4 Ways You Get Robbed Blind All the Time (and Don't Even Know It)

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Corporate Theft
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As I write this, the stock market has had a fantastic rebound from its last serious downturn, and most investors seem to have more bounce in their step than they did a few years ago. According to MarketWatch, major stock indexes are up about 23 percent over the last 12 months. It's great that people's investments and retirement accounts are doing better, and I hope they continue. But the emphasis put on the stock market can act like a giant magic show, leaving us oblivious to where most of our wealth is eaten up, systematically, month after month.

Almost Nothing Else Is So Certain

This cannibalization of wealth happens no matter if the stock market is up or down. The first and biggest "wealth drain" is taxes.

Our tax system is designed to penalize hourly and salaried workers while rewarding entrepreneurs and business owners. Salaried workers pay taxes based on what they gross, while business owners pay taxes based on what they net. To that end, most people think Fortune 500 companies getting something over on little guys. Keep in mind, you don't have to be a big business to get great tax advantages. Even startups get huge tax benefits. So rather than complain, maybe you should run a business from your kitchen table.

To qualify for tax deductions in that business, the IRS says you must intend to make a profit. When that standard is met, you automatically qualify for dozens of tax deductions that you don't get as an individual. Most losses and startup expenses can be written off against other income from your job (limits apply, so get a good business CPA to work with you). Realize that nobody else (not even your CPA or tax preparer) cares how much you pay in taxes, so it's your job to understand how the system work and how to use it effectively.

Losing the Chance at Compound Growth

Another set of huge wealth drains are market losses on investment capital that you control. When a stock or a piece of real estate drops significantly in value, it could take years for you to get back to even. And, of course, there are no guarantees that it will come back during your investment lifetime. The less capital you have invested, the less you can benefit from the power of compounding growth.

If the compounding curve of your money is broken by market losses or premature withdrawals, it has a massive effect on your final pool of wealth. For example, if you were offered a job that lasted only 36 days and you had two choices on the pay plan, which one would you take? (A) You could be paid $5,000 per day at the end of every day, for a total of $180,000. (2) Your second option is to be paid one cent starting on Day One, but your pay would double each day -- be compounded by 100 percent -- and payable at the end of those 36 days.

If you jumped at the $180,000, you missed the power of true compounding of money. If your coworker doing the same job chose the compounding penny, he wouldn't be a millionaire. After 36 days ... he'd be a filthy rich multimillionaire with a final check of $343,597,384. Obviously, your investments won't experience such rapid (or consistent) compound growth, but do the math --
the power of the compounding curve is strong over time -- if you don't break it with big losses (which you can't always control) or withdrawals (which you can).

Money Lost in Fees and Interest to Banks and Financial Companies

The next massive wealth drains we face are interest and fees paid to banks or finance companies. Money-lending has been around for thousands of years, and any business model that's lasted that long is a winner -- for the business. But when you're on the borrowing side of the transaction, it's a wealth drain, especially if most of your borrowed money is spent on depreciating assets.

Now, people will tell you that if you can borrow money cheap and invest it in something that has a higher rate of return than the interest rate you're paying, then you're using leverage properly. That can be true, but those attempting such a move should be aware of the caveats. Try this simple exercise: Add up all the money you've paid out over your lifetime in monthly payments. Then compare that total to the amount of money you have saved for retirement and see which one's bigger. (If you're willing, we'd love to hear about your results in the comments section below.) Then think about how to be a lender, and not a borrower.

Depreciation of Vehicles and Other Large Assets

Another massive wealth drain comes from the depreciation of cars, boats, equipment, appliances and most other large assets we buy. Most people will lose more money on cars during their lifetimes than they'll ever save for retirement, let alone all the other depreciating assets they'll buy. But there's a way to make money on these items.

Think of your financial life as a big pie. Don't fall for the old magic trick and focus only on what's happening to your one slice of the pie (i.e., your investment gains or losses). Instead, pay attention to the whole pie and put a stop to your massive wealth drains.

John Jamieson is the best-selling author of "The Perpetual Wealth System." Follow him on Twitter and on Facebook.

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400000 SAMER

March 28 2014 at 10:00 AM Report abuse rate up rate down Reply
dubricus

It doesn't matter if what the article says is true or not. The simple fact is that the more complex finances & taxes get, the more the ordinary guy gets shafted. It's been that way since the beginning because the propertied, wealthy people were always the ones writing the rules.... even the Constitution was written to favor wealth. The early draft of the Declaration of Independence said, "life, liberty, & property." Property got changed to happiness. Heaven forbid that all men should gain property! In the paragraph about starting a business. What it fails to mention is that if you start a business at your kitchen table, it may not just be the IRS who is interested... but state & local business laws, housing codes, etc. You need a business license to get that tax ID number. In my town, if you have a business license, you need to have a 20'x20' room dedicated solely to that business... & they do inspect. Also.... the article made a statement about financial people not caring how much you pay in taxes.... true... but if you expect a tax refund, expect your tax preparer's bill to equal or exceed your tax refund.

March 14 2014 at 11:17 AM Report abuse rate up rate down Reply
scottee

wow...the government is robbing the people blind. what fun.
and we re-elect 90% of them...why? we pay them six figures and benefits for life...why??


what if congress scrapped the 73,000 pages of tax code
and everyone just paid a small national sales tax with no deductions for anyone for anything?
they would probably collect more, everyone would pay some, the rich would pay more, we could close down the IRS, congress would have a lot less power, and April 15 would just be another spring day.

March 13 2014 at 8:08 AM Report abuse +2 rate up rate down Reply
1 reply to scottee's comment
hsenpfeffer

Nonsense. Sales taxes hit poorer people the hardest because they spend the greatest percentage of their income. You have swallowed the CONservative propaganda whole.

To fix the tax code:
1. financial transactions tax - They need to pay for their own bailout. This tax would also discourage high speed trading and non productive speculation that has taken over "investment".
2. tax capital gains the same as income people actually work for. The preference has not created jobs. Most so called "investment" today is gambling, speculation and asset inflation and does nothing productive. There is no reason for a lower rate.
3. End the carried interest exception. Hedge fund salestrash especially have no reason to exist let alone get a special tax rate. Most belong in prison.
4 disallow the offshoring of corporate profits. Companies profit from the protection and resources of the United States of america. They need to pay their fair share.
5. 100 percent inheritance tax - people should be rewarded for what they do , not who their grandma had sex with.

March 14 2014 at 10:05 AM Report abuse rate up rate down Reply
Tom

So I watched the video recommended above, about how I can make money by buying a car, the guy recommends us starting a bank! But he did not say how to set up a bank. It surely can't be that easy. The video just does not make sense.

March 11 2014 at 11:46 PM Report abuse +2 rate up rate down Reply
1 reply to Tom's comment
doren104

Hey Tom I went to his website to get more info and found the banking concept very interesting. Can't hurt to have more info...

March 13 2014 at 10:08 AM Report abuse rate up rate down Reply
krazyclownz

This is crap.....people have not made up what they lost ....the heaviest selling was done at Dow 6500. the numbers don't lie. Look at volume into those lows...it was enormous.....and now The the most buying is being done at Dow 16000.

Look out below

March 11 2014 at 10:35 PM Report abuse +1 rate up rate down Reply
user10181

Yet another Fluffington post about nothing. The author should go back to writting about fashion.

March 11 2014 at 9:20 PM Report abuse +1 rate up rate down Reply
k4jlp

1. The Commodity Market
2. the healthcare monoply.
3. buying our "friends" overseas.
4.un-necessary wars.

March 11 2014 at 7:49 PM Report abuse +5 rate up rate down Reply
alfredschrader

There are secrets to the stock market. Some of them took me 30 years to discover. There are quite a few secrets to wealth. I don't give them out. I do occasionally provide hints.
Here is a hint. Many, many people have gotten wealth and lost it. Most people make two or three million dollars over their lifetimes, but they spend four million - they make unwise decisions. The first guy to discover these wealth secrets was a guy named Solomon. He wrote it all down in a book called Proverbs before he died.
Solomon owned a considerable fraction of the Earth, not just gold and gems (in today's dollars about 400 billion). Proverbs is one of the hiiden secrets of the Bible and is in the very center of it. If you gather all of the Proverb pages together, it forms a wisdom center to the Bible.

Remember just having wealth means nothing compared to wisdom. Steve Jobs had wealth, he's dead. He made unwise decisions. You can't spend it if you are dead. Just having wealth is not a guarantee to happiness - take Gordon Getty as an example. He was worth billions in oil money. His party lifestyle, loose living, recreational drug use put him into a wheel chair. He spent the last days of his life in sickly misery leaving billions behind.

Read Proverbs and prosper.

March 11 2014 at 6:07 PM Report abuse -1 rate up rate down Reply
2 replies to alfredschrader's comment
wlh1923

Please adjust your tin foil hat

March 11 2014 at 8:02 PM Report abuse +5 rate up rate down Reply
yardsigns

I Know What You're Talking About...... I've Read Proverbs - And Still Re-Read Proverbs..... - Lot Of Wisdom There.........

March 11 2014 at 8:49 PM Report abuse -1 rate up rate down Reply
jwells1008

Poorly written....and wrong.

March 11 2014 at 6:00 PM Report abuse +1 rate up rate down Reply
da2669

earned....

March 11 2014 at 4:22 PM Report abuse +1 rate up rate down Reply