Here's another post in our series on the learnings from the book The Millionaire Next Door. A quote from page 56:
Income tax is the single largest annual expenditure for most households. It is tax on income, not on wealth and not on the appreciation of wealth if this appreciation is not realized; that is, if it does not generate a cash flow.
What is the message? Even many high-income-producing households are asset poor. One reason is that they maximize their realized incomes, often to support high-consumption lifestyles.
If you read The Millionaire Next Door post yesterday, you know that millionaires only have 7 percent of their wealth subject to tax each year. Pretty good stats. It's likely because they are invested in growth stocks, real estate, and businesses that can appreciate from year-to-year but don't churn out cash (the business will, of course, but it can also appreciate without yielding cash at the same time). I'm trying to get more of my assets in these categories as I'm fed up with taxes and looking to minimize them as much as possible.
7%! I need to work on that - I have alot more than 7% of my net worth subject to taxes each year - I would guess more around 25%.
Posted by: 2million | October 09, 2006 at 08:26 PM