So, you want to work less, earn more and build awesome wealth. If you can do that, you will be more fulfilled, never have to worry about money and spend more time with the ones you love. Most people do not realise, but surprisingly, a plan ‘to pay the least in taxes’ does not work.

As human beings, we are all obsessed with paying taxes and want to pay the least. 99% of my clients are in this space.

Benjamin Franklin said that there are 2 guarantees in life. One, you will die, and the second is that you will pay taxes.

But I always have the same message. Don’t be obsessed with either. It is not the be-all and end-all, and in the end, it will not matter. But these words fall on deaf ears because at least once a week, a client will tell me they are aware of a scheme or have spoken to a friend who does such and such and pays less taxes.

Sometimes, the schemes are in grey areas. Some are simply illegal. And some are just plain bonkers. But the calls keep coming.

And it is not unusual for me to ask the following when a client really pushes on taxes.

‘When you are on your death bed, are you going to be really proud of the amount of taxes you saved, or will your thoughts be on something else?’’

If it happens to be on something else (and it always is), why the obsession with taxes?

Most argue that by saving taxes, they will have more wealth. Maybe. But that is often not true either. That is not only based on my experience but also scientifically proven too.

But it is logical. If you keep more, you can invest it, and this results in more wealth. But that works on the basis that is what you do. Most don’t. Most spend it on lifestyle. It’s the ‘I need a new handbag’ or ‘I must have the latest iPhone’, or I need to have a once-in-a-lifetime holiday’ (which inevitably becomes once a year), which is where the money goes.

This explains why when our income goes up, we somehow still have less or still struggle.

But what about schemes like negative gearing and buying property and shares? Yes, that can create wealth, but generally, I find that they are ill thought, and it may work for a while, but then, to pay off loans, those investments need to be sold often when tax rates are the highest, which kind of defeats the purpose.

Think about this for a second. We often tell our clients how much in taxes we have saved them. Do they invest it? Not always. They tend to spend it.

One of my clients died recently.

She was a beautiful human being and someone who aged gracefully. She was in her eighties. I remember going to her home, and my wife was with me. She made us feel as if we were family.

She was also a very wealthy woman. Probably one of the wealthiest clients WOW! Advisors had. Every year, we would calculate her taxes. I would explain the figures and explain how we reduced her tax bills, and she always told me the same thing.

‘I am an old lady. When I die, I don’t want to be remembered by your staff as the bratty old lady who always wanted to save taxes. I want them to know I lived. I don’t know what my final few moments will look like, but I don’t think I will be thinking about money or taxes.’

And this is where I think we have it all wrong. Because as we age, we naturally spend less. Our knees no longer work. Nor do our hearts. Nor do our kidneys or liver. This means we spend more money on adult nappies than bungie jumping or experiences to see things around the world.

Most of us will leave behind more than we can spend. So, when we die, all those tax savings (legally, grey areas or illegally) will be left behind, too.

Ahh, you say….. at least my children will use it. And they probably will. But very rarely do children use inherited money wisely. I often see children of clients who inherit money and often think, if my client was alive, would they approve? In most cases, I conclude that they would not.

If you do not believe me, answer this question. If there are so many wealthy families out there, we should know who they are. Can you name 5 families that have kept their wealth beyond 2 generations? You will struggle to find them. That is because, by the 3rd generation, it has been spent.

This explains why family wealth does not go beyond a generation or two.

Which then begs the question. If you do not concentrate on taxes, what should you concentrate on? And if that is the case, is being wealthy just a crap exercise?

I always say you should concentrate on the protection of wealth so it is not misused, misplaced or lost. And that usually ensures it is maintained by generations. Those who have gone beyond 2 generations have decided on a legacy and protected their wealth. And there is a trade-off between protection and creation of wealth and taxes which most people do not understand.

Because in most cases, if you protect it, the chances are more taxes may be payable. But the way I see it is that most of my clients would be happy to pay $5,000 in extra tax every year than lose an entire investment property. I know I would.

A few weeks back, I met a high-earning, high-tax-paying potential client. He wanted to know if he could retire.

He had about 20 properties worth about $25m. Of this, there was a loan of $3M, so there was considerable wealth in equity.

And, so, you would think that the answer was simple. Not quite. Here’s why.

He was advised that for taxes, he should buy all properties in his own name. And that did make sense at the time those properties were purchased. He had saved a considerable amount in taxes over the about 8 years.

The problem? Well, interest rates collapsed, and his negatively geared properties became positively geared, and as a high-rate taxpayer, he was paying 47% on all of it – probably about $30,000 extra tax a year. It got worse because he never saw the money because it was all used to pay off loans.

Today, on paper, he makes about $100,000 from properties after paying substantial land taxes, but again, after the loans are being paid off, he has no cash in the bank. And he is paying 47% on all of it.

If he retires, how will the loans get paid? And will there be enough cash flow to allow him to maintain the lifestyle that he wants?

So, his only choice is to

1. Not retire (but he really wants to) and use the money he earns to pay off the remaining $3m in loans and try to live off the rental income – but this income may be insufficient because the land tax cost is so high. This may mean properties have to be sold – but that means paying taxes at 47% on any capital gains.

2. Retire but to fund his lifestyle, sell properties, and pay some taxes at 47%

3. Do nothing and continue, which means he would have to work for another 10 years, which he categorically does not want to do.

The problem with selling investments is that wealth is not being created – it is being used up.

But the reason he is in the position is because when the decision was made 1 crucial bit question was missing.

What is the objective? Very rarely should the answer be pay less tax. The question should be ‘’How I can retire aged 65 and live off passive income?’’

If that question were asked, then assets would have been bought in potentially low-tax and low-risk environments, which are flexible, with fewer assets purchased so that loans are paid off quicker and other costs such as land tax and property costs kept to a minimum.

Although I have not done the calculations, I am happy to bet all the pennies in my pocket for all the pennies in your pocket that, overall, there was no tax saving. If anything, there were more taxes payable, and I know for a fact there was unnecessary stamp duty, legal fees and land tax paid.

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