Making money from salary is a losing proposition.
If you and your spouse made $200,000 Taxable Income last year from salary, dividends and interest, you paid a $44,263.50 tax bill. The same $200,000 from long-term capital gains, you would have paid $30,000.
Who wants to work for someone else, when investment is more interesting, less time-consuming and more rewarding? If you love woodworking, cooking or something else for its own sake, great! Donate your work to a worthy charity. Meanwhile, stop wasting money in taxes!
Profitable investment takes money and knowledge. Tell your kids:
- Think hard about not going to college. I know this is heresy. If you are not top 20% High School GPA and already extremely focused and extremely talented in some area, it may be a waste of money to go to college. Think about giving them 1/3 of their "college money" to start a business instead. Do it right: make a plan, run it by a SCORE advisor or someone who has made and lost money for years as an entrepreneur. If it fails, do it again with 1/4 the money. If the 2nd time fails, tell them to live on the remaining money while they intern for free in a highly speculative field where contacts and practical experience matter more than formal education: sales, film production, etc.
- Start saving tomorrow morning while you still live a thome. Do not move out until you have paid your parents $1,000 and saved enough cash to live on for 6 months. I'm serious.
- Never buy luxuries on credit. I call it the Inverse Big-Screen Rule: the more people spend on big ticket luxuries bought on credit, the less happy they will be in 5 years.
- Do not get married (or have children) until you are at least 28. If I have to explain it to you, you would not understand it.
- Seek immediate financial advice if they ever have to put groceries or other necessities on credit cards. Plug that leak right away, whatever it takes!
- Cut expenses! Get a roommate, never eat out, carpool, just do it.
- Learn about an investment area that interests them. Accounting/Finance courses in the evenings at a community college will do just fine for the basics. Then all they have to do is learn the specifics of their investments, whether it's real estate, art, cars, antiques, stocks, bonds, new ventures, film, you-name-it.
Your kids can have it better. Tell them how.