Why I aim for Synergy Optimization- the focus on maximizing my income and reducing my family's tax liability through division of risk and focus on shared gain.

I've been reading a lot about people taking advantage of a GEO arbitrage situation, such as moving your residence to a less expensive location/country while still maintaining a paying stock trading position (relative to the less expensive country) via telecommuting. Yes, this experience could be a great short-term opportunity for someone focused on travel and experiences over obtaining wealth via the traditional corporate ladder climb. 

I also read about the FIRE community's obsession with relocating to a lower cost city in order to save more money, and potentially expedite asset growth. The more I hear about these approaches that include relocation and sacrifice the more I am glad I have adopted my own approach- wealth building with the help of Synergy Optimization. 

Definition of Synergy:

Synergy as described in my "Business Words you Should Know" book by McKay and Shank.  "Creating value through alliances, working on a theory that two companies (entities) combined will be greater than the sum of the separate individual parts." 

How I use Synergy to my advantage:

My specific Synergy opportunity is predicated on one simple tenant- it requires having a legally assigned spouse/common law partner, etc. Allow me to explain:

Entity Synergy:

Being legally married affords couples many legal protections and tax advantaged opportunities that are diminished as a non-married single person. Married couples can save larger pre-tax HSA (health saving's account) balances ($7,000 vs $3,500 dollars). They also benefit in estate tax laws, social security benefits and others, but the most important benefit in my opinion is that you are effectively creating more opportunity to create a larger asset pool with two people working towards wealth building as opposed to just one person- this last one is purely subjective, but it is still my favorite. 

IRS Rule 121

In selling your primary residence, the benefit of the IRS tax exempt provision (IRS 121) that allows you to avoid paying any taxes on the property gain up to $500k for married couples. This exemption is reduced to $250k if you are single.  See my previous house hacking article for more detail:

Employment Synergy:

If both you and your spouse work full time, you then have a very good opportunity to spread out the risk of employment interruptions if one of you works a standard J-O-B, and the other runs his/her own business. Specifically, if your spouse starts a solo business and you maintain your full time W2 position, you can create an opportunity for your spouse to succeed with a risky venture while you still can provide for basic expenses with your full time position. This employment synergy has helped me greatly to succeed in my wealth building.

S-CORP and SEP Benefits:

Your spouse/partner can take large risks in his/her private venture, such as seek out larger paying clients, take on additional project types because they know the other person will maintain a full-time paid position. Secondly, owning a solo business allows you to experience tremendous tax advantages. The LLC/S-CORP provision enables you to pay yourself a salary and receive quarterly dividends, the latter of which are not impacted by FICA taxes. 

There are also significant tax advantages regarding tax deductions, but this is a larger topic that would require a significant tax planning discussion. I recommend reading about these tax advantages, as you will be shocked how much you can save when you or your spouse creates a successful solo business. Large corporations utilize these tax benefits, why should your family's asset pool be any different.

Being self-employed also allows one to create a healthy pre-tax SEP, which will allow for larger balances than the standard $19k to $25k maximums for 401k's. SEP retirement provisions can allow for more than $50,000 dollars pre-tax when you run your own successful business.

Career Risk Synergy:

Defining your own synergy optimization is important. The primary result of this synergy optimization is that you and your spouse will both benefit in building combined wealth/assets.  Secondly, if one person can optimize all pre-tax retirement and HSA savings plans, as well as focusing on building a professional career while the other person focuses on building his/her solo business and optimize the return on invested time, then both parties will benefit. In the end, the asset pool grows, risks are spread out and the division of a regular job and a solo venture create higher rewards than if you had gone at it alone. 

Reduced Cost of Living:

Lastly, the concept of moving your family to lower cost of living situation via renting or buying lower cost real estate does not align with my plans, for many different reasons. Rather than attempt to explain my reasoning I will use the words of a wise co-worker heard over lunch recently: 

"We live in world without limits, so why would anyone limit their income and financial aspirations to "just enough" to get by." 


Note that I am not a financial or legal professional, nor am I licensed to sell securities, or any other financial instruments. Given this statement, I strongly recommend that you consider this blog as entertainment value. Although, I sincerely hope that I can motivate you to learn to build your own financial knowledge and wealth.

Financial Sombrero

Building Wealth Knowledge Every Day