Summary
Everyone seems to hate debt, yet, the richest people in the world all LOVE debt. Why? Because debt is a beautiful thing that anyone can use to their advantage.
Not too long ago, a very wealthy man wanted a new yacht. Not just any yacht- the world’s largest super sailing yacht, which features three decks, a swimming pool, a helicopter landing pad, and a kinetic-propulsion system. The massive vessel known as Y721 was built in a Dutch shipyard near Rotterdam and made headlines when it was revealed that he was considering dismantling a historic bridge to get the yacht to sea.
The plan was ultimately scrapped after public outcry, and Y721 was quietly towed to a different shipyard for its finishing touches.
But that’s not really the strangest thing about JB’s newest toy.Jeff Bezos,the founder of Amazon is an insanely wealthy man who could easily hand over the $500 million in cash to pay for his megayacht. But instead, he took out a loan to finance the build. Why would someone worth nearly 150 billion dollars take on debt?! I mean, someone call Dave Ramsey!
The first way you can leverage debt to create wealth is by tapping into your home’s equity.
If you bought your house years ago, and have been making your full mortgage payments regularly, chances are you’ve built a substantial amount of equity in your home. Maybe it’s almost fully paid off. And this is a HUGE opportunity to grow your wealth.
You can use your home to build another income stream. Your primary home continues to appreciate in value, and so does your second property.
Another way to use debt as leverage with the equity you have in your home is to obtain a home equity loan. A home equity loan comes as a lump sum of cash. It’s an option if you need the money for a one-time expense, like a down payment on a second property or a major renovation. These loans usually offer fixed rates, so you know precisely what your monthly payments will be when you take one out.
One thing rich people LOVE to do with debt is to use it to build an entirely new stream of income or expand on existing streams of income. You can use this same technique with your own business. This is how people end up owning multiple franchise locations, expanding their business product line, and doing a massive increase in hiring across their businesses.
But perhaps the most well-known and highly divisive way the rich leverage debt is by using it to avoid paying taxes. Jeff Bezos didn’t pay income tax from 2016 to 2018. And Warren Buffet paid only $23.7 million in taxes between 2014 and 2018, despite his wealth increasing by $24.3 BILLION during that time.
First, when it comes to non-salary-related income, only profit is taxed. That means that while you can report a very high revenue at the end of the year, you can also offset the amount of taxes that you owe by reporting a very high total amount of expenses. Let’s take the example of Jeff Bezos, who, in 2007, paid zero dollars in federal income tax, according to ProPublica’s investigation. That year, Amazon’s stock nearly doubled. And Bezos reported $46 million in income, mostly from interest and outside investments. That entire amount was off-set by various expenses.
Using debt to grow even richer is just one of the things that the rich do to grow their wealth. But don’t do something ONLY because you see rich people doing it, because sometimes, rich people can give HORRIBLE advice. Check out my video about why you shouldn’t take financial advice from the ultra wealthy, I’m sure you’ll love it.
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