At a Glance
Billionaires and the ultra-successful typically share a lot of the same traits when it comes to financial planning. There are loopholes that you can take advantage of to pay less in taxes and keep more of your money. Here are five of the top money secrets of billionaires and how you can incorporate them into your life.
What to expect:
Invest early and consistently
The earlier you start investing, the more interest you will earn over the life of your investment. There is a study that examined three people who each invested $200 per month until they were 65. One person started at age 25, one at 35, and one at 45. The 25-year-old invested a total of $96,000 but ended up with a portfolio worth more than $520,000 thanks to compound interest. The 45-year-old invested $48,000, half of the 25-year-old. However, they only ended up with $100,000 in their portfolio, less than 20% of the 25-year-olds. This is because compound interest needs time to make money.
Investing even a little bit each month when you are young can set you up for major success as you get older. However, if you are older now, don’t get discouraged. You just have to create an investment strategy that works for your situation. The way you invest at age 20 is a lot different than how you will invest at age 60. Nothing is impossible, but the earlier you start, the easier it will be.
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Leverage debt to avoid taxes
The ultra-wealthy can use debt to engage in tax loopholes so they get to keep more of their money. Non-salary income is only taxed if there is a profit, so billionaires will report high expenses to balance out high revenue, making it as if they have very little profit to pay taxes on. Similarly, when it comes to stocks, you only pay taxes once you sell them. However, the billionaires of the world are not selling their stocks, they are holding onto them.
Now that they have “no” profits and money tied up in stocks, they can take out loans to get access to cash without ever paying taxes on it. They use their stocks as collateral to get access to extreme amounts of debt that they can easily pay back, all while never paying taxes on it. This is perfectly legal and can save wealthy individuals tens of millions of dollars per year. Billionaires are, on average, paying a smaller percentage of federal income taxes than the average American. Jeff Bezos and Donald Trump are prime examples of people who are ultra-wealthy but have been shown to have paid nothing in taxes while only getting richer.
Wait to buy
Impulse purchases can be detrimental to building wealth. Instead of buying things on a whim, try the 30-day rule when it comes to shopping. This rule can be applied to all purchases but is especially effective for larger purchases like jewelry and electronics. If you are online shopping, keep the item in your cart for 30 days before deciding to purchase it. If you found something in the store, tell yourself that you will come back in 30 days to pick it up. At the end of that time, you will likely not remember wanting the item in the first place. However, if you do, you can buy it and feel comfortable knowing that it was something that you wanted.
This 30-day rule can also help navigate sales so you get the items you want at a discounted price. A lot of furniture and electronics go on sale at different points throughout the year, so you can set up your waiting period to coincide with a sale. That way, you not only know that you want the item, but you are also getting it at a great deal.
Save now and spend later. If you are constantly buying things that you do not need or do not want, you will not only have a lot of clutter but end up selling those items for less than what you paid for them. Focus on saving your money now and only buy things if it is practical and necessary. You likely will not remember not buying an iPad when you are retired with a hefty 401(k).
Have goals and write them down
The most successful people write things down. It is proven time and time again – if you want something, write down a plan for making it happen. A majority of billionaires and ultra-successful people write down daily goals and to-do lists, as well as short-term and long-term goals. Making these goals actionable is important. It is not enough to just say that you want to grow your business. Instead, say that you want to increase revenue by 50% and decrease expenses by 25%. Once you have that goal, write down all of the steps you need to take to make that goal a reality.
Creating clear, actionable goals and knowing the steps you need to take to reach them is the first step. Next, plan out exactly when you are accomplishing each step. Create a timeline or a calendar so you know what you need to do and when. Whether it is talking to someone about investing or filing your tax return, having a plan takes your unrealistic dream and makes it an easy thing to cross off a list.
Get an advisor
At the end of the day, you do not know everything. However, some people have devoted their entire education and careers to learning everything there is to know about finance, accounting, and investing. Make sure you link yourself to a team of advisors, accountants, and lawyers that can help you grow your investments over time. This team can also help you figure out tax obligations and ways to create passive income.
Not all advisors are created equal, so you will want to get multiple before you settle on one. Ask around to family or friends to see if there are any recommendations in your circle. If not, make sure to look at reviews and come prepared to a financial planning meeting with questions and goals.
There is no easy way to become a billionaire, but by studying billionaires’ lifestyles, you can understand the mindsets that helped them get to this place of financial freedom. Many billionaires share a lot of the same traits when it comes to financial planning and business growth. Even if you don’t become the next Elon Musk, taking these money secrets into account when budgeting can lead you to a surplus of cash in no time.