In the seminal Your Money or Your Life, Joe Dominguez and Vicki Robin argue that in order to get a good grip on your financial future, you must first gain an understanding in your financial past. And the best ways to do this? Gather together your past tax documents and see how much you’ve earned over your entire life.
You might be wondering: how and why does this work? How can those old past tax documents add value to your financial future? What’s the trick here?
Knowing your financial past means a lot of things. It means you know how much money you’ve earned over your lifetime, which is a great way to gauge net worth through the years. It’s also a great way to get a sense of how much value you, as a person, have financially. Those past tax documents can help you see how much you have earned from every job you have ever had, which makes it easy to calculate your lifetime income.
Those past tax documents can also help you with the next step of the process: figuring out how much money you’ve spent in your lifetime. The yearly money we all have to give to the IRS is a big expense, plus those documents can help keep track of other major life expenses, such as moving for a new job, giving a large donation to charity, buying or a house, or buying another car.
Past tax documents can help you in lots of ways that you might not be aware of. Information from them can help you cut your bills by up to 25%, to helping quickly file your current tax return, to keeping an easy to access financial record, past tax documents are an incredible tool to have in your financial arsenal
So I challenge each and every one of you to take the first major step towards financial security: gather all those past tax documents together, calculate your lifetime earnings, start getting out of debt, and stop worrying about money.