It's Not How Much You Make, It's How Much You Keep - Ask Warren Buffet

I recently wrote a posting about how being an employee is the most expensive way to make money in Canada. Obviously, the vast majority of people are not independently wealthy, nor self-employed and so, many people have asked me what are they to do? Well, even as an employee, there are options. It always makes me laugh when people ask "How much money do you make?". In my opinion, that is often a meaningless question. It's the amount that one keeps that is more important than how much one makes. Effectively and legitimately shielding money from the taxman is seldom done by the average person because they may think it cannot be done, they could not be bothered or they think it involves complex financial strategies.

But it could be as simple as working a four-day week versus a five-day work week. Excluding overtime, the fifth day of work is the most expensive. If people did the calculations, they would realize that if they only worked 80% of the time, they might see their gross income fall by 20%, but that their take home pay would fall by far less. Conversley, when one works overtime or gets a bonus, the tax rate always seems higher, as it often pushes one up to another tax bracket. That's why workers will often quip that it's not worth working overtime when the taxman takes 50% of the paycheque.

If you decide to chuck your job, don't do it in December because you will derive no benefit from the taxman. Rather do it a few months before that, and your tax refund will likely offset much of the lost income from not working those last few months. Given a choice of working for a full year, or takling a few months off with only a marginal loss in net income, I will always choose the latter.

Understanding that someone who makes $60,000 but only works 8-9 months of the year can net as much as someone who makes $100,000 over a full year can help change one's mindset. The next question is how do you get a job where you only work 8 or 9 months per year? Well, there are tens of thousands of people who (by choice) work as project or contract workers, interim executives or in seasonal jobs. The main reason why a lot of people don't go down this road is their need for stable work and job security. The irony of it is, given recent and future economic times, the average worker has little or no job security.

Ask Warren Buffet, the world's richest man who slams a taxation system that is so screwed up that he pays less taxes than his secretary. Last year, Buffet made $46 million and paid a tax rate of 17.7% while his secretary who makes $60,000, paid a tax rate of 30%. This is one reason that Barack Obama is trying to give tax cuts to the middle class while making sure the rich pay their fair share.

This is the time to think outside the box. Give it a try.