The Game with Alex Hormozi - Strategy For The Ultra Wealthy | Ep 315

Episode Date: July 8, 2021

Be like the wealthy! Today, Alex (@AlexHormozi) talks about the tax strategies that the ultra-wealthy do to maintain their wealth, and get you to change your perspective so you can not only make big changes in your life but also become one of them in the future!Welcome to The Game w/Alex Hormozi, hosted by entrepreneur, founder, investor, author, public speaker, and content creator Alex Hormozi. On this podcast you’ll hear how to get more customers, make more profit per customer, how to keep them longer, and the many failures and lessons Alex has learned on his path from $100M to $1B in net worth.Timestamps:(1:20) - Plan where you live for following the ultra-wealthy.(3:51) - Change buying habits to emulate the ultra-wealthy.(9:23) - Your worth comes from untaxed growth.Follow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

In this video, I want to talk to you about the tax strategies of the ultra wealthy. And as someone who is ultra wealthy, I find it ironic that the vast majority of videos that I see on YouTube are made by people who are not ultra wealthy talking about how the ultra wealthy do things. Well, they have no transparency into what those actions that actually are. Welcome to the game where we talk about how to get more customers, how to make more per customer, and how to keep them longer, and the many failures and lessons we have learned along the way. I hope you enjoy and subscribe. So I have gone through probably $750,000 on different tax advisors, different tax strategies to try and figure. at least the US system to minimize tax drag. And the conclusions that I have are somewhat simple,

and I wanna share this with you so I can hopefully help you avoid a lot of the headaches and pain that I had to go through in this process. And for context, in the last three years, I've spent $18 million, or I've paid $18 million in taxes to the US government. And so, and happily done so, Uncle Sam. But what I wanna do is rather than talk

about the little itty-bitty hacks, I want to shift your perspective around them because as I looked into many, many, many of these things that are touted as tax strategies, most of the times they are just tiny little BBs that do not make a significant difference. And so if I can shift your perspective around this and get you to think the way the ultra-wealth you think about taxes, then I think that'll make a bigger difference in your life than anything else will. All right. So right off the bat, the first thing is where you live is going to make, you know, the biggest initial difference. And so first off in the US at a state level, where you live is going you can have a zero tax date versus California is a 15 or 16% tax date,

plus all the other taxes they tack on everything else you do. And so, you know, the first and obvious thing to do is you can live in a lower tax date. Now, the second level of this is what country you live in. And so if you are a U.S. resident, you suffer from global taxation, meaning it doesn't matter where you live, they're going to tax you. And so there's only two ways to get around federal tax. The first is to live in Puerto Rico, six months of the year, and export services from Puerto Rico. If that is you, you can do that.

It's a 4% federal tax rate. So you can have 0% state, 4% federal and live there. It's 100% legit. It is legal to do that. The other way to do it is to expatriate, meaning you stop becoming a U.S. resident. You renounce your citizenship as a U.S. citizen, and then you come back basically as an alien.

And the way that you would do that is you can become a citizen by investment. You spend a million dollars in investment into the U.S. And then you get basically a golden visa, which means you pay for it. And again, though, you have to be here less than, you know, six months of the year. Otherwise, you then become a U.S. tax resident again, even if you're not a U.S. citizen. And so the big conclusion here is in the beginning, you know, get out of the states that are, you know, the high tax states, move to a state that is lower tax. But what I want to do is shift your perspective around this overall, big picture, because if you look at how your wealth will compound, and again, this is why I said this is tax strategies of the ultra wealthy, the vast. majority of your net worth is going to come from growth, not the contributions. Okay. And so if you

plug your money into, or which you're, which your retirement calculator, you can Google one. They're all over the place. You'll be able to see that the vast majority of your net worth over time is going to come from the growth of the assets that are in it, not from the contributions. Okay. And it comes mostly from starting early. And so that is why I'm such a big pro-ponent of living on absolutely nothing for as long as human possible so that you can, so you can start using the compounding interest of time to your advantage. And for perspective for everyone who's listening to this, don't think right now I can only put $500 a month aside. It's not going to make a big difference. The thing is, is that $500 a month when you are 20 will make a bigger difference than $5,000 a month when you are 45. All right.

So think about that for perspective. All right, the dollars now count 10 times more than the dollars in 10 years and so forth. Okay. So that's number one. The second thing that the ultra-wealth do in terms of tax considerations is that they think differently about how they buy. So, for example, if I buy something that's worth $100 for $30, I instantly tripled my money except I didn't pay tax on that tripling, right? Because the value of what I purchased is worth three times more than what I paid for it. But the beauty of this is that I get that gain without having to pay taxes on it, and then it continues to grow and compound, again, without taxation. And so the vast majority of people understand this and they structure their life and their investments in that way,

which leads me to the third thing, which is how slash if you sell. So the only reason that the tax rate is going to matter to you is if you pay capital gains. And that means that you've chosen to sell. But there are a lot of strategies around buying and holding. You look at Warren Buffett. He's held Seas Candy for how, you know, 30 something years or 40 something years. Same thing with Coca-Cola, right? Same thing with GEICO. He continues to buy things and hold them because he realizes that the tax treatment is going to be so efficient if you buy correctly. And so the goal is to think from the perspective of not I'm going to buy it and try and flip this. I'm going to hold this for five years or this company looks good for this month is do I think that this thing is going to last for a very

long time? And if so, I will get disproportionate returns by buying safe and buying something that's going to be here in 30 years than trying to buy something sexy now. And so if you can understand that, then you buy things to hold them for the long term because the biggest shift in perspective the ultra wealthy have versus the not wealthy is that they think in longer time horizons. They think about generational wealth. They don't think about what I'm going to pay for this month, how I can buy a car or whatever, right? And so the fancy stuff that leads naturally the fancy stuff, which is like, well, if I'm buying all these things, how am I going to live my life later? Good question. Well, the cool thing about how the U.S. tax code works is that loans are never treated as income, but they are spendable money that you can consume and use. And so, for example, if I continue to plow all of my money into assets that earn while I sleep,

which is the definition of wealth that I gave you one of my other videos, if they continue to grow and they are growing tax-free, then the growth that is tax-free, I can realize by taking loans against those things. And I can use those loans to live my life. And as long as the loans that I am taking are less than the growth of my assets, then I can use all of that growth, continue to let it compound tax-free for the rest of my life and live off the loans in one idea they can rectify my account. Moza Nation, real quick, if you are a business owner that has a big old business and wants to get to a much bigger business, going to $50 million plus, we would love to talk to you.

And if you like that, we would like to hear more about it, go to acquisition.com. You can apply anywhere on the page and talk to one of our team and see if we can help you get there. And so these are the strategies of the people who are ultra wealthy. The things when they talk about conservation easements, which is basically you donate land and you get the full value of the land even though you didn't pay the full value. It's a BB, right? You're not going to be able to put your entire, you know, income against that. You know, captive insurance. I've got a friend of mine who was like, dude, do this thing with me. It's going to say, and for me it ended up saying it was going to save like $250,000 a year, which honestly doesn't make a big done for me. And it wasn't really worth the hassle.

So I was like, I don't know, it smells a little fishy. Guess what happened? The IRS ended up flipping their ruling on it, saw people taking advantage of it. And then they back charge people with interest and fees, right? And so the thing is is that the U.S. tax code is not fair. because the government can change the rules whenever they want. They can say, you know what, we change this rule this year and we're going to back text people three years. They can do that because they have complete control. There's nothing we can do about it. Right. And so I like to think about it just like I think about content on any kind of platform is that I just have to align within the rules that exist.

And long term, if I don't sell anything, I'm not going to get taxed on it. And so the idea long term is live for less than I, you know, for as low as I possibly can. If you like island living, then by all means go and live on an island if you, if you so choose. for me, I've chosen not to do the Puerto Rico thing because the difference in net worth for me makes no difference in my life. Because the difference between having $100 million and $180 million to me makes no difference. And so I got into this game because I wanted to have, use money to have freedom to do X, Y and Z, right? To live where I wanted to live, to do what I wanted to do it, right? And so if that is the goal of what the money is going to afford me, I can't put the money above the freedom.

And so if I have to remain prisoner of an island for six months of the year in order to get my, my increase, a better income tax rate, right? Then it seems like it's putting the cart before the horse for me. It's, it's, I'm relinquishing the original objective I had and making the path or the vehicle the objective rather than realizing that money in and of itself has no value. It only has value insofar as it allows me to do things that I want to do. And so if I'm not if I'm if I'm forgetting that, which many of us do because the game is so enticing, then I think that that is what makes that more reason when a lot of people end up rationalizing. I love island living. But I'll tell you what, the reason that they give you that 4% is because it's not that sick.

And so that is, so for me, I think the easy thing, me living in Texas versus California, the living lifestyle is the same for me, but I pay fewer taxes. Worth it. Makes sense to me. Living in Puerto Rico, I'm relinquishing a lot of freedoms there. And I have to be there six plus months of the year. And for me, that's very difficult with outages and basically no stores that are interesting and not a lot to do. I'm not going to give up half of my life, literally, so that I can get half more money on my net worth.

Because as much as people are like, well, that 40% is going to compound. Well, so is the other 60. And so, again, I think it makes sense if you are, if you are smaller and you were starting out and you're trying to develop your net worth. But I can tell you right now, the vast majority of your worth is going to come from the growth and none of that has to be taxed. And so if you play the game the right way, which is the way the ultra wealthy play, they're not trying to think about all these little hacks and codes that you see on the internet here. It's really about making sure that you understand the big rocks correctly, which is buy low, immediately get value on your money for buying for less than what something's worth.

When you sell it or don't sell it at all, you can continue to take loans against the increased value of the assets and you can live off those for this your life if you so choose. And so these are the tax strategies of the ultra wealthy from someone who actually is ultra wealthy. I hope you found value in this video. Click subscribe and I'll see you in the next video.