8

Control What You Can Control

Mastering money drains is about thinking big, operating small, and pinpointing opportunities where you can control the outflow of money. Your focus needs to be on strategies to keep more of your money while playing the cards that you were dealt. You’re going to lose money at some point along the way—that is inevitable. But here are seven ways you can control how much money you will lose.

Seven Simple Things You Can Control

Spending. Do you know that many of the minor leakages that hamper your plans happen after you have already been taxed? Yes! Your inability to budget can lead to serious and preventable money drains. But it doesn’t have to be that way. As we discussed in Step 2, you must have a strong hold over your Master Budget. Knowing how much money you have coming in and how much is going out to fund things that you may not need could provide the answer to many of your problems. Always start here when you have the urge to analyze or complain about money drains. Turn back to the chapter 5 section on cash flow management goals for examples of easy (and not-so-easy) ways to cut back. This is the area you have the most power to do something about.

Investing. How you invest—and if you invest at all—matters greatly in terms of what portion of your income will go to taxes. (I’ll dive into this in more detail in the next chapter.)

How You File Your Taxes. You can file your income tax return under one of five different tax statuses: single, married filing jointly, married filing separately, head of household, or qualifying widower or widower with a dependent. How you file has huge implications for your income tax payments. Talk to your accountant about the benefits of filing under one status versus another that may be available to you.

Itemizing Your Tax Deductions. In the world of income tax planning, itemizing is everything. Come tax time, you’ll be asked to select either the itemized or standard deduction that the Internal Revenue Service (IRS) defines for you. The standard deduction may not account for all of the tax-deductible expenses you incur during a tax year and could be putting more money into the hands of the IRS. By itemizing deductions, you’ll reduce your adjusted gross income—the measure that dictates your tax liability—and you’ll save more money on your taxes.

Structuring Your Business. For the entrepreneurs out there, how you structure your business will have tax implications. Whether you own a sole proprietorship or a large corporation, the legal structure of your business will affect how much you pay in taxes. It is imperative to consult with legal and tax professionals on this matter.

Employing Contractors. Employees or contractors? Many business owners ask themselves this question when looking to scale their businesses. If you choose to employ individuals, you will have to deduct federal and state income taxes, FICA (Social Security) taxes, and Medicare taxes from your employees’ salaries. These funds, called trusts, must be kept and paid periodically to the IRS. In addition, you’ll be expected to match the FICA and Medicare amounts withheld from each employee’s paycheck. Whoever said it costs to be the boss was not lying! Consider using contractors early on in your expansion to lower the tax liability that you will have for each employee. Running a business is difficult and expansion is sometimes the next step in developing your business. Knowing your business structure and needs could help save money while you’re scaling up.

Using Professional Help. When all is said and done, make sure that more gets done than said. One way to ensure that you are putting all of the pieces together is by employing professional help—legal, tax, financial planning, and money management.

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Controlling what you can control is the battle when you’re managing money drains and their effects on your master plan. In the next chapter I explore the less intuitive ways you can use to curb outflows.