Why Are Billionaires Doing This?
Summary
- I learned that many wealthy people live in California despite high taxes because they understand how to grow wealth in ways I didn't initially grasp. This realization changed my perspective on building wealth.
- If you live in a high-tax state where you are taxed 50%, you might feel upset because you only take home $1.5 million after taxes.
- By reinvesting in your business and increasing its value, you can significantly grow your personal net worth, even if it means paying high taxes on current income.
- Let's say you added $12 million to your business's value. Your net worth could then increase by $120 million.
- If you earned $3 million in cash flow and paid $1.5 million in taxes, you're effectively taxed only 1.5% on the $123 million increase in value.
- The key is to keep building and not cash out early, as the growth remains tax-free and compounds over time.
- This insight fundamentally changed how I approach wealth creation and manage my financial strategy.
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How To Take Action
I would suggest focusing on reinvesting in your business. Instead of getting upset about taxes, think about how you can use your earnings to grow your business's value. Even if you're in a high-tax state, reinvesting can massively increase your net worth.
A good way to do this is by planning how your investments can add substantial value to your business. For example, if you can add $12 million in value, that could increase your net worth by $120 million. When this happens, you're effectively reducing your tax rate over time because you're paying a small percentage on the increased value rather than on the income itself.
Another strategy is to avoid cashing out too early. Let the growth compound without immediate taxes. This can create substantial wealth over time, and the best part is this kind of growth remains tax-free as long as you don't cash out.
Lastly, shift your perspective from immediate income to building long-term wealth. Understand that wealth creation is a game of patience and strategy. Keep your focus on reinvesting earnings and building your business rather than taking quick profits which would incur more taxes. This approach has fundamentally changed how I approach building wealth.
