To pay an accountant to do your taxes sometimes seems like a huge waste of money. To do your taxes yourself sometimes seems like a huge waste of time. I hope by now you chose at least one of the two options. What’s the correct one? What is the lesser of the two wastes?
In Thomas J. Stanley’s The Millionaire Mind, he writes about a similar situation and how millionaires handle it. The book captures the mindset of America’s millionaires: how they handle challenges, rejection, marriage, education, and various life situations. Stanley breaks millionaires down into two categories: the balance sheet affluent, and the income statement affluent. The latter category is what we usually think of when we think of millionaires, high income, high spending, tons of bank accounts. The former are people who make a decent living, but are wealthy because they make smart financial decisions. Unless you can suddenly start making a seven figure salary, you’re probably not going to become income statement affluent anytime soon. But even with your current income, you can become balance sheet affluent with the right decisions. Let’s look at our question again.
The example given in The Millionaire Mindset was whether or not to call the plumber. It’s the same “hire a professional or do-it-yourself” question that we posed with taxes above. The answer lies in dollars and hours. Ask yourself the following questions: 1) How much is your time worth?/How much do you make in an hour? 2) How many hours will it take to do the task yourself? 3) How much will it cost to have a professional do it?
If you earn $20/hour, and the job it would take you 10 hours to learn how to fix the pipe and do it on your own, that’s costing you $200. If a plumber can do it for $150, you’re saving $50 by paying him to. On the other hand, if you earn $20/hour and doing your taxes would take 8 hours ($160 total) and you accountant charge $250, then you should probably stick it out yourself. Keep in mind the aggravation of changing a pipe or doing taxes that you make or may not have. Also you should consider the quality of the work done. If your work ends up flooding your kitchen or causing an audit, perhaps you should pay the professional extra.
The millionaires in Stanley’s book all had one thing in common, they were wealth accumulators. Combine that mindset with focus on a quality of life, and you have yourself an affluent life. Anyone can be balance sheet affluent. All it takes is simple math and smart decisions. Here’s to your refund!