After writing 5 blogs on debt, I think I need a little more light and exciting or dare I say more positive topic. But before I continue, if you hadn’t read those previous blogs I would highly recommend reading it, not because I wrote them but because the information is very transformative.
Having a way out of the stress of debt is a must.
This blog is going to be about money growing…YAAAYYY!
I was reminded recently of an ad about the old analogy of 1 penny doubling every day for 30 days. How much would you have?
Why am I bringing this up?
There is a rule called the Rule of 72 which simply states if you divide the appreciation amount (%) you are earning on something into the number 72, the answer is how many years it will take your money to double based on that appreciated amount. For example, 72 / 6% = 12 years.
So when you look at the analogy of the penny, the question is, how many doubling periods do you have left in your money appreciating life?
Let me explain…let’s say you are 45 yrs old and you have $100,000 and you expect a 6% appreciation, so this means every 12 yrs your money will double 3x to age 69.
BUT now let’s look at if you save money on taxes, you are filing married jointly, and you are in the 24% federal tax bracket.
Using the Rule of 72, your money doubles every 3 yrs (72 / 24% = 3 years). During the same time period from 45yrs of age to age 69, your money doubles 8x to age 69.
You are asking how is this possible? Again another simple answer.
The IRS code and their guidelines allow us to accomplish the above. How?
Simply understand the rules to the various assets and understanding how those rules work in their 3 stages and how the IRS guides us during those 3 stages.
Please understand we are not saying your 24% is an investment return but you are actually keeping your money rather than giving it to the IRS. I guess instead of thinking of the 24% as a “rate of return”, it is a rate of keeping.
We do not give tax advise so seeking a professional tax advisor’s advice is important. In fact, we can work with your tax advisor on which assets the IRS guides us.
The last note to mention here is the importance of understanding the rules of assets and how to use the Rule of 72 to be able to provide income for those expenses that is necessary and important.
My next blog will address expenses based planning and the importance of being more probable or accurate.