Money Mondays is a new series focused on the intersection of finances and well-being. We believe money is one of the last taboos in the wellness world: Why is it that we can talk about our sex lives and not our salaries? With an underlying drive to empower, we’re aiming to address all your burning questions about making money (and making more), saving it, spending it, but most of all how to use it to power the life of your dreams.
Tax time used to coil my nerves, tighten my jaw, and bloat my belly. Months before my taxes were due, I used to feel anxious and tense just thinking about possible surprises that might come up. I would imagine all kinds of scenarios and feel ungrounded and jittery the day I met with my accountant to find out how much I owed. Money is an already a top source of stress, and that stress only heightens during tax time.
I'll admit, I have had my share of tax-time pitfalls. For me, these included spending my tax account money on renovations, not being organized at tax time, and neglecting to stay organized throughout the year. One of my mentors always reminds me to build things before you need them. For me, this has evolved to hold sacred, saving throughout the year for taxes.
A note for entrepreneurs, and how to create a healing tax strategy
As an entrepreneur, I had to learn a lot very quickly about tax strategies and tax policies. When I was employed, I let my employer take care of deducting for taxes throughout the year and at tax time, my taxes were pretty simple to calculate. In my 20s, I didn't really have many investments so my taxes were fairly quick and painless. As I acquired more assets and became an entrepreneur, I quickly got overwhelmed and realized that I had to become more disciplined around spending.
What I also realized is that great tax strategies should be as much of a priority as making more cash. You can acquire great skills for acquiring more cash flow, but if you don't have strategic tax-planning activities, you won't reap much for all that extra time and energy you have invested. Two of the big mistakes people make (and that I made) was not recognizing that cash flow and tax savings are two of the secrets to estate planning and wealth accumulation. I used to focus all my energy on generating more cash flow but all that effort got sideswiped because I wasn't smart or disciplined with saving for taxes, nor did I leverage all the great tax strategies that were available to me.
Here are a few of the strategies I have learned over the past 20 years that have helped me heal my tax-time anxiety. This is the master list that I believe we should learn before we turn 20 and start working in the real world.
1. Map out your money.
It's both fun and wise to map out all the ways you intend to generate income. Today, having one income stream is not enough. I mapped out all of the ways I intended to generate cash flow over a decade ago. This not only helped my vision and creative process but helped my accountant and my financial adviser get a better grasp of long-term financial strategies. When they say my long-term goals, they quickly realized that strategic tax planning would be as important as my moneymaking initiatives.
2. Develop an organization system.
Take the time out of your day to be organized. It might seem like it's not that productive, but it will save you hundreds of hours and hundreds of dollars that you'll have to spend fixing financial and personal messes. I purchase two plastic filing boxes at the beginning each year (one for my personal receipts and one for my business receipts). Because I save all my receipts, I file them accordingly and ensure I feel super organized. This also helps me sleep more peacefully as I know my financial foundation is in order.
3. Hire a great accountant or adviser.
Even if you choose to do your own tax filing, have someone to discuss tax and estate planning with so you aren't missing any wonderful write-offs or strategies. This can add up to saving thousands of dollars on your taxes. I also suggest making sure that who you choose to speak with has expertise in your industry as there can be significant differences where tax filing is concerned.
4. Save throughout the year for tax time (especially if you are an entrepreneur).
Each week (or every pay period) automate transferring roughly 30 percent to a tax account. You won't miss the money that has been transferred and you will feel on top of the world when you get to tax time and you already have all the money! I know what it's like to hustle to make the money last minute for taxes and it can be done but I don't recommend it. You may be tempted to use that money cushion allocated for taxes for trips or clothes (I did this), but resist the urge to treat this money as your own. If you have to, talk to your banker or financial adviser about moving it out of your sphere of spending. Be smart and disciplined. I would also rather have a little extra money in that account when tax time rolls around just in case you get hit with a little tax-time surprise.
5. Have a home-based business.
Even if you are employed, relying on one income today is risky. Empower yourself by creating a plan for you and your family that includes multiple income streams. Today, it's quite simple to start generating extra money on just a few extra hours a week. Turn your TV time into revenue generation time. Even better, start sleeping wealthy by adding a revenue stream that pays you while you sleep.
6. Become your own bank.
This is a very exciting theory for me. Although building your estate will likely include borrowing money for real estate investing or starting a business, imagine that you had so much of your own leverage that you were your very own bank. This is so much fun and something my husband and I talk about often. Instead of renting studio space to start a yoga studio, buy the building cash so you're not as obsessed with selling out each class. A concept that is fun to discuss and ponder. Either way, being disciplined and creative around revenue generating and tax strategies is critical—even if you don't dream about being your own bank.
7. Talk to an insurance specialist about whole-life insurance plans.
Today, there aren't a million strategies for saving on your taxes but there are a few powerful ones. Whole-life insurance plans are powerful ways to create a "beautiful money" lifestyle. For more on this, check out my book.
These simple yet powerful tax tips have helped me as an individual, entrepreneur, and as a mom. These are absolutely strategies I will be teaching to my kids long before they are 20!