone so happy writing a $250,000 cheque for their taxes before”, said my accountant.
The thing was – I was happy. I was happy I had the money, I was happy to put my tax bill behind me, no need for deferments or other tax planning trickery. Many years ago I avoided my taxes. I was late filing them, and my avoidance was so bad I didn’t file for years and went through a personal bankruptcy. I literally had the tax man banging at my door. Those past behaviours haunted me and made my life extra difficult.
Now I’m in a different place. I do my best to not fall into avoidance habits, and because of the pain of that time in my life I vowed to never repeat it.
To make sure I never fall behind on my taxes, or any bills, I reserve the money in advance.
Most people use today’s money to pay yesterday’s bills (or more painful – scramble to generate tomorrow’s money to pay yesterday’s bills). Paying off debt, credit cards, taxes, those are all yesterday’s bills. What I learned the hard way is life happens, and I can’t always count on today or tomorrow’s money.
This philosophy has shielded me from any money anxiety during the pandemic, even though I did not anticipate this period of time coming. I was more fearful of my own boom/bust cycle. I ended up insulating myself from all bust cycles.
When I see headlines about rising interest rates, inflation, and projected recessions, all of that means nothing to me. I am completely insulated.
Now, someone might say to me I’m losing money because of lost opportunity costs. What would that same money be earning me if it was invested?
Yup, this is a Heart vs Mind decision, and my heart votes for peace in my life. I can’t even put a price on that.
When I allocate money for a future expense, that money doesn’t exist to me. It’s already spent, in the future. It’s not mine to invest, spend, or put at risk in any way. It belongs to someone else, whether the government, or a future expense I want to take on. This also is why I don’t feel pain when I write these big cheques, that money was never mine.
From a practical standpoint, this is managed in an Excel spreadsheet. I manage my business revenue and my personal spending on 2 separate spreadsheets.
For my personal expenses, all future expenses like car purchases, home renovations, vacations, insurance and maintenance, gifts, personal development, and even my charitable giving are all tracked and build like a snowball every month. If I were to make a charitable donation, I subtract it from the already allocated amount of money. I have 3 home renovation projects funded in advance with the money sitting there, ready to be spent.
For my business, I track my bank balances, but I calculate rough withholding for taxes, future expenses, as well as investments (I deduct a percentage of my income every month for investments). All of those numbers are deducted from my bank balance, and I have a main balance that is in bold and highlighted on my spreadsheet. It’s the only number that matters. It says:
Corporate Surplus: $xxxxxxxxxxxxx
That’s the only number that matters to me. Not what’s actually in the bank, because that money is already allocated and divvied up.
Every once in a while, I can take that surplus and give it to myself as a personal dividend. Usually after tax season and I know I’m square with everyone and there are no surprises.
I have an accountant and this tracking has nothing to do with real-world accounting or tax planning. This is done for how I experience the money I have in my life on a daily basis.
This has nothing to do with the amount of income I have. Working within this framework would have been as effective back when I had next to no money, and saved me the pain I experienced back then. As with most advice I give, most of this is the advice I wished I had earlier in life.
If you reap what you sow, I am sowing peace in my life. Of financial peace.
I still take risks, and invest my money, but not from the money that’s been reserved.
That’s as pain free as it gets.
