The Libertarian, The Rich, And The Wardrobe
I am going to break with commonly held convention and discuss a wee bit of politics and what it can teach you about improving your finances.
If you’re not familiar with Libertarians, they are a political party who merely believe in leaving others alone and being left alone. Of course, the philosophy of libertarianism is much more complicated and nuanced than I described, but this isn’t intended to be a dissertation or a persuasive piece on why you should or shouldn’t join the party.
Instead, I want to detail my experience with the group and how it relates to your finances as I see some parallels in the libertarian party’s inability to win elections and FIRE bloggers (Financial Independence Retire Early). Now I realize to some I just committed all kinds of blasphemy but let me explain.
My best friend called me and asked me to join him at the local library. He is a big libertarian and knows my views tend to lean towards the libertarian party on several issues. He needed warm bodies that night, as he and a few others were attempting to launch a county chapter of the party
I ran down to the library and found my way to the meeting room, where 12 or so people were beginning to gather. The orchestrator of the meeting started corralling the suspects milling around the room in an attempt to begin his presentation. He politely introduced himself and asked the group to sign in. An act met with as much indignation as if Stalin himself were asking for everyone’s papers.
A lengthy discussion ensued (20 minutes at least) on whether people were required to sign-in, if they had to use their real name, and who would have access to such a list. Once the sign in hurdle was cleared, our host went into a discussion of what Libertarians are all about, what they’re not about, and the infrastructure of how the party operates.
The group took a vote and ultimately agreed to form a county chapter. Establishing a county chapter required approving some boilerplate bylaws written by the libertarian party. Given my experience with the sign in sheet, I knew getting even more libertarian-minded folks to approve specific bylaws would be an effort in frustration and less enjoyable than herding cats. I slipped out the back door and haven’t been back since.
I find I often think back to the libertarian party and ponder why they have such difficulty winning elections. The party itself is appealing to a diverse set of individuals, and even those who do not have a libertarian tendency rarely find the party’s beliefs offensive. (Often being the least objectionable is all it takes in politics.)
However, the party seems stuck in the no man’s land between mainstream politics and fringe political counterculture.
Land occupied by political ideologies and libertarian philosophers, these are the people who quote Ayn Rand and think they’ve seen the reality at the end of Plato’s cave. They believe anything less than a complete libertarian takeover is an abject failure. To them, compromise is worse than a four-letter word, and that there’s a special place in purgatory for those reaching across the aisle.
Case in point; Rand Paul was arguably the best modern-day chance at getting a libertarian in the White House. However, he was the lite beer of libertarianism; he wasn’t as full flavored as his father, Ron Paul and couldn’t rally the troops as he wasn’t libertarian “enough.”
Instead, the Libertarians ran a joke of a candidate, Gary Johnson, who couldn’t even muster up enough support in the polls to seek concessions out of either mainstream party. Wounded, the Libertarians retreated to the fringe.
Maybe next time, the moral high ground is often a lonely place.
What does this have to do with your money?
I see a lot of similarities between Libertarians, FIRE bloggers and those seeking financial freedom. There is a counter-cultural element to both movements. To pursue financial independence and retire early, you must imagine and work towards a reality outside of the status quo. I also see some of the same stubbornness and resistance to compromise.
A while back I had lunch with two early retirees who were commiserating about their income tax burden. Both individuals were living off the dividends and capital gains from their non-qualified investment portfolio. To quiet their bellyaching, I did some back of the napkin calculations and figured they could each save over ten thousand dollars a year doing some tax planning.
Their interest was piqued, and before asking how, their first response was “what will it cost?” I explained their costs would increase by about $3000 a year. To which they responded “too much”; despite the fact they would be netting 7k or more a year. As these were friends of mine, I let the issue go. Over time, I have grown to believe complaining about taxes is a hobby of theirs.
Their inability to compromise on costs ultimately cost them more money in the long run. In planning, it’s often better to pay a nickel to a bad guy, then pay fifty cents to a terrible guy.
The truly rich have learned one of the most important issues for creating and preserving wealth is tax planning. I have seen bloggers go on tirades about eliminating latte purchases, cutting cable, or reducing portfolio costs. Reducing these costs is a great goal; however, lattes hopefully are not consuming 15 percent or more of every dollar you earn or make.
If you want to get serious about saving and making more money you have to develop a tax plan optimizing your taxable income and any incentive that ties out to taxable income – like health care subsidies (Premium Tax Credit).
When you are serious about reducing taxable income, you need a full wardrobe of options to pull from. Just as every piece of clothing is not suitable for every occasion, every financial tool may not be appropriate for every situation.
That low-cost fund your favorite blogger loves may be notorious for kicking out taxable capital gain distributions. The investment your neighbor loves and is always bragging about may not be costing him money in taxes because he has substantial losses he is carrying forward (neighbors hardly ever tell you about their losses). Every situation is different because everyone has different goals, concerns, and resources,
The key to your financial goals may be less common and less popular financial tools. Tools such as Charitable Remainder Trusts, annuities, life insurance, filing taxes as an S-crop, setting up a Corporation, an LLC or various other advanced planning options. Often these tools will increase costs; however, they can pay substantial tax savings “dividends” over time.
Being able to quote Ayn Rand or even John “Jack” Bogle for that matter is great. However, in the real-world issues, do not happen in a vacuum. A bit of “compromise” may best serve your financial goals. It may be better to pay down debt slower to focus on saving money on taxes, or maybe it’s wiser to pay higher fees on investments to receive more income or guarantees.
The goal should be to look for comparable improvements or net gains. Had the libertarian party realized a candidate like Rand Paul, was a step in the right direction – while ideologically less than perfect – the election may have played out differently. Hindsight is 20/20 as they say, and who knows, they’re probably still arguing over that sign in sheet. 😉
Why you shouldn’t listen to the prevailing Dave Ramsey advice One of the questions people ask the most is if they should pay down debt or save? Everyone from financial gurus such as Dave Ramsey to big corporations preaches about the best advice when about paying down debt and saving.
The following is a guest post from Steph of Simplistic Steph. She is a coffee lover, crazy dog & cat mom, podcaster, and has a passion for helping people with personal finance that is unrivalled. It is a huge honor to share her work. Move Over Joneses, There Is A New Cool Kid On The Block.