VinSnr wrote:Coming back to this thread, I want to give another reason why investment is so important. One thing that people do not know is this : It reduces your income tax!
Income tax is one of the biggest "burden" in gaining financial independence. One might as well learn how to minimise them.
Let's say you bring home average 50K every year for 25 years. You live pretty frugally and you slashed away 10K every year in investment. Your investment return 8% a year for 25 years (historical data is about 10%/year). End of 25 years, you have approxinately 790K. Your capital is 250K (10K x 25 years). Your gain from investment : 540K.
You will be tax for that 50K you bring home every year. But the government can't tax you on your 540K of gains! They will be sitting in IRAS, looking at your half a million gains and they can't do anything!
Can you see what this means? Chasing for high income jobs (everybody wants that) does not translate to high net worth because your income tax will raise substantially also. And the government loves high earning and high spending individuals. But if you live frugally, put your money aside for investment, the government can't touch you on that portion of money!
Best of all, our government created this thing called SRS. Individual can contribute up to 11K [for 2006] (Sporeans and Permanent residents) and use ths money to invest. The catch is : you can't take out the money from here until 62 (but ou can use it to invest). So voila, you can have 11K slashed away tax free!
Learning how to reduce your income tax while raising your net worth is something that the young need to learn.....and not just chasing high income. Now you know why Steve Jobs willing to take $1 pay a year for his CEO job? First, the government can't tax him and if Apple shares goes up, the government can't get him either.
This is a good thread. You really hit right on the nail with this one.
Few years back I was working for my church ministry and had to visit some old folks home. I was quite surprise that some of these old folks are quite high income earners when they were young. Some were doctors and a few are even lawyers. These guys should be having a nice retired life in a nice big house.....
The problem with a lot of young people today is that they never give a thought of what will happen to them when they are 60. They live only for today. If they die tommorrow, then no problem, all good and fine. But if they can really live long, then not having enough retirement money is going to be a big social and personal problem when they are old.
The old saying that you work hard, save your money is pure nonsense. If you just save your money in the bank, you are going to die poor. The one dollar you save today may only worth 50 cents 20 years from now. So go ahead and put your money in the bank if you want!
