RPF0642-Friday_QA-How_to_Contribute_to_an_IRA_When_Youre_Taking_the_Foreign_Earned_Income_Exclusion_How_Should_You_Think_About_FIREing_Yourself_From_A_Big-Money_Job
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00:00:30.000 | It's Friday!
00:00:45.040 | ♪ ♪
00:00:53.980 | Welcome to Radical Personal Finance, a show dedicated to providing you with the knowledge, skills, insight, and encouragement you need to live a rich and meaningful life now,
00:01:03.760 | while building a plan for financial freedom in 10 years or less.
00:01:07.200 | My name is Joshua, I am your host, and today is Friday.
00:01:10.040 | I don't have a live Q&A show, but I do have a lively Q&A show.
00:01:15.540 | I hope. That's my intent. I guess we'll see.
00:01:18.340 | ♪
00:01:26.380 | Happy Friday to you all. I was not able to get ahead enough, and to get the new little newborn squared away enough,
00:01:32.220 | that he will be quiet to where I will be able to record a show as scheduled with live call,
00:01:38.020 | and kind of got to sneak around and figure out when I can do these things at the moment.
00:01:41.560 | Little boy's been sick the last couple of days, and so...
00:01:44.340 | Not sick, just anyway, a little fussy and whatnot.
00:01:47.000 | You might hear him in the background, but let's get to it.
00:01:48.740 | I got a Friday Q&A show, and today I'm going to handle a handful of questions that listeners have written in.
00:01:52.380 | I think it's kind of a fun variety.
00:01:54.940 | Let's get right into the questions.
00:01:56.640 | First question comes in from a listener who's asking me about how to contribute to an IRA, though he be an expat.
00:02:06.120 | Listener writes in and says, "Hi, Joshua. I'm a long-time listener. I really enjoy your perspective,
00:02:09.660 | and it's been helpful in lifestyle choices and financial options.
00:02:13.500 | Your episodes on expatriate life are of particular interest to me."
00:02:17.760 | Episodes 634 and 636.
00:02:20.160 | "I'm an American expat, and I have been living abroad for over five years.
00:02:24.380 | I have been using the foreign income exclusion, and it's great for me in general.
00:02:28.740 | However, one of the caveats is the inability to contribute to an IRA.
00:02:32.820 | As I understand it, when utilizing the exclusion, you are unable to contribute to an IRA,
00:02:37.660 | either a Roth or a traditional.
00:02:39.560 | But with the foreign income tax credit, I believe you can contribute to an IRA.
00:02:44.200 | Not sure if a Roth or traditional or both.
00:02:46.300 | So I've been unable to contribute since moving overseas.
00:02:49.240 | Could you talk about this in an episode?
00:02:51.340 | Maybe on retirement investment options while abroad.
00:02:53.900 | Would life insurance be an additional option?
00:02:55.740 | Would setting up a USA-based LLC or some sort of entity be helpful?
00:03:00.040 | Would that be advantageous in some sort of way if you're self-employed?
00:03:03.640 | Thanks so much. Keep up the great and helpful work."
00:03:07.260 | So this is a great question, and let me answer it directly.
00:03:10.860 | I need to give just a...
00:03:12.460 | I'll try to keep it to a few minutes of background information
00:03:15.860 | to make sure that we are all on the same page.
00:03:18.760 | This listener is a US citizen.
00:03:20.760 | US citizens, though they move abroad, continue to be required by the United States of America
00:03:26.060 | to pay the United States of America income tax on their worldwide earnings,
00:03:31.660 | even if they do not live in the United States of America.
00:03:35.560 | This is unlike any other nation in the world save Eritrea, which has the same system.
00:03:40.960 | So it's unlike anyone else in the world, but it is the fact for US citizens.
00:03:44.960 | So though this listener is living outside of the United States,
00:03:48.960 | he is still required to pay the United States income taxes on his worldwide income.
00:03:54.960 | Now, the United States government offers three basic things
00:03:58.660 | that are useful for people who don't live in the United States.
00:04:02.660 | They are, number one, the foreign earned income exclusion,
00:04:06.460 | which allows you to exclude up to about $105,000 of your foreign earned income
00:04:14.860 | from the federal income tax system.
00:04:17.360 | That's called the foreign earned income exclusion.
00:04:20.460 | The second thing that is available is the foreign housing deduction
00:04:24.560 | and/or the foreign housing exclusion,
00:04:26.760 | which allows you sometimes to additionally deduct some of your housing expenses
00:04:32.460 | if you are outside of the United States.
00:04:35.660 | And then number three, you have what's called the foreign tax credit.
00:04:39.560 | The foreign tax credit allows you to receive a credit against your US income taxes
00:04:45.860 | for income taxes that you have already paid to a foreign government.
00:04:51.660 | Now, the number one and number two, the foreign earned income exclusion
00:04:55.260 | and the foreign housing deduction or exclusion function together,
00:04:59.360 | whereas the foreign tax credit is a separate system.
00:05:03.260 | Now, when you use the foreign earned income exclusion and you qualify for it,
00:05:07.460 | what it does is it wipes out your income, basically.
00:05:11.560 | The foreign earned income exclusion functions as a form of anti-income.
00:05:16.760 | So if you earn $100,000, you can take the $100,000 exclusion
00:05:21.460 | and you will effectively have, for the purposes of your federal income tax return,
00:05:26.260 | no income because it is all excluded.
00:05:29.260 | You thus have no income, thus you owe no taxes.
00:05:33.660 | This is a problem if you are trying to participate in something
00:05:37.060 | that requires you to have earned income, for example, to make an IRA contribution.
00:05:43.260 | In order for you to make an IRA contribution,
00:05:46.160 | you have to have earned income at least equal to the amount of your IRA contribution.
00:05:53.460 | And so the problem this listener is facing is their income is being wiped out
00:05:57.760 | by the foreign earned income exclusion, leaving them with no tax liability,
00:06:02.860 | but making it not possible for them to contribute to an IRA.
00:06:08.160 | Now, is there a solution? Yes, there is a solution.
00:06:12.560 | And I'm going to give you three solutions, one of which you have mentioned.
00:06:16.060 | Let's start with that one, which is your worst solution.
00:06:18.860 | What you are suggesting is that instead of claiming the foreign earned income exclusion,
00:06:24.260 | you simply claim a foreign tax credit.
00:06:27.160 | Now, you are correct that if you claim a foreign tax credit, you will have income.
00:06:32.560 | Let's say that you earn a hundred thousand dollars.
00:06:35.160 | Let's say that you live in a country that is, I don't know where you live.
00:06:39.960 | Let's just say you're paying an effective tax rate of 15% on your money.
00:06:44.560 | So you've paid $15,000 of foreign taxes on your income to a foreign government,
00:06:50.360 | not in the United States. Well, if you are in that situation,
00:06:54.760 | then you can claim a credit, a tax credit for the $15,000 for the U.S. government.
00:07:01.160 | Now, the way the foreign tax credit works, it doesn't actually save you any money.
00:07:06.760 | All it means is you won't be double taxed.
00:07:10.160 | So let me use an example. Let's say that you go to Canada, Canadian citizen.
00:07:15.560 | Let's say that you're a dual citizen of Canada and the United States
00:07:19.260 | and you have moved from the United States to Canada and you're earning a hundred thousand dollars.
00:07:24.160 | Assume for the sake of argument that your effective tax rate in the United States on a hundred thousand dollars would be 20%,
00:07:30.760 | but your effective tax rate in Canada on the same hundred thousand dollars is going to be 30%.
00:07:36.560 | Well, you'll pay $30,000 of Canadian taxes
00:07:39.860 | and then you can take that as a credit against your U.S. taxes,
00:07:44.760 | but and you'll effectively wipe out your U.S. taxes, but you won't save any money.
00:07:48.060 | You're going to pay the money out to either Canada or the United States.
00:07:52.560 | Now, let's say that instead of working in Canada, you instead were working in the Cayman Islands.
00:07:56.860 | So the Cayman Islands doesn't have an income tax.
00:07:59.560 | They don't have any kind of income taxes imposed on people who live there, who work there.
00:08:04.760 | So now you don't have any foreign taxes paid.
00:08:07.160 | Well, now you can't take the foreign tax credit.
00:08:09.560 | What that means though is you're going to pay $20,000 to the U.S.
00:08:12.560 | government on your hundred thousand dollars of income,
00:08:14.560 | assuming that you didn't qualify for the foreign earned income exclusion.
00:08:17.360 | Remember, we're just talking about the foreign tax credit here.
00:08:19.660 | So the tax credit really doesn't save you any money.
00:08:22.460 | It just keeps you from double paying.
00:08:24.360 | So if you pay taxes abroad, then you don't have to doubly pay those taxes in the U.S.
00:08:30.260 | You will pay it whatever the total highest tax bill is.
00:08:33.860 | If you're living and working in Canada, Canadian taxes are higher.
00:08:37.060 | You'll pay the higher amount of taxes to Canada.
00:08:39.660 | If you're living and working in the United States, in a place
00:08:41.560 | where the taxes are lower than the United States,
00:08:43.460 | you'll pay the lower taxes to the United States.
00:08:46.760 | So the foreign tax credit can be useful if you're paying foreign taxes.
00:08:50.460 | If you get the credit, you might as well use it.
00:08:52.460 | But what I'd love to see most people do is use that for offsetting things
00:08:56.260 | like their capital gains taxes, etc., and use it if you have it.
00:08:59.860 | But don't try to get there this way.
00:09:02.060 | However, you are correct that even if you don't qualify
00:09:05.560 | for the foreign earned income exclusion,
00:09:07.960 | if you're paying foreign income taxes, you can still claim those foreign income taxes
00:09:11.960 | and you will still have earned income allowing you to contribute to an IRA.
00:09:15.760 | But that's the expensive way. Don't do it that way.
00:09:18.360 | Take the foreign earned income exclusion, which let's go to number way number two.
00:09:21.860 | The second way that you can contribute to an IRA is if you will simply make more money
00:09:27.160 | than you can wipe out with the foreign earned income exclusion. Simple example.
00:09:31.560 | Let's say that you can earn a hundred and fifteen thousand dollars,
00:09:36.060 | but yet you can only wipe out a hundred and five thousand dollars
00:09:38.760 | with the foreign earned income exclusion.
00:09:40.460 | Now you have ten thousand dollars of earned income.
00:09:42.860 | And the way it works is you will pay and owe US taxes on that ten thousand dollars of income.
00:09:47.860 | It doesn't start at the bottom of the bracket.
00:09:49.860 | It'll rather it will start at the top of the bracket,
00:09:52.460 | but you will still be able to claim your deduction,
00:09:54.960 | your standard deduction or your itemized deduction.
00:09:57.060 | You will still be able to claim maybe a child tax credit or some of that
00:10:00.660 | if you have it against that ten thousand dollars,
00:10:02.860 | but you'll have ten thousand dollars of earned income,
00:10:05.160 | which you can then use for an IRA contribution.
00:10:08.460 | So that's another simple way is make your income higher so that you have more earned income.
00:10:13.460 | However, easy for me to say maybe harder for you to do.
00:10:16.660 | Maybe you're just enjoying making less money
00:10:19.060 | and you don't want to make a hundred and thirty thousand dollars
00:10:21.460 | or whatever it is that you need.
00:10:22.760 | So let's go to way number three and that is based upon how you claim your foreign earned income exclusion.
00:10:31.960 | There are two tests that can be used to qualify for the foreign earned income exclusion.
00:10:38.060 | The first test is a strict days test.
00:10:41.960 | It's a test that simply goes based upon how many days you spend outside of the United States.
00:10:48.760 | If you will spend at least three hundred
00:10:51.360 | and thirty days out of a three hundred and sixty five day period outside of the United States in a foreign country,
00:10:58.160 | then you will qualify for the foreign earned income exclusion regardless of any other factor.
00:11:06.260 | That's the strict days test.
00:11:08.060 | Now this is one example wherein it's a little bit easier for U.S.
00:11:11.660 | citizens to avoid the tax on their first hundred and five thousand dollars of income than it is for other citizens.
00:11:17.560 | For example, you as a U.S. citizen can leave the United States
00:11:21.160 | and as long as you are outside of the United States for three hundred
00:11:24.160 | and thirty days out of the three hundred sixty five days.
00:11:26.660 | And by the way, there are a few little rules there about international waters not counting and things like that,
00:11:30.460 | but just keep it simple. Just just say you're outside of the United States
00:11:33.360 | for at least three hundred thirty out of a three hundred sixty five day period.
00:11:36.460 | Doesn't matter where you are. Doesn't matter if you pay taxes anywhere else in the world or not.
00:11:40.560 | You can claim the foreign earned income exclusion.
00:11:43.360 | This allows you to live in, say, a tax haven
00:11:46.160 | or to do some of the things that we've discussed where you cannot pay any taxes to any other jurisdiction other than the United States.
00:11:52.860 | That would not be the same if you were, say, Canadian.
00:11:55.960 | If you were Canadian and you left Canada and just spent a year bouncing around the world,
00:12:00.260 | you would still owe the country of Canada taxes because you're still considered to be a resident of Canada.
00:12:06.260 | In order for you to end your relationship with the Canadian taxing authorities,
00:12:10.760 | you have to become a resident somewhere else, pick up a residency and sever all your ties with Canada.
00:12:16.560 | So for a hundred thousand dollars or less, the US system is probably a little easier to work with than the Canadian system.
00:12:22.460 | Now, my hope is, of course, we all get to more than a hundred thousand dollars,
00:12:25.160 | in which case I'd rather have the Canadian system.
00:12:26.960 | But what what can we do? So that's the strict days test.
00:12:31.360 | We'll come back to that in a moment because you have to use it for the trick that I'm going to tell you to work.
00:12:36.260 | Now, the other way that you claim the foreign earned income exclusion is with what's called the bonafide residence exception.
00:12:42.360 | So this is where you actually live somewhere else and you have a series of factors that demonstrate that,
00:12:48.360 | yes, you actually live somewhere else.
00:12:50.560 | If you can prove that you actually are a bonafide resident of another place, you actually live somewhere else.
00:12:56.660 | You're not just bouncing around the world. You actually live somewhere else.
00:12:58.960 | You have a residency visa or you're a citizen of another country.
00:13:02.460 | You have stable house there. You work there. Your family's there, etc.
00:13:06.060 | You're a resident and you plan to be a resident there forever.
00:13:08.860 | Then you can qualify for the foreign earned income exclusion under the bonafide residency test.
00:13:14.360 | And that will give you the ability, if you needed to or wanted to,
00:13:18.460 | to spend more physical days in the United States than the strict days test.
00:13:24.160 | Generally, you could probably spend up to about four months in the United States.
00:13:29.760 | You can't spend more than four months in the United States every year
00:13:33.860 | because that would cause you to fail the substantial presence test
00:13:37.360 | if you were spending more than 120 days in the US every year
00:13:40.660 | and thus automatically subject you to US taxation.
00:13:44.860 | But if you spent, you know, a couple, three, four months in the US each year,
00:13:48.360 | you could do that as long as you were a true bonafide resident abroad.
00:13:52.960 | That won't work and allow you to contribute to an IRA
00:13:55.960 | if you're claiming the foreign earned income exclusion under that test
00:13:59.160 | because that test is an annual test.
00:14:01.860 | It only works on calendar years, which is why generally when people expatriate,
00:14:06.860 | the advice is claim using the strict days test first.
00:14:10.860 | And then if you're going to set up a residence, move into the bonafide residence exclusion.
00:14:14.960 | But here's the cool thing with the strict days test.
00:14:16.760 | Let's talk about how it works. It doesn't have to be January 1 to December 31.
00:14:23.360 | So you don't have to be gone from the United States from January 1 to December 31
00:14:28.460 | in order to claim the foreign earned income exclusion.
00:14:31.660 | You simply have to qualify for it during any rolling 365 day period that you choose,
00:14:38.960 | which means that you could if you wanted to spend January,
00:14:43.360 | February, March, April, and May in the United States,
00:14:46.960 | you could leave the United States on June 1 and be gone until June 1 the following year
00:14:52.660 | and then return to the United States for July, August, September, October,
00:14:55.960 | November, December of the following year
00:14:58.460 | and still claim the foreign earned income exclusion.
00:15:02.060 | Now the way that would work is you claim that 12-month period,
00:15:05.860 | but then it is prorated to your 12-month tax year.
00:15:10.160 | So if you under that fact pattern I just described from June to June,
00:15:15.060 | if you claim the exclusion during that period of time,
00:15:18.060 | you would say, listen, I would have 50% of my earnings that are subject to tax
00:15:23.360 | and I would have 50% that are able to claim the foreign earned income exclusion
00:15:27.860 | and the exclusion itself is prorated.
00:15:29.860 | So you would have access to say $52,500 of the exclusion.
00:15:34.660 | But the thing is you control that date.
00:15:36.960 | Now let's assume for the case of simpler facts that you are outside of the United States all the time.
00:15:42.960 | You haven't come back in five years.
00:15:45.160 | You have zero days in the United States.
00:15:47.560 | So that's automatically you're going to always qualify
00:15:49.660 | for the foreign earned income exclusion under the days test.
00:15:52.860 | Now what you've most likely been doing up till now is claiming your year
00:15:57.460 | to go from January 1 to December 31 just for simple convenience.
00:16:03.560 | That's what you've been claiming.
00:16:05.260 | Here's what I would point out to you though.
00:16:06.760 | You don't have to claim that.
00:16:10.060 | You don't have to claim that.
00:16:11.560 | So here's what you can do to create earned income
00:16:15.860 | that will allow you to contribute to an IRA.
00:16:20.960 | Claim a different time period.
00:16:23.160 | Now it doesn't matter.
00:16:23.960 | You're not representing to the IRS that you were in the United States for a different time period.
00:16:29.760 | You're just saying I'm claiming a different time period.
00:16:32.260 | So let me give you an example.
00:16:33.360 | Let's say that you earn $100,000 per year.
00:16:37.360 | So we divide $100,000 by 365.
00:16:40.660 | Your daily wages in that situation are $274 if we go based upon seven days a week.
00:16:46.160 | $274.
00:16:47.660 | Now you're trying to generate some money, some earned income to contribute to an IRA,
00:16:53.360 | but you also want to make sure that you qualify for the foreign earned income exclusion.
00:16:56.260 | Well, you don't come back to the United States,
00:16:57.960 | but 275 times say 30 days or January is 31, right?
00:17:02.160 | So let's do 274 times 31 is $8,494.
00:17:08.060 | So what you can simply do is when you fill out your tax return
00:17:12.860 | and when you fill out the form, what is it, 2555?
00:17:16.060 | Form 2555 for the foreign earned income exclusion on section, let me find it here,
00:17:22.760 | section, sorry, very unprofessional, very unprofessional.
00:17:31.260 | Where is it?
00:17:35.060 | Section part three, taxpayers qualifying under the physical presence test.
00:17:39.560 | Line 16 of part three says the physical presence test is based on the 12-month period
00:17:45.160 | from this date through this date.
00:17:47.460 | So when you are filling out form 2555, you simply write on that paper,
00:17:52.960 | the physical presence test is based on the 12-month period from February 1,
00:17:57.160 | for example, 2018 through February 1, 2019.
00:18:02.360 | Then you go on and you explain that you haven't traveled in the United States,
00:18:07.160 | you were physically present in a foreign country
00:18:09.660 | or countries for the entire 12-month period.
00:18:12.260 | But because you wrote on that line February 1 to February 1,
00:18:16.060 | you automatically still now have 31 days that are not subject to the foreign earned income exclusion,
00:18:22.060 | which means that your income is going to be prorated
00:18:25.860 | and you will pick up $8,494 of income from that 31-day period.
00:18:32.560 | Thus, that $8,494 of income will flow through your tax return
00:18:38.760 | and it's available for you to make an IRA contribution.
00:18:44.060 | That's how you do it.
00:18:46.160 | So if you want to create earned income, just claim a different set of dates on form 2555
00:18:52.660 | and you can do that every year.
00:18:54.160 | You can do that February 1, 2018 to 2019.
00:18:56.860 | And then when you do the following year's tax return,
00:18:59.060 | you can claim February 1, 2019 to February 1, 2020.
00:19:03.060 | All that you're claiming is the days that you're going to subject to that physical presence test.
00:19:07.660 | And so you have now created 31 days that you're not going to claim the income for.
00:19:13.360 | So that's up to you. Now, I would just say you're going to need to play with these numbers
00:19:17.560 | because this is very much one of those things where you'll jigger the numbers as you're doing your tax return.
00:19:22.360 | You're not going to change your facts.
00:19:23.760 | Although you could if you are very comfortable with this foreign earned income exclusion
00:19:27.660 | and if you're trying to spend time in the United States or whatever,
00:19:30.360 | you could just go ahead and spend the time there and change your dates every year.
00:19:34.060 | So we're not trying to jigger the facts.
00:19:35.960 | Sorry, but we're just jiggering the numbers. The facts are what they are,
00:19:39.160 | but you're jiggering the numbers here to see what's going to help you the best.
00:19:42.660 | So I hope that helps you to be able to claim that
00:19:44.860 | so that you can make an IRA contribution if you want to.
00:19:48.060 | Comment for you on IRA contributions.
00:19:50.460 | I don't see any reason for you to participate in a traditional IRA under this particular plan.
00:19:55.660 | What's the point of deferring taxes to a later date when you can just go ahead
00:20:01.460 | and pay zero taxes if you're not already maximizing your foreign earned income exclusion amount?
00:20:06.760 | I can see why you would participate in a Roth IRA.
00:20:10.060 | I can see that as being useful.
00:20:13.360 | But just you judge appropriately. Now with regard to your other questions,
00:20:19.360 | let me just hit those very quickly and not give you detailed answers,
00:20:22.460 | but just hit you with a couple of quick questions.
00:20:26.260 | First, talking about retirement investment options while abroad.
00:20:28.960 | Of course, there are many options and just because you are abroad doesn't mean
00:20:32.960 | that you can't participate in retirement plans in the United States.
00:20:36.360 | Now it can be a little complex to set it up.
00:20:38.060 | And again, this is where in some ways we could argue that the US system is an advantage versus a Canadian system.
00:20:43.560 | If you were Canadian, you need to leave and you're not going to participate in things back in Canada.
00:20:46.960 | But for the United States, since your only way to ultimately leave is to formally renounce citizenship,
00:20:52.660 | assuming you're not going to do that, you can still participate in everything in the United States.
00:20:57.260 | You can have your entire financial infrastructure in the United States
00:21:00.660 | because the only thing you're going to get by living abroad,
00:21:03.660 | other than perhaps lower cost of living or better lifestyle or personal happiness,
00:21:09.760 | the only financial benefit you're going to get is going to be foreign earned income exclusion,
00:21:13.960 | foreign housing deduction, and the foreign tax credit.
00:21:18.460 | And we'll talk in a moment about avoiding employment taxes.
00:21:21.160 | But you can still participate in things in the United States.
00:21:24.260 | So depending on your family setup and depending on the family situation and all of that,
00:21:29.260 | you can still contribute to other retirement accounts.
00:21:31.860 | You just have to have that earned income.
00:21:34.660 | There's lots of stuff that you can do and to go beyond that,
00:21:37.060 | you would have to look at how you're actually running your business.
00:21:40.060 | Now, would life insurance be an additional option?
00:21:41.860 | Sure, it would be, but that's not going to matter whether where you are.
00:21:45.660 | You can have the same life insurance investment options in the United States versus outside the United States.
00:21:51.260 | The only thing wrinkle you will get into is when you go to take out a life insurance policy,
00:21:55.160 | you'll have to work with a company that wants to work with somebody
00:21:57.860 | who's not a physically present in the United States.
00:22:01.260 | But you can be a US citizen and you can work with an offshore life insurance,
00:22:04.960 | with a foreign life insurance company.
00:22:08.060 | You can do that. You just set up a trust and have the LLC on the life insurance policy.
00:22:12.560 | You can do all kinds of stuff. You can have a captive insurance company if you want to.
00:22:17.360 | You can do all the fancy, fun, sexy stuff that's in the world of life insurance planning.
00:22:21.460 | Or you can do everything in the United States, but that's immaterial.
00:22:24.160 | It doesn't make any change based upon where you are in that situation.
00:22:28.760 | Now you ask, would setting up a USA-based LLC or some sort of entity be helpful?
00:22:33.560 | Most likely, yes, for the ease of doing your business.
00:22:38.160 | But yet, depending on how you do this, more importantly,
00:22:41.960 | what you probably want to do is set up an offshore company.
00:22:45.260 | And you should be working and running your business, especially if it's a business.
00:22:49.060 | A little different if you are doing services.
00:22:52.460 | But if you're actually running an actual business,
00:22:54.860 | you definitely want to set up an offshore company
00:22:56.660 | and you want to structure it so that you are the employee of the offshore company.
00:22:59.960 | Because that would allow you, and I'm gaining the idea that you're an entrepreneur of some kind
00:23:04.360 | or working for yourself in some way, because that allows you to avoid the employment taxes.
00:23:09.160 | And those employment taxes are your heaviest hit on your first $100,000 of income.
00:23:13.960 | So with taxes, remember that there are two systems and they work differently.
00:23:18.160 | You have federal income taxes, which are progressive, where they start off with $0.
00:23:23.760 | And then the more and more money you make, the more you go up the tax bracket.
00:23:27.260 | But I don't think that federal income taxes are that massive
00:23:32.560 | when compared at $100,000 of income or $50,000 of income,
00:23:36.860 | when compared to what they are at $500,000 of income or a million dollars of income.
00:23:41.260 | I mean, depending on your family situation, all that,
00:23:43.360 | you've got $100,000, you've got probably under $10,000 of federal income tax.
00:23:48.060 | Now, should we save the $10,000? Absolutely.
00:23:50.960 | It goes a long way. We can supercharge your results.
00:23:54.060 | But it may be less, depending on your deductions, etc.
00:23:56.960 | Probably $7,000, $8,000, it just depends on your situation.
00:24:00.860 | So that's very different than if you were earning a million dollars and paying,
00:24:04.260 | you know, some taxpayers might be paying in excess of 50% on the top half million,
00:24:09.860 | which is just utterly obscene.
00:24:12.160 | So your income taxes at $100,000 are not the bigger deal.
00:24:16.460 | The bigger deal is your employment taxes,
00:24:18.860 | which is for self-employment, if you're paying both sides, $15,300 per year.
00:24:24.060 | That's really tough. But the employment tax wage scale tops out around $120,000.
00:24:31.160 | Then it just drops down to a couple percent.
00:24:33.360 | So below $120,000 is 15.3%, then it drops down to a couple percent.
00:24:38.260 | So that's your really bad ones.
00:24:39.560 | Your big savings from being abroad will come from your getting a chance to work for an offshore company.
00:24:48.360 | Because if you continue to work for a US company,
00:24:51.560 | then you're going to continue to have to pay your US taxes.
00:24:54.860 | For example, let's say that you're working for, you know, Big Corp USA,
00:24:59.160 | but you happen to work remotely for Big Corp USA.
00:25:01.760 | When I was out traveling around the United States,
00:25:02.960 | I met a bunch of people who were working remotely for Big Corp USA.
00:25:06.860 | So one guy's a technical service guy or whatever, you're an accountant, doesn't matter.
00:25:10.760 | Well, if you just simply move from, say, Texas to Mexico, and you live in,
00:25:16.360 | that's bad, because Mexican, you might subject yourself to Mexican taxes.
00:25:20.060 | Let's say you move from Florida to the Bahamas, and you make that move,
00:25:25.060 | you still have an internet connection, you can still work for Big Corp USA.
00:25:28.860 | You will still have, your employer will still save 7.6%, take 7.65% as the employer contribution,
00:25:35.360 | send that off, and then you'll have 7.65% of your pay deducted.
00:25:38.960 | So you'll still be paying employment taxes in that situation,
00:25:41.860 | but you won't be paying federal income taxes on the first $105,000
00:25:45.960 | if you qualify for the foreign earned income exclusion.
00:25:49.060 | But, if you, so you can travel the world, you can still work for Big Corp USA.
00:25:53.360 | Now that's exactly the same if you continue to work for, you know, your own LLC.
00:25:57.760 | If I start Joshua's LLC, and I work for Joshua's LLC in the United States,
00:26:02.360 | then I'm going to still continue to pay my self-employment taxes, if that was what it was.
00:26:09.560 | Or if I'm paying C Corp, or sorry, S Corp, if I've got an S Corp,
00:26:13.060 | and I still work for that S Corp, then I'm going to pay employment taxes on my income.
00:26:18.960 | But if I will simply start an offshore company, and I work for the offshore company,
00:26:24.160 | and here you can do it where you have a US-based LLC that passes through to an offshore company,
00:26:29.460 | so you can run your business from the US LLC,
00:26:31.760 | but just simply the ownership is with the offshore company,
00:26:34.360 | and the US LLC is disregarded for tax purposes.
00:26:37.160 | Now if you work for the offshore company,
00:26:39.360 | then you are no longer subject to employment taxes or self-employment taxes
00:26:44.560 | if you live outside the country.
00:26:46.660 | So now you can live in the Bahamas,
00:26:49.760 | and if you work for a foreign company, you don't have to pay the $15,300.
00:26:54.760 | And so in my example that I did when I talked about saving a lot of money moving outside of the United States,
00:27:02.660 | that was how we got to $25,000 or maybe $30,000 of tax savings.
00:27:07.960 | It was by combining federal income taxes and employment taxes.
00:27:12.460 | So if you've got $100,000 income, instead of losing $25,000 to, again, employment taxes and federal income taxes,
00:27:21.060 | then you can keep the—and only getting $75,000 after tax,
00:27:24.760 | you can keep the full $100,000 if you will set it up with an offshore company.
00:27:28.860 | So absolutely, yes, a USA-based LLC can be helpful.
00:27:34.060 | It's probably easier for you to run things through that than through your foreign company,
00:27:37.660 | but you need to have a foreign company at the top of the structure in order to save on those employment taxes.
00:27:42.460 | Now, of course, remember—I guess it's probably obvious—
00:27:44.860 | remember, you're not going to be getting Social Security credits if you're not paying Social Security taxes.
00:27:49.460 | So you need to think about that. Maybe a problem for you.
00:27:52.860 | It's certainly not a problem for me. I'm happy about it, but you should consider that
00:27:57.360 | because you won't have much of a Social Security—you won't have any Social Security credits,
00:28:05.560 | so thus your formula will be lower.
00:28:07.160 | My opinion, take the $25,000 and run and invest that money like crazy.
00:28:11.560 | I don't care whether you invest it in a retirement account or not.
00:28:14.860 | Invest it like crazy, and then you'll have millions, potentially,
00:28:19.360 | which instead of a measly couple thousand dollar check.
00:28:22.260 | All right, next question. Whew, that took longer. Hope I didn't destroy you on a Friday.
00:28:26.160 | Okay, that was technical question one. This is still a technical question, but less technical.
00:28:29.960 | So if you got with me, less technical. Let's go.
00:28:34.460 | Listener writes in and says, "Joshua, here's something I've been pondering for a while,
00:28:37.360 | and I'd love to know your take on it. A lot of FIRE advice"—
00:28:40.460 | FIRE, of course, for the uninitiated financial independence, retire early movement—
00:28:44.960 | "A lot of FIRE advice is centered around 'your worst case scenario is everyone else's everyday scenario' premise,
00:28:51.160 | meaning you can always come back to a job, at least some job.
00:28:54.960 | While this is correct for many, it is totally misleading for most high-income earners or career professionals.
00:29:01.560 | In my particular case, walking out from a high-paying job means starting almost all over again
00:29:07.660 | if I want to get back into the industry. You jump off the ladder.
00:29:11.360 | What framework would you use in a situation where making the wrong move
00:29:15.460 | has very significant financial cost and is truly life-altering?
00:29:20.260 | For a lot of people, getting to FIRE, getting to financial independence, is an easy part.
00:29:24.760 | Pulling the trigger is the real challenge, as it is irreversible."
00:29:29.760 | I think that's an excellent question, and I do think you are right to point out that there are problems,
00:29:36.260 | especially if you are just a job wage earner, a corporate person, etc.
00:29:42.860 | When you leave a job or a career, you will very quickly start to see your skills atrophy,
00:29:49.960 | your connections will start to grow cold, unless you are very diligent about maintaining those skills,
00:29:55.860 | maintaining those connections, maintaining that sense of connectedness.
00:29:59.160 | And frankly, if you are going out to be financially independent, it will probably be hard for you to do that,
00:30:03.560 | because you probably won't care as much as you once did about going to all the industry things
00:30:08.660 | that you have been to for 15 years and you are just tired of the rubber chicken dinners and all that stuff.
00:30:14.260 | Since I left the financial business professionally, my skills have atrophied.
00:30:17.760 | I am not as good with a spreadsheet as I once was. I am not as good with a financial calculator as I once was.
00:30:23.460 | I have lost many of my industry contacts. I am not as current on all the products in the industry.
00:30:29.660 | I used to be I could tell you about all the products because I read the prospectuses.
00:30:33.460 | All that stuff is gone. I don't do that anymore.
00:30:35.460 | And so my skills have grown cold, and the same that all of us.
00:30:39.460 | Now, I have built up other skills to compensate, and I think that that's what really most of us should do,
00:30:45.160 | is build up other skills to compensate, but your skills will grow cold,
00:30:49.260 | and you certainly won't be able to come back in at that same level that you once were.
00:30:56.060 | It is a significant factor. You won't be able to pick up where you left off immediately. You just won't.
00:31:03.460 | Now, I would point out, however, a few things here, and I'll give you my framework.
00:31:07.760 | First, some comments on is this really a problem.
00:31:11.560 | I don't think this is really a problem if you are truly financially independent.
00:31:15.560 | I'm going to assume here for the sake of answering this question that we're defining that term using the 3% rule metric.
00:31:23.260 | The idea being that you have a large enough portfolio that you can live on, say, 3% of the net worth of the portfolio balance.
00:31:31.960 | And I think here, we need to make sure that we're dealing with some serious numbers.
00:31:36.160 | So we're not doing some kind of silly thing where I'm 22 years old, and I have $130,000 in the bank,
00:31:41.160 | and I'm going to consider myself five because I can live on $4,000 a year, and my life is never going to change.
00:31:44.860 | That's silly. But let's say you've got $2 million in the bank, and you're saying,
00:31:48.960 | "I could live on $60,000 as a safe withdrawal rate. I've got $2 million. I'm going to be doing well."
00:31:54.960 | So here's the first thing I want to point out.
00:31:58.760 | If the 3% rule doesn't work, we are in uncharted territories, and something is seriously wrong.
00:32:09.760 | In a scenario where the 3% rule is not sufficient, we're not just in some kind of weird, you know,
00:32:17.860 | "Hey, there was a temporary correction, a temporary bear market."
00:32:21.360 | We are in end-of-the-world-as-we-know-it territory. We're in civilizational change.
00:32:27.160 | If the 3% rule doesn't work, you better have 24-hour security on your homestead.
00:32:35.260 | I mean, I think that's where we're at.
00:32:37.660 | The 3% rule is a very, very robust rule of thumb to use,
00:32:44.060 | and there is a lot riding on everything working as it has worked.
00:32:49.460 | So just imagine you're in a situation where the market—I'm assuming you're mostly in stock market,
00:32:54.560 | you're a wage earner, and you're mostly investing in stock market investments,
00:32:58.860 | paper investments, mainstream mutual funds, etc.
00:33:02.460 | If the 3% rule doesn't work, there's—again, we're in the end-of-the-world-as-we-know-it stuff.
00:33:09.260 | We're in massive civilizational unrest. We're in Great Depression, but worse.
00:33:14.460 | And I just want you to imagine what that would do in our economy,
00:33:17.360 | what that would do when you look at the disruption from common bear markets,
00:33:22.560 | and yet all the common bear markets are factored into the 3% rule.
00:33:26.060 | So I would say if the 3% rule doesn't work, there's no guarantee you would have been able to maintain your job at all,
00:33:31.260 | because many of us would very—be facing the loss of our jobs.
00:33:35.160 | Now, you'd still be more employable if you were still working,
00:33:38.660 | but we've got problems across the society.
00:33:43.060 | If the 3% rule breaks, it's because things are very, very deeply broken.
00:33:49.460 | Now, is that possible? Of course it's possible.
00:33:52.960 | Is it likely? I don't think it's likely, but I think it's possible.
00:33:57.160 | And so I think you need to plan for that, and the best way I know how to do that
00:34:00.760 | is with good disaster planning. You think about what would happen
00:34:04.460 | if we were in an end-of-the-world-as-we-know-it scenario.
00:34:06.660 | What would happen if we were in 40% unemployment territory?
00:34:10.560 | And then you think, "How would I survive that?" And it doesn't cost much to be prepared for that.
00:34:14.860 | It just costs a lot of mental energy to kind of convince yourself that it's worth it.
00:34:19.060 | And you got to put on your catastrophist hat for a moment and say,
00:34:22.660 | "All right, I think we're going to collapse. What does collapse look like?"
00:34:25.660 | So I think it's certainly a possibility.
00:34:28.960 | I would say an unlikely possibility, but a possibility.
00:34:32.760 | I think it's worth preparing for.
00:34:34.660 | So recognize that if the 3% rule isn't working,
00:34:38.060 | there's no guarantee you would have been able to maintain your job at all.
00:34:41.160 | That's important first.
00:34:42.860 | Second, I would point out that unlike wage earners,
00:34:47.760 | people who are living on an income portfolio actually do have a lot of warning.
00:34:53.060 | When there's a wage earner, so the vast majority of people in the United States
00:34:56.960 | have no money, save no money, work and spend, and it's paycheck to paycheck.
00:35:01.660 | That's the normal experience for the majority of the people.
00:35:05.360 | If people have net worth, it's usually tied up in their house,
00:35:08.760 | and it's only a small percentage of the population that actually has savings and investments.
00:35:13.460 | You're always going to have that. Seemingly in every society,
00:35:15.760 | you're going to have a Pareto distribution,
00:35:17.460 | where 20% of the people are going to have 80% of the money.
00:35:20.860 | But there is a distinct difference between living paycheck to paycheck,
00:35:24.960 | earning $10,000 a month, spending $10,000 a month,
00:35:27.860 | versus living on, say, $10,000 a month from,
00:35:31.060 | or for whatever the number is, $10,000 a month from your retirement portfolio.
00:35:35.260 | Because if things start to turn south, you have warning.
00:35:38.960 | If you're meeting with your financial advisor,
00:35:40.760 | or you're sitting down and crunching the numbers on a quarterly basis,
00:35:43.860 | you're starting to notice that your distribution rates are ticking up,
00:35:47.960 | and you have years of runway to look at.
00:35:51.560 | Years of runway to look at.
00:35:53.960 | Now, I guess that's not true if you face something where your portfolio goes to zero,
00:36:00.160 | there's dollars, toilet paper,
00:36:01.960 | but I can't conceive of how those circumstances are possible.
00:36:06.360 | So let's just knock all that stuff out of the way.
00:36:08.660 | I can't ever see how I could even design the chain of events that could cause that to happen,
00:36:13.260 | given the way things are today.
00:36:14.960 | 20 years from now, we'll see what happens.
00:36:16.660 | But we're not living in Zimbabwe world.
00:36:18.660 | So we're living in the United States of America, or in a much more stable place.
00:36:24.460 | So this is not going to happen.
00:36:26.060 | So if you start to overdraw your portfolio, you have time.
00:36:30.060 | There's warning.
00:36:31.360 | And so now you can start to make changes.
00:36:33.660 | So you're much, much safer than even the average person is.
00:36:37.760 | Now, here's the next thing I would point out.
00:36:40.460 | You don't have to pick up your pre-retirement earnings
00:36:45.760 | in order for you to be able to maintain your financial independence.
00:36:49.460 | So let's assume that prior to your early retirement, you're earning $200,000 a year.
00:36:54.960 | If you're earning less, if you're earning $80,000 or $100,000,
00:36:58.760 | those jobs are all over the place.
00:37:00.560 | And so I think you can come back in.
00:37:02.660 | But if you're up $200,000, $300,000, $400,000, no, you're right.
00:37:05.960 | You can't just jump into those without having the network.
00:37:09.060 | But let's say you were earning $200,000.
00:37:11.960 | Now you need to go back to work.
00:37:14.160 | No, you might not be able to go and get your $200,000 job back.
00:37:18.260 | But you don't need $200,000.
00:37:20.460 | You need $50,000.
00:37:24.660 | You see why? Because you're drawing from a portfolio.
00:37:27.360 | You're not, you don't have to go to drawing from zero on a portfolio.
00:37:30.860 | You just need some money. You need $50,000.
00:37:33.360 | And here's what's more. If you're actually early retired,
00:37:35.960 | if you're actually, you know, fi, then you make $200,000.
00:37:41.260 | You only need $50,000 to live on because you were saving a huge amount of your money before.
00:37:45.260 | So you don't actually need the job there anyway.
00:37:48.060 | You just need $50,000. You don't need $200,000. You need $50,000.
00:37:54.060 | Here's what's more. When you are actually financially independent,
00:37:59.560 | you have so much capital available to you
00:38:05.260 | that you can make choices with what to do with that.
00:38:09.360 | So you need more money?
00:38:10.860 | Well, you've got tons of money that you can spend on creating more income.
00:38:15.060 | So maybe you pursue a different investment strategy.
00:38:17.760 | So you say, well, I can't go get my $200,000 job yet back.
00:38:21.760 | Yeah, maybe that's true, but you still got a million dollars.
00:38:24.960 | Give me a break. Give me a million dollars.
00:38:26.660 | I can manufacture a $200,000 job in dozens of businesses.
00:38:31.060 | I may not be able to manufacture $200,000 of investment,
00:38:35.160 | of passive investment returns from a million dollar portfolio,
00:38:38.760 | but give me a million dollars and I can… come on.
00:38:42.960 | If you're willing to work and you're willing to take a job, you can do it.
00:38:46.760 | Now my nervousness would be if you're used to being a corporate employer,
00:38:50.360 | employee, and you don't know how to create a $200,000 job for yourself
00:38:54.160 | when starting with a million dollars of capital.
00:38:56.060 | So that might be something that might be hard for somebody
00:38:57.860 | who's only ever worked for other people.
00:38:59.860 | But you go to the average businessman who's earning a good income
00:39:04.460 | and say, could you create this income if you had a million dollars to start with?
00:39:08.560 | I could make five times that amount of money
00:39:11.260 | because most businessmen that start to make a $200,000 income started with nothing.
00:39:15.960 | Now you give them a million dollars to start with,
00:39:18.460 | you got options all over the place.
00:39:20.860 | Now notice I'm saying you create for yourself a $200,000 job.
00:39:25.260 | I didn't say, again, passive investment returns.
00:39:27.860 | But if you're willing to work, and by definition, that's what we're talking about.
00:39:32.160 | You're saying I was working, then I retired, but now I've got to go back.
00:39:35.660 | If you're willing to work, once you have capital,
00:39:38.260 | you can print money all over the place as long as you're willing to work in it.
00:39:43.260 | It might be harder to do with retirement, but you can do it with work.
00:39:47.660 | You start a McDonald's, you open a gas station,
00:39:50.460 | you buy an apartment building and manage it yourself.
00:39:53.260 | I mean, the ideas are endless. They're endless.
00:39:57.060 | But most people don't have that capital.
00:39:58.560 | So when you have that capital, you've got huge options available to you.
00:40:02.960 | So those are kind of just some common sense answers to your question.
00:40:07.760 | Again, by review, if 3% doesn't work, frankly, there's no choice.
00:40:13.360 | You wouldn't necessarily have been able to have a job in any place.
00:40:16.160 | There's no job guarantee at all.
00:40:18.260 | You will have lots of warning, or at least some warning,
00:40:20.660 | more than the average person is who loses their job.
00:40:23.560 | And then all the other, you know, you won't need to pick up where you left off.
00:40:26.360 | You don't need $200,000, you need $50,000 to get you through
00:40:28.560 | until the markets come back or until you figure out a new plan.
00:40:31.160 | And when you have capital, you have choices,
00:40:33.560 | and you can just deploy that capital more efficiently.
00:40:36.160 | You might very well be totally happy putting your money in an index fund,
00:40:39.960 | spending a little bit of it while you're traveling the world,
00:40:41.960 | but when you start to run out of money, you come back and say,
00:40:43.760 | "How can I make more money?"
00:40:45.160 | Well, you can absolutely make more money than putting it in an index fund.
00:40:48.760 | You're just going to have to put in more work.
00:40:50.160 | So maybe you take on a more active approach to your investing.
00:40:52.860 | Maybe you take on a more active approach to business management in some way.
00:40:56.160 | But a more active approach will raise your rates of return
00:40:59.860 | if you're competent and don't screw it up.
00:41:01.860 | And then now you can fix your portfolio problem.
00:41:04.560 | So I don't think it's a huge factor, a huge problem.
00:41:07.360 | Here's what I do think is a major problem.
00:41:11.060 | I think you should have a career plan,
00:41:12.860 | or at least some guesses on a career plan,
00:41:15.360 | for after your early retirement.
00:41:17.360 | I really do. I think that it is bad to plan, to sit around and do nothing.
00:41:21.860 | And I think it's bad to plan to just engage in—
00:41:29.860 | I don't know what words to use.
00:41:31.460 | I don't want to use the word "hedonistic" things,
00:41:33.860 | but just playing all the time.
00:41:35.660 | Playing all the time is not a good way to live.
00:41:38.160 | It's bad for the soul.
00:41:39.860 | It's bad for the character.
00:41:40.860 | It's bad for the soul.
00:41:42.260 | Now, I think if your play is more active,
00:41:45.460 | there are probably ways that you can do better.
00:41:48.360 | You know, the guy who says, "I'm going to retire,"
00:41:50.460 | and goes home and just watches TV all day,
00:41:52.560 | the dude gets cancer and he gets old and he dies,
00:41:54.960 | and it's bad, and he has no quality of life,
00:41:56.960 | and his friendship's atrophy, etc.
00:41:59.960 | So that's bad, but we're not talking about that.
00:42:02.860 | But let's say you just say, "I'm just going to quit and play all the time."
00:42:05.260 | Well, why?
00:42:06.560 | It's not fun to go and play all the time.
00:42:10.060 | Play is valuable. Rest is valuable.
00:42:12.760 | But you also need work.
00:42:14.460 | And so why should you work and not make money?
00:42:17.660 | It's the thing that I don't get about the whole FIRE movement.
00:42:20.160 | I understand it mentally,
00:42:21.460 | because when I've been in jobs that weren't well-suited for me,
00:42:24.260 | then I kind of felt stuck,
00:42:25.960 | and I was like, "Man, I can't wait to get off of this."
00:42:29.560 | But if that's you, take a sabbatical.
00:42:31.860 | Take three months, and about the end of three months,
00:42:33.960 | you're going to be done with it.
00:42:35.260 | At the end of a year, certainly, you don't want to sit on a beach anymore.
00:42:38.260 | And so I think the key thing is not to go from work,
00:42:41.960 | or from your big corporate job to nothing,
00:42:44.360 | or to play all the time,
00:42:45.960 | but to go from your big corporate job to your next job,
00:42:49.860 | your next business,
00:42:50.860 | your next thing that you're going to dedicate yourself to.
00:42:53.860 | And most things, even if you go to something
00:42:56.160 | without the intention of making money,
00:42:58.560 | most things have income switches
00:43:00.360 | that can be turned on when they need to.
00:43:02.560 | And I think, you know,
00:43:04.660 | I've never lived exclusively on earnings from my investment portfolio.
00:43:08.760 | I haven't done it.
00:43:10.360 | But I don't see very many examples of anybody who has done it,
00:43:15.860 | and I don't see many examples of people who've done it and enjoyed it.
00:43:19.460 | I think there might be a few people who do it,
00:43:21.860 | and who do think that it's enjoyable.
00:43:28.360 | But they're a very small percentage of people.
00:43:31.460 | I don't really understand it.
00:43:33.660 | If that's you, then I think you should know it.
00:43:35.860 | But the vast majority of people seem much better served to me by working,
00:43:40.460 | especially men.
00:43:41.560 | You need to work.
00:43:42.460 | If you're a man, you need to work,
00:43:44.260 | because one of your most valuable contributions to society is the work that you do.
00:43:48.460 | I don't care what that work is.
00:43:49.660 | I just care that you work.
00:43:50.860 | It's good for you to work.
00:43:52.460 | Then you work and you rest,
00:43:53.560 | and you're going to enjoy your expenses,
00:43:57.560 | your rest, your relaxation far more if you can do it out of income.
00:44:02.960 | What I think the best thing to do is this.
00:44:05.060 | If you're going to pursue fire, great.
00:44:07.260 | Pursue fire.
00:44:09.060 | Build up a big stash of money.
00:44:11.060 | If you're going to quit, quit.
00:44:12.760 | Take a sabbatical.
00:44:13.860 | Take a year.
00:44:14.760 | Do it, whatever you want to do.
00:44:15.960 | Write a novel.
00:44:16.760 | Read the great novels.
00:44:18.860 | Whatever it is.
00:44:20.460 | Go travel.
00:44:21.260 | Do whatever for a year, or however long you think is right.
00:44:24.860 | But at the end of the year, you better have another thing to put your hand to.
00:44:28.260 | And now you may put your hand to it with a different attitude.
00:44:31.260 | You may not put 80 hours a week into the corporate grind.
00:44:33.960 | Sure.
00:44:34.660 | You may do it a little bit more modestly.
00:44:36.560 | You may work it into your life in a little bit better way.
00:44:39.760 | But don't quit and do nothing.
00:44:41.060 | Stay working, and then just spend out of that income, and set yourself goals.
00:44:44.760 | And then when you multiply your income throughout your lifetime,
00:44:47.860 | you don't get into this selfish perspective of just saying,
00:44:50.760 | "Well, I'm just going to keep all the money for me, and it's got to just last it for me."
00:44:53.460 | You maintain this sense of abundance, where you know there's so much money.
00:44:56.960 | Now you can impact others.
00:44:58.660 | Now you can accomplish change in the world.
00:45:01.660 | Now you can put money to good use.
00:45:04.360 | And it's just a lot more fun.
00:45:06.660 | I don't ever want to be in a position where my income is going down.
00:45:08.960 | That stinks.
00:45:09.960 | You want your income to go up, and to have the confidence that it's going to go up more and more and more.
00:45:13.960 | And I don't see any reason why that can't be fun and rewarding,
00:45:17.860 | especially if you have time to do it right, etc.
00:45:20.760 | So those are my thoughts.
00:45:22.060 | I don't think it's a major problem.
00:45:24.160 | But I do think, for the reasons said,
00:45:26.760 | but I still don't think you should plan on that, for the reasons stated.
00:45:32.060 | I don't see really many examples of anybody who just does well by stopping and quitting.
00:45:38.160 | So if you want to leave your corporate job, great.
00:45:40.460 | But you don't need $2 million to leave your corporate job.
00:45:44.060 | If you're earning $200, and you're living on $50,
00:45:47.060 | you don't have to have a million-dollar portfolio to go and do something else.
00:45:51.160 | You can leave the $200,000-a-year job,
00:45:53.460 | and go take a $50,000-a-year job that you think will give you a better lifestyle.
00:45:57.660 | So why wait till you're fired?
00:45:58.960 | That's basically, every time I go through fire, I come to this thing.
00:46:02.260 | Why wait?
00:46:03.660 | What's the point?
00:46:05.860 | If you accept anything that I said,
00:46:08.460 | that work is good for the soul, that work is meaningful,
00:46:12.360 | it's a meaningful part of your contribution in life,
00:46:15.060 | it's important, it's valuable,
00:46:16.660 | and you recognize that the problem is usually that someone's doing work that's not well-suited to them,
00:46:21.560 | where they don't feel competent or effective,
00:46:23.460 | or they're in a bad environment that's something where they're not appreciated,
00:46:26.460 | or they don't have opportunities for growth,
00:46:29.160 | and/or if their work life is just not healthy,
00:46:34.260 | 100 hours a week, you know, massive pressure and stress.
00:46:37.160 | If you just realize that those things can be changed,
00:46:39.460 | you can find work that's well-suited for you,
00:46:41.860 | and you can move into work that is in a very comfortable work life,
00:46:46.760 | why not start there?
00:46:48.960 | You don't need a million dollars.
00:46:50.360 | 10,000 bucks will do it. 100,000 bucks will do it.
00:46:52.860 | You're probably already there.
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00:47:23.860 | (drum beating)