Clues on Taxes

One of the wealth mantras that has always remained with me is it is not how much you make but how much you KEEP​.  ​When I heard these words the first time, it shattered my beliefs that in order for me to have wealth, I would have to make  a significantly higher income.

Keep more of your income by understanding your tax position

Knowing that I did not need to be a millionaire before I could start investing and saving, I began to learn about ways to keep more of my current income by saving and investing wisely, controlling debt and understanding taxes. This blog will focus on taxes.

Why we pay taxes

Taxes are payments citizens/residents of a country make to their government who will typically use such funds to secure social goods like maintain public parks, provide state pensions, provide national healthcare and many more. There are different types of taxes but the one that significantly impacts your wealth goals are income taxes. 


What is your tax bracket? 

Income taxes are typically deducted from your monthly or annual pay check. Depending on where you are in the world and your occupation type, you can pay up to 70%+ taxes. If your income tax is 50% it means that 50% of your income is going to government and that amount will not be available for  you to build your wealth. The 50% that you get to keep can also be subjected to taxes on the interest earned via savings so it is very important to ensure that you are not taxed twice when planning for your financial future.

​Many individuals, use banks and tax planners to help them identify ways to legally reduce the amount of tax they pay so that they can hold more of their wealth. 


So what can you do today to protect your wealth?

1. Look through your assets classes and identify if you do pay taxes. For instance, if you are using a retail savings account that is not a cash ISA, you will be paying taxes on your savings.

2. If you get a monthly pay check,  look through your pay slip and understand how much tax you pay monthly. If you want a holistic view, visit HRMC to see how much income tax you pay annually.
 
​3. My favourite: Start using tax friendly products to safeguard your wealth

The UK government allows wealth builders to save up to £20,000 tax free in any of the three ISA wrappers available. You can save your cash, invest or use Innovative finance products.

In addition, if you invest in Private Equity companies that are covered under the EIS scheme, you can get up to 30% back from the government. You can also get similar refund using a VCT.

If you donate to charity, you can also claim a tax relief on your donations. Furthermore, if you are saving for your children, you can use the Junior SIPP or Junior ISA to protect your savings.

As you can see there are numerous opportunities for you to keep more of your income by understanding how to manage your tax situation. Most importantly, the size of your income is not a blocker. Remember, it is not how much you make but how much you KEEP​.

it is not how much you make but how much you KEEP​