BUY-BORROW-DIE: The SHOCKING Strategy 1% Use to Pay ZERO Tax

[00:00:00]ELON MUSK CAN'T BUY A YACHT NOT BECAUSE HE'S BROKE HE'S WORTH $200 BILLION BECAUSE ALMOST NONE OF THAT IS ACTUALLY MONEY IT'S SHARES IN A COMPANY NUMBERS ON A SCREEN WEALTH YOU CAN SEE BUT CAN'T SPEND SO WHAT DO BILLIONAIRES DO WHEN THEY WANT TO BUY SOMETHING THEY BORROW NOT BECAUSE THEY'RE BROKE BECAUSE BORROWING IS CHEAPER THAN SPENDING THE RICHEST PEOPLE ON EARTH WOULD RATHER OWE MONEY THAN USE THEIR OWN HERE'S WHY THAT MATTERS TO YOU HERE'S THE THING THAT THROWS EVERYONE WHEN YOU HEAR ELON MUSK IS WORTH 200 BILLION YOUR BRAIN PICTURES A BANK ACCOUNT WITH THAT NUMBER IN IT IT DOESN'T WORK LIKE THAT ALMOST ALL OF THAT WEALTH IS TIED UP IN TESLA SHARES SPACEX EQUITY AND OTHER ASSETS IF MUSK WANTED TO BUY A HOUSE TOMORROW WITH CASH HE'D HAVE TO SELL SHARES SAME WITH JEFF BEZOS SAME WITH EVERY BILLIONAIRE YOU'VE HEARD OF AND HERE'S WHERE IT GETS INTERESTING THE MOMENT THEY SELL THOSE SHARES THE TAX OFFICE SHOWS UP IN MOST COUNTRIES SELLING AN ASSET THAT'S GONE UP IN VALUE TRIGGERS SOMETHING CALLED CAPITAL GAINS TAX BASICALLY THE GOVERNMENT'S CUT WHEN YOU MAKE A PROFIT DEPENDING ON WHERE YOU LIVE THAT COULD MEAN HANDING OVER 20 30% EVEN 40% OF THE SALE TO THE GOVERNMENT SO IF A BILLIONAIRE SELLS $10 MILLION WORTH OF SHARES THEY MIGHT ONLY WALK AWAY WITH 6 OR 7 MILLION AFTER TAX YOU CAN SEE THE PROBLEM SELLING ASSETS IS EXPENSIVE NOT JUST IN FEES IN TAXES THAT BITE THE MOMENT YOU CONVERT WEALTH INTO CASH SO THE ULTRA WEALTHY FOUND A WORKAROUND THEY DON'T SELL THEY BORROW AGAINST WHAT THEY OWN AND THAT LOAN NOT TAXED DEBT ISN'T INCOME YOU CAN TAKE OUT $10 MILLION AGAINST YOUR SHAREHOLDING SPEND EVERY CENT OF IT AND THE TAX OFFICE DOESN'T GET A DOLLAR THAT'S THE FIRST REASON BILLIONAIRES BORROW IT'S A TAX DODGE THAT'S COMPLETELY LEGAL BUT AVOIDING TAX IS JUST THE APPETIZER THE MAIN COURSE THEY ACTUALLY PROFIT FROM THE DEBT ITSELF NOW YOU MIGHT BE THINKING SURE BUT LOANS COST MONEY INTEREST RATES FEES ALL THAT YOU'RE RIGHT EXCEPT WHEN YOU'RE WORTH HUNDREDS OF MILLIONS THE COST OF BORROWING ISN'T WHAT IT IS FOR THE REST OF US LET'S SAY YOU WALK INTO A BANK AND ASK FOR A LOAN THE BANK LOOKS AT YOUR INCOME YOUR CREDIT SCORE YOUR JOB SECURITY IF YOU'RE LUCKY THEY'LL LEND YOU MONEY AT MAYBE 6, 8 10% INTEREST IF YOUR CREDIT'S SHAKY IT'S HIGHER BUT WHEN SOMEONE LIKE BEZOS WALKS IN OR MORE ACCURATELY WHEN HIS WEALTH MANAGER MAKES A CALL THE BANK SEES SOMETHING VERY DIFFERENT THEY SEE COLLATERAL BILLIONS OF DOLLARS IN ASSETS ZERO RISK OF DEFAULT SO THEY OFFER RATES MOST OF US WILL NEVER SEE SOMETIMES 3% SOMETIMES LOWER HERE'S WHY THAT MATTERS IF YOU CAN BORROW MONEY AT 3% AND YOUR INVESTMENTS ARE RETURNING 8 OR 10% YOU'VE JUST MADE MONEY BY GOING INTO DEBT THINK ABOUT THAT YOU TAKE OUT A LOAN AT 3% INTEREST YOU LEAVE YOUR INVESTMENTS ALONE AND THEY KEEP GROWING AT 10% YOU'VE MADE A 7% PROFIT ON MONEY YOU BORROWED THE MORE YOU BORROW THE MORE YOU MAKE THAT'S LEVERAGE AND WHEN YOU'RE WEALTHY LEVERAGE ISN'T RISKY IT'S A MONEY PRINTER THIS IS THE MINDSET SHIFT MOST PEOPLE NEVER MAKE FOR MOST OF US DEBT MEANS WE COULDN'T AFFORD SOMETHING FOR THE ULTRA RICH DEBT MEANS THEY FOUND A CHEAPER WAY TO PAY FOR IT THAN USING THEIR OWN MONEY HONESTLY THAT FLIPPED MY BRAIN THE FIRST TIME I UNDERSTOOD IT WE'RE TAUGHT DEBT IS FAILURE FOR THEM IT'S JUST MATHS SAY YOU OWN $50 MILLION IN SHARES THOSE SHARES ARE GROWING AT 10% A YEAR WHICH IS ROUGHLY THE LONG TERM AVERAGE RETURN OF THE STOCK MARKET THAT'S 5 MILLION A YEAR ENOUGH TO BUY A HOUSE IN SYDNEY EVERY COUPLE OF MONTHS WITHOUT YOU LIFTING A FINGER NOW INSTEAD OF SELLING THOSE SHARES TO BUY SOMETHING YOU BORROW 10 MILLION AGAINST THEM AT 4% INTEREST THAT LOAN COSTS YOU 400,000 A YEAR IN INTEREST BUT YOUR 50 MILLION IN SHARES STILL GROWING STILL MAKING YOU 5 MILLION A YEAR YOU'VE ACCESSED 10 MILLION IN CASH YOU'RE PAYING 400,000 TO KEEP IT AND YOUR WEALTH IS STILL COMPOUNDING YOU'RE SPENDING MONEY AND GETTING RICHER AT THE SAME TIME THIS IS WHAT FINANCIAL ADVISORS MEAN WHEN THEY SAY THE WEALTHY USE DEBT AS A TOOL FOR WEALTH CREATION IT'S NOT ABOUT BEING UNABLE TO PAY IT'S ABOUT RECOGNIZING THAT BORROWING CHEAP MONEY TO KEEP YOUR ASSETS WORKING IS MORE PROFITABLE THAN CASHING OUT CRITICS ARGUE THIS CREATES AN UNEVEN SYSTEM SOMEONE WORKING A JOB PAYS TAX ON EVERY DOLLAR THEY EARN SOMEONE LIVING OFF BORROWED WEALTH PAYS TAX ON ALMOST NOTHING THE LABOR GETS TAXED THE WEALTH KEEPS GROWING TWO DIFFERENT GAMES SAME ECONOMY HERE'S WHERE IT GETS ALMOST ABSURD ONCE YOU'VE BORROWED AGAINST YOUR ASSETS YOU CAN JUST KEEP DOING IT YOUR SHARES KEEP GROWING A FEW YEARS LATER THEY'RE WORTH MORE SO YOU BORROW AGAINST THEM AGAIN YOU USE THAT NEW LOAN TO PAY OFF THE OLD ONE OR TO FUND MORE SPENDING AND THE WHOLE TIME YOU NEVER SELL YOU NEVER TRIGGER A TAXABLE EVENT YOU JUST KEEP DEFERRING THERE'S EVEN A TERM FOR THIS IN WEALTH MANAGEMENT CIRCLES BUY-BORROW-DIE YOU BUY ASSETS YOU BORROW AGAINST THEM WHEN YOU NEED CASH AND WHEN YOU DIE THOSE ASSETS PASS TO YOUR HEIRS UNDER DIFFERENT TAX RULES OFTEN WITH A STEP UP IN BASIS THAT ERASES THE CAPITAL GAINS ENTIRELY YOUR HEIRS INHERIT ASSETS WORTH $1 BILLION THE TAX OFFICE TREATS THEM AS IF THEY WERE BOUGHT YESTERDAY AND NOBODY EVER PAYS TAX ON DECADES OF GROWTH IT'S NOT A LOOPHOLE IN THE TRADITIONAL SENSE IT'S JUST HOW THE SYSTEM WAS BUILT HERE'S THE BIT THAT SURPRISED ME IN 2021 PRO PUBLICA FOUND THAT SOME OF THE WEALTHIEST AMERICANS PAID ZERO FEDERAL INCOME TAX IN CERTAIN YEARS NOT THROUGH FRAUD BUT THROUGH THIS EXACT STRATEGY BEZOS IN 2007 MUSK IN 2018 LEGAL DOCUMENTED AND ENTIRELY INVISIBLE TO MOST PEOPLE HONESTLY THIS ONE BUGS ME NOT BECAUSE IT'S ILLEGAL IT ISN'T BUT BECAUSE THE GAP BETWEEN THE RULES FOR EARNED INCOME AND THE RULES FOR WEALTH FEELS DESIGNED YOU WORK YOU PAY TAX IMMEDIATELY YOU OWN YOU DEFER INDEFINITELY SO WHY DOESN'T EVERYONE DO THIS SIMPLE YOU NEED WEALTH TO BORROW AGAINST IF YOU'RE WORTH $50,000 NO BANK IS LENDING YOU 10 MILLION AT 3% THEY'RE NOT LENDING YOU ANYTHING CLOSE THE SYSTEM REWARDS PEOPLE WHO ALREADY HAVE ASSETS THE MORE YOU OWN THE CHEAPER IT IS TO BORROW THE CHEAPER IT IS TO BORROW THE FASTER YOU CAN GROW WHAT YOU OWN IT'S A FEEDBACK LOOP THAT ACCELERATES THE HIGHER YOU CLIMB AND THAT'S THE QUIET PART BORROWING ISN'T JUST A STRATEGY FOR THE RICH IT'S A MECHANISM THAT KEEPS THEM RICH SOMEONE STARTING FROM ZERO HAS TO SAVE INVEST SLOWLY PAY TAX ON EVERY GAIN AND HOPE THE MARKET COOPERATES SOMEONE STARTING FROM 100 MILLION CAN BORROW AGAINST IT REINVEST THE BORROWED CASH AND GROW WEALTH WITHOUT EVER SPENDING THEIR OWN MONEY THE MORE YOU HAVE THE LESS YOU NEED TO USE REMEMBER THAT PARADOX YOU'RE WORTH 200 BILLION THAT'S ROUGHLY THE GDP OF NEW ZEALAND LOCKED UP IN YOUR NAME YOU'RE ONE OF THE RICHEST PEOPLE ALIVE AND YET IF YOU WALKED INTO A CAR DEALERSHIP TOMORROW AND TRIED TO BUY A VEHICLE WITH CASH YOU'D STRUGGLE BECAUSE YOUR WEALTH ISN'T LIQUID IT'S LOCKED IN COMPANY SHARES PROPERTY PRIVATE EQUITY SELLING IT IS SLOW EXPENSIVE AND VISIBLE EVERYONE SEES WHEN A BILLIONAIRE SELLS SHARES THE MARKET REACTS THE TAX OFFICE WATCHES SO INSTEAD YOU CALL YOUR BANK YOU BORROW 5 MILLION AT A RATE LOWER THAN INFLATION YOU BUY THE CAR THE HOUSE THE WHATEVER AND YOUR 200 BILLION STILL SITTING THERE STILL GROWING UNTOUCHED YOU'VE SPENT MONEY WITHOUT SPENDING WEALTH THAT'S THE TRICK AND IT'S ONLY A TRICK IF YOU ARE ALREADY RICH ENOUGH FOR THE BANKS TO TRUST YOU WITH IT WHICH BRINGS US BACK TO THE HOOK ELON MUSK CAN'T BUY A YACHT WITH CASH NOT BECAUSE HE'S BROKE BUT BECAUSE STAYING RICH MEANS NEVER ACTUALLY SPENDING YOUR MONEY NOW YOU KNOW WHY SO LET'S BE HONEST ABOUT WHAT THIS MEANS FOR YOU YOU'RE NOT GOING TO BORROW YOUR WAY TO $1 BILLION THIS ISN'T ADVICE IT'S OBSERVATION BUT UNDERSTANDING HOW THE SYSTEM WORKS CHANGES HOW YOU SEE THE HEADLINES WHEN YOU HEAR BILLIONAIRE NET WORTH HITS NEW RECORD YOU NOW KNOW MOST OF THAT WEALTH WAS NEVER AT RISK IT WAS NEVER SOLD IT WAS BORROWED AGAINST SPENT AND LEFT TO GROW WHILE SOMEONE ELSE COVERED THE TAB AND WHEN YOU HEAR DEBATES ABOUT TAXING THE RICH YOU'LL UNDERSTAND WHY IT'S COMPLICATED WEALTH ISN'T INCOME IT DOESN'T FLOW THROUGH A PAYSLIP IT SITS COMPOUNDS AND GETS ACCESSED THROUGH LOANS THAT NEVER SHOW UP AS TAXABLE EVENTS THE RULES WEREN'T WRITTEN FOR THAT THEY WERE WRITTEN FOR PEOPLE WHO EARN AND SPEND THE ULTRA WEALTHY DO NEITHER THEY OWN AND BORROW YOU'RE PLAYING A GAME WHERE EARNING IS TAXED IMMEDIATELY AND OWNING IS TAXED EVENTUALLY MAYBE THEY'RE PLAYING A GAME WHERE OWNING IS NEVER TAXED AS LONG AS YOU NEVER SELL SAME ECONOMY DIFFERENT RULES AND HERE'S THE UNCOMFORTABLE BIT NOBODY HID IT FROM YOU IT'S JUST THAT MOST OF US WERE NEVER IN A POSITION TO NEED TO KNOW SO THE QUESTION ISN'T WHETHER THEY SHOULD PAY MORE TAX THE QUESTION IS WHY DO WE STILL CALL WHAT THEY DO INCOME IF THIS CHANGED HOW YOU SEE WEALTH THERE'S MORE WHERE THAT CAME FROM NEXT TIME WE'RE LOOKING AT WHY BEING POOR ACTUALLY COSTS MORE AND I MEAN LITERALLY IN DOLLARS YOU CAN COUNT HIT SUBSCRIBE SO YOU DON'T MISS IT THAT'S MONEY ACTUALLY