Wealth Building Secret Revealed
What is the biggest secret of wealth building? Well, the biggest secret of wealth building is that, you minimize or avoid your biggest expense – Tax.
Remember, “To Become Wealthy, you need to minimize your realized Income (Taxable) and Maximize your unrealized (Non-Taxable) Income.”
This is the golden secret of wealth building. I am talking about increasing Capital Gains Income. I am talking about making money in valuations. Wealthy people make money in Capital Gains and Valuations. After all, Money is the game of valuations.
What Smart Business owners & Investors do is; they keep re-investing their profits in their own Businesses. This helps them in two ways. One is Business expenses are tax deductible and the other advantage is that, if you keep re-investing your money in your own Business than it will increase the valuation (Capital Appreciation) of your Business and this Capital Gain is Tax Free.
Therefore, Rich people always try to maximize their un-taxable income while everyone else tries to maximize their taxable income to fuel their high status life styles. Money is a game of Valuations. The Valuations of your Assets. The more valuable assets you own, the wealthier you will become.
And the advantage of valuations is that any increase in valuation is totally tax free. Thus, it is a smart idea to earn in valuations. And you can only earn in valuations by investing your money.
There is no other way of save your money from tax. Tax is a major money killer which hurts your money a lot if you don’t properly plan to manage it … tax efficiently.
Millionaires Pay less in Taxes
Taxes are meant to punish the rich and give that money towards the development of services and infrastructure that can serve the poor and middle class. This was the original philosophy behind applying taxation on high income producing people from all around the world.
But the reality is this; Rich pay less in taxes than poor and middle class. That’s because they earn in Businesses and Investments. And the Income from Investments and Businesses is either tax free or less taxable.
According to one survey, the typical millionaire in USA and of course, worldwide has a total annual realized income that is less than 7 percent of his total wealth. Which means that if someone’s Net Worth is $ 1 Million then his annual realized income is less than $ 70,000. And the rest of the money he earns is invested in Businesses and other Investments in form of Capital Gains, Dividends, and Bonuses.
Therefore all of this Income is either totally tax free (Capital Gains) or a lot less taxable (Dividends) or even Tax Deductible (Business Expenses). So now you will ask this; “who pays these billions and trillions of dollars of tax?” You guessed it … the high Income but low net worth Middle Class people.
High Income professionals (Doctors, Lawyers, Actors … etc …) sometimes pay as high as 70% on taxes for their total net worth. That’s because their realized income is much more than meets the eye. Take an Example of Doctors. Some doctors earn $ 200,000 every year and pay $ 80,000 in tax and their Net worth is just $ 200,000. So in comparison to their net worth they pay 40% on Tax in comparison of their total wealth.
And to fuel their high status life style, they need to consume more income every year. So remember, Rich pay less in taxes while it is the high income middle class people who pay more in taxes.