So we went through the different types of income you, you might encounter in your life in the money coming in. Next, there are five things you can do with this. What are the five things? We'll go through them right now. There's only five things. One, pay taxes, life's greatest expense. The key to understanding this is when, how, and why, uh, understanding your income flows and planning for optimal tax deductions and a good tax planner is worth the wait and after tax goal.
It's a CPA, uh, joke. I couldn't help myself, so we'll just move on. Number two, living your life. Spending money on food, clothing, and shelter, and everything else you do to fund your lifestyle. This is after tax money. Remember, we talked about your effective tax rate. This is what goes in, in planning your net cash flows.
It all fits together on the top part of the grid in terms of money flows. Three, saving and investing. The best way to look at this is, this is your future lifestyle. What do I mean? This will generate income for you in retirement. You will receive 1090, call it 1099 income, 1099 interest, dividends, capital gains.
If you're in partnerships, you receive, uh, uh, investment partnership K1s. The key to this is compounding of investment returns. Compound interest was described by Einstein as man's greatest invention. Money grows over time. The key to growing your money is understanding risk. When I talk to clients, uh, I've looked at risk for my entire career.
I talk to clients and I say to them, it's a combination of danger and opportunity. What opportunities, what danger are we willing to undertake to take advantage of certain opportunities in the market? Not all opportunities carry the same amount of danger. A good investment advisor knows the difference and can communicate that to his clients.
Number four, deferring income. Don't pay tax on it yet, but at some point. You will owe taxes on this deferred income when, how, and why it will become part of your net net cash flow and planning for that in the future is another part of the whole plan or the part of the grid. You might have personal deferrals in the terms in terms of an IRA, 401k, a pension, you might have an annuity.
Health savings account. Those might be those will be in your name. You might have something set up for generational planning. The current wealth tax is 50%. If your state is over 12 million for an individual and 24 million for a couple, you will have State tax planning issues. There are different things to examine there in terms of irrevocable trusts and grantor retained annuity trusts.
A lot of rules there that are actually changing as we speak, and in 2026, The amounts that I just described there will go down to half. So, this is something that a lot of people will need to pay a lot of attention to very soon. Um, also, if you are involved in your community and you want to give to your community, you can get involved in charitable planning.
You can set up a charitable trust. You can set up a donor advised fund. These are different ways of giving back. And they all can defer income or taxes on income for you. The fifth way you can, allocate income is to pay down debt. This is the other way to increase your net worth. It also will ease up net cash flows.
It's another thing to think about when you're planning. Now, the last thing I want to go throug, is really a really quick example of what I look at as good debt and bad debt.