Hello and welcome to money girls quick and dirty tips for a richer life.

Today's topic, taxes. Inflation and taxes are two very sinister foes when it comes to creating wealth.

I think of them as the evil twins.

Last week I talked about the first evil twin, inflation.

This week I want to focus on the second evil twin.

You got it, taxes.

To get ahead your money needs to earn a rate of return that outstrips the effects of both

taxes and inflation.

Let's take an example which is a variation on the example from last week's episode.

Let's say you save $2,000 a year and put it in a savings account earning 3% a year.

And let's say you do this for 30 years.

After that 30 years, you'd have $60,000 plus interest of $38,05

for a total amount of $98,05.

Or would you?

Nope, you certainly wouldn't.

First, you'd need to pay income tax on the interest you earned.

Let's say you're in the 25% tax bracket.

The $38,05 you earned an interest would be reduced by $11,716.

So your savings plus interest after taxes would be $86,289, not $98,05.

Plus, this example doesn't take state tax into account. Depending on your state's

tax rate, the amount could be reduced even more. But the story doesn't end there.

Inflation takes its toll too.

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