Good reminder...
============
Thomas T. Stanley and William D. Danko wrote over a decade ago in “The Millionaire Next Doorâ€
Wealth Management
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Tax System Explained
Suppose that every day, ten men go out for beer and the bill for all ten comes to $100.
If they paid their bill the way we pay our taxes, it would go something like this:
The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.
So, that's what they decided to do.
The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve.
"Since you are all such good customers," he said, "I'm going to reduce the cost of your daily beer by $20." Drinks for the ten now cost just $80.
The group still wanted to pay their bill the way we pay our taxes.
So the first four men were unaffected.
They would still drink for free. But what about the other six men? The paying customers?
How could they divide the $20 windfall so that everyone would get his fair share?'
They realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to drink his beer.
So, the bar owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay.
And so the fifth man, like the first four, now paid nothing (100% savings)
The sixth now paid $2 instead of $3 (33% savings).
The seventh now pay $5 instead of $7 (28% savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $15 instead of $18 ( 20% savings).
The tenth now paid $49 instead of $59 (16% savings).
Each of the six was better off than before. And the first four continued to drink for free.
But once outside the restaurant, the men began to compare their savings.
"I only got a dollar out of the $ 20,"declared the sixth man.
He pointed to the tenth man," but he got $10!"
"Yeah, that's right," exclaimed the fifth man. "I only saved a Dollar, too.
It's unfair that he got ten times more than I!"
"That's true!!" shouted the seventh man. "Why should he get $10 back when I got only two? The wealthy get all the breaks!"
"Wait a minute," yelled the first four men in unison. "We didn't get anything at all. The system exploits the poor!"
The nine men surrounded the tenth man and beat him up.
The next night the tenth man didn't show up for drinks, so the nine sat down and had beers without him.
But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!
And that, boys and girls, journalists and college professors, this is how our tax system works.
The people who pay the highest taxes get the most benefit from a tax reduction.
Tax them too much, attack them for being wealthy, and they just may not show up anymore.
In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.
David R. Kamerschen, Ph.D.
Professor of Economics
University of Georgia
For those who understand, no explanation is needed.
For those who do not understand, no explanation is possible.
If they paid their bill the way we pay our taxes, it would go something like this:
The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.
So, that's what they decided to do.
The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve.
"Since you are all such good customers," he said, "I'm going to reduce the cost of your daily beer by $20." Drinks for the ten now cost just $80.
The group still wanted to pay their bill the way we pay our taxes.
So the first four men were unaffected.
They would still drink for free. But what about the other six men? The paying customers?
How could they divide the $20 windfall so that everyone would get his fair share?'
They realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to drink his beer.
So, the bar owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay.
And so the fifth man, like the first four, now paid nothing (100% savings)
The sixth now paid $2 instead of $3 (33% savings).
The seventh now pay $5 instead of $7 (28% savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $15 instead of $18 ( 20% savings).
The tenth now paid $49 instead of $59 (16% savings).
Each of the six was better off than before. And the first four continued to drink for free.
But once outside the restaurant, the men began to compare their savings.
"I only got a dollar out of the $ 20,"declared the sixth man.
He pointed to the tenth man," but he got $10!"
"Yeah, that's right," exclaimed the fifth man. "I only saved a Dollar, too.
It's unfair that he got ten times more than I!"
"That's true!!" shouted the seventh man. "Why should he get $10 back when I got only two? The wealthy get all the breaks!"
"Wait a minute," yelled the first four men in unison. "We didn't get anything at all. The system exploits the poor!"
The nine men surrounded the tenth man and beat him up.
The next night the tenth man didn't show up for drinks, so the nine sat down and had beers without him.
But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!
And that, boys and girls, journalists and college professors, this is how our tax system works.
The people who pay the highest taxes get the most benefit from a tax reduction.
Tax them too much, attack them for being wealthy, and they just may not show up anymore.
In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.
David R. Kamerschen, Ph.D.
Professor of Economics
University of Georgia
For those who understand, no explanation is needed.
For those who do not understand, no explanation is possible.
Re: Wealth Management
Very interesting piece. Got from email. Jialat, I always drool over that Rolex watch and that BMW 5 series. Must learn to like Timex and Nissan liao. Sianzz... 
=====================================
If You Want to Be Rich...
Stop Acting Rich
Alexander Green
Chief Investment Strategist
--------------------------------------------------------------------------------
My staff often forwards me letters from readers with the same general complaint:
"You give me all these great investment ideas, but where do I get the money to invest in them?"
Ah, there's the rub. It reminds me of the time a television interviewer asked Chinese billionaire Li Ka-shing to share "the secret of great wealth."
"Great wealth, very easy," he said in broken English with a toothy grin. Then frowning and shaking his head he added, "Little wealth, very difficult."
How true. As Americans are fond of saying, "It takes money to make money."
So how do you get started? Most of us know the first two prerequisites:
1.Get educated (or learn a specialized skill).
2. Bust your butt.
But then what? How do you turn this generality into real abiding wealth?
The Seven Common Characteristics of Great Wealth-Builders
That's where Dr. Thomas Stanley comes in.
As America's foremost authority on the affluent, he's conducted decades of research on the habits and characteristics of America's wealthy.
He's written several bestsellers including, Marketing to the Affluent and The Millionaire Next Door: The Surprising Secrets of America's Wealth.
Dr. Stanley points out that the vast majority of millionaires do not have exceptional skills. Most of them do not have hit records. They do not play third base for the Yankees. They did not found a software company in their garage. Instead, they're people who have worked and saved and invested their money prudently.
In The Millionaire Next Door, Stanley details seven common denominators among those who build wealth successfully:
1. They live well below their means.
2. They allocate their time, energy, and money efficiently, in ways conducive to building wealth.
3. They believe that financial independence is more important than displaying high social status.
4. Their parents did not provide economic outpatient care.
5. Their adult children are economically self-sufficient.
6. They are proficient in targeting market opportunities.
7. They chose the right occupation.
-----------------------------------------
The Difference Between Acting Rich and Being Rich
In short, your net worth is essentially a result of the choices you make. To generate significant savings to invest, you need to make the right career decisions, the right lifestyle decisions and the right spending decisions. It takes forethought. It takes discipline. And it means making hard choices.
Dr. Stanley hammers this message home in his latest book. It's called Stop Acting Rich... and Start Living Like a Real Millionaire. It's not a book for debtors and spenders who want compassion and understanding. Rather, it's a wake-up call for the millions of consumers out there who are living far beyond their means.
Most millionaires - folks with liquid assets of one million dollars or more - are not big spenders. Quite the opposite, in fact.
According to Stanley, the most productive accumulators of wealth spend far less than can afford on homes, cars, clothing, taxes, vacations, food, beverages and entertainment.
On the other hand, the wanna-be's - people with higher-than-average incomes, but not much net worth) are merely "aspirational." They buy expensive clothes, top-shelf wines and liquors, luxury cars, powerboats, all kinds of bling and more house than they can comfortably afford.
Their problem, in essence, is that they're trying to look rich. And this prevents them from ever becoming rich.
----------------------------------------
The "Millionaire Mindset"
The real irony is that most rich people don't spend this way themselves. Sure, the "glittering rich" do. They have households with a net worth of $10 million or more, because they can comfortably afford it.
But the vast majority of millionaires in the United States:
Live in a house that cost less than $400,000.
Are more likely to wear a Timex than a Rolex.
Generally pay less than $15 for a bottle of wine.
Have never paid more than $400 for a suit.
Are more likely to drive a Nissan than a BMW.
Spend very little on prestige brands and luxury items.
Yes, they're frugal. But they're also happy, not to mention financially free. They're not dependent on their families, employers, or the government. That's a great feeling.
And they got there the old-fashioned way. They maximized their income, minimized their expenditure and religiously saved the difference.
In short, the first step toward financial independence is clear: Live beneath your means.
Or, as Dr. Stanley says, "Stop acting rich... and start living like a real millionaire."
Good investing,
Alexander Green
====================
Source: Email from Investment U
105 West Monument Street
Baltimore, MD 21201
=====================================
If You Want to Be Rich...
Stop Acting Rich
Alexander Green
Chief Investment Strategist
--------------------------------------------------------------------------------
My staff often forwards me letters from readers with the same general complaint:
"You give me all these great investment ideas, but where do I get the money to invest in them?"
Ah, there's the rub. It reminds me of the time a television interviewer asked Chinese billionaire Li Ka-shing to share "the secret of great wealth."
"Great wealth, very easy," he said in broken English with a toothy grin. Then frowning and shaking his head he added, "Little wealth, very difficult."
How true. As Americans are fond of saying, "It takes money to make money."
So how do you get started? Most of us know the first two prerequisites:
1.Get educated (or learn a specialized skill).
2. Bust your butt.
But then what? How do you turn this generality into real abiding wealth?
The Seven Common Characteristics of Great Wealth-Builders
That's where Dr. Thomas Stanley comes in.
As America's foremost authority on the affluent, he's conducted decades of research on the habits and characteristics of America's wealthy.
He's written several bestsellers including, Marketing to the Affluent and The Millionaire Next Door: The Surprising Secrets of America's Wealth.
Dr. Stanley points out that the vast majority of millionaires do not have exceptional skills. Most of them do not have hit records. They do not play third base for the Yankees. They did not found a software company in their garage. Instead, they're people who have worked and saved and invested their money prudently.
In The Millionaire Next Door, Stanley details seven common denominators among those who build wealth successfully:
1. They live well below their means.
2. They allocate their time, energy, and money efficiently, in ways conducive to building wealth.
3. They believe that financial independence is more important than displaying high social status.
4. Their parents did not provide economic outpatient care.
5. Their adult children are economically self-sufficient.
6. They are proficient in targeting market opportunities.
7. They chose the right occupation.
-----------------------------------------
The Difference Between Acting Rich and Being Rich
In short, your net worth is essentially a result of the choices you make. To generate significant savings to invest, you need to make the right career decisions, the right lifestyle decisions and the right spending decisions. It takes forethought. It takes discipline. And it means making hard choices.
Dr. Stanley hammers this message home in his latest book. It's called Stop Acting Rich... and Start Living Like a Real Millionaire. It's not a book for debtors and spenders who want compassion and understanding. Rather, it's a wake-up call for the millions of consumers out there who are living far beyond their means.
Most millionaires - folks with liquid assets of one million dollars or more - are not big spenders. Quite the opposite, in fact.
According to Stanley, the most productive accumulators of wealth spend far less than can afford on homes, cars, clothing, taxes, vacations, food, beverages and entertainment.
On the other hand, the wanna-be's - people with higher-than-average incomes, but not much net worth) are merely "aspirational." They buy expensive clothes, top-shelf wines and liquors, luxury cars, powerboats, all kinds of bling and more house than they can comfortably afford.
Their problem, in essence, is that they're trying to look rich. And this prevents them from ever becoming rich.
----------------------------------------
The "Millionaire Mindset"
The real irony is that most rich people don't spend this way themselves. Sure, the "glittering rich" do. They have households with a net worth of $10 million or more, because they can comfortably afford it.
But the vast majority of millionaires in the United States:
Live in a house that cost less than $400,000.
Are more likely to wear a Timex than a Rolex.
Generally pay less than $15 for a bottle of wine.
Have never paid more than $400 for a suit.
Are more likely to drive a Nissan than a BMW.
Spend very little on prestige brands and luxury items.
Yes, they're frugal. But they're also happy, not to mention financially free. They're not dependent on their families, employers, or the government. That's a great feeling.
And they got there the old-fashioned way. They maximized their income, minimized their expenditure and religiously saved the difference.
In short, the first step toward financial independence is clear: Live beneath your means.
Or, as Dr. Stanley says, "Stop acting rich... and start living like a real millionaire."
Good investing,
Alexander Green
====================
Source: Email from Investment U
105 West Monument Street
Baltimore, MD 21201