Michael on June 24th, 2008
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Although I am often asked to speak to recent grads, I have never been asked to speak at any graduations. But if I were, I imagine I would deliver something along the lines of this speech.

Today is part 5. To see the entire speech released so far, click here and read from the bottom up.

Rule 4: Taxes on taxes are taxing

In the real world, you’re going to pay real taxes. You may have already paid some taxes, but you probably haven’t paid real taxes. You will pay far more taxes than you ever expected. It doesn’t matter how much money you make. Even those making way less than the class average; if it’s the first time you’ve had a job, you’ll be shocked at how much you will pay. Of course, the more you make, the more you pay; yet the initial shock still won’t go away.

There’s no incredible lesson here, so quit waiting for it. Sure there are strategies available to legally lower the impact of taxes, but quite honestly the most important thing for you, a new graduate, to understand about taxes is that you will pay them.

So when you’re shopping for a new car or apartment and you think about how much money you’ll be making once your job starts, be careful. If your salary is to be $36,000 a year, you won’t have three grand a month available to you. Not even close. It will be more like two grand. Crazy, but true. Far better to go in with your eyes wide open than to make the all-too-common mistake of a major irreversible financial commitment during that first summer only to find yourself struggling as your new debt starts to really suck . . . your money away from you. All this while despite you’re successfully keeping your day-to-day spending in check. Taxes are real and they can be very taxing, especially if you’re not prepared.

See, number four was quick. Not too much longer until you can throw your cap in the air and catch someone else’s

[To be continued]

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2 Comments to “Graduation Speech Part 5: Taxes are taxing”

  1. M. Contreras says:

    So is it better to have a job (like being an independent personal assistant) were no taxes are taken out until your boss claims you at the end of the year? Or is this going to cause way more pain come tax season?

  2. Michael says:

    @M. – You’ll be so happy you asked this question rather than next April! As many self-employed have learned the hard way, paying later doesn’t mean paying less. In fact, you may even pay more (since you have to pay both halves of the Social Security and Medicare taxes).

    Thanks to the time value of money, it’s always better to pay taxes (or any bill) later rather than sooner. But this assumes you won’t owe any penalties for underpayment of tax. It also assumes that you’re saving the money you’ll owe to the IRS later. And you know what assuming does. . .

    Great question. Timely question.

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