Principle #7: There Are Two Things Certain in Life
Life is full of uncertainties. Certainly most areas of our financial lives are in the context of uncertainty — debt, investments, insurance, income.
What is certain, as the famous quote goes, is death and taxes.
I know most of us don't think about death, not so much because it's an unpleasant subject but because it's so distant.
Discuss with your loved ones. Maybe you haven't built a big enough estate to even think about estate planning. But have you ever thought about how you want to be buried? Do you want to be cremated? Do you want a short wake? Do you want a closed casket?
There's nothing morbid about this if you share these things to a loved one. I think it's perfectly normal to talk about. Should you buy a memorial plan? Not necessarily. What's important is that someone you love knows what you want when you die.
Consult an estate planner. Now, if you do have a substantial estate, it's not enough to make a will. Talk to a lawyer or a trust banker who can explain to you how wills, trusts, gifts, etc. work. Going through the process gives you a good idea how much you have, which beneficiaries should receive what, and how they can minimize the payment of estate tax. Otherwise, your loved ones will be left with a mess.
Someone I know experienced this problem recently. Her dad passed away and they were left with missing documents, unpaid obligations, angry employees and suppliers, and a huge tax burden. It took months to fix everything. That's not a good way to die.
It was the estate tax that proved to be a major burden. Obviously, even in death, taxes will continue to haunt us.
Plan to minimize taxes. For the living, taxes are certainly a burden. If you're an employer, you have to contend with income tax, value-added tax, withholding tax, and other business taxes. But at least, you have more flexibility when it comes to allowable deductions (at least until the government succeeds in shifting to gross income taxation).
If you're employed, you know almost a quarter of your salary goes to the government. It's like you're working for the government one fourth of the time.
As a consumer, you have to pay real estate tax. Your investments are hit by withholding tax. You pay higher for goods and services because taxes on businesses are passed to you.
Unfortunately, unlike in the US, there's not much you can do if you're an employee. But tax planning is still an important area of personal finance. You may be helpless with withholding taxes on your compensation, but you still have choices when it comes to investments and estate planning that will minimize the taxes you pay.
To sum up: death may be a distant likelihood, but it's something you should think about already. Taxes may be an inevitable occurence that you have little control over, but it's still something you can plan for.
