Follow me:
Search
Listen on:

Mindset & Money | 3 Things Wealthy People Do

Play episode
Hosted by
Mike Ayala

On this episode of Investing for Freedom, Mike talks about three things wealthy people do to keep getting wealthier. Mike goes into detail about how the wealthy leverage debt, leverage time and take advantage of tax laws.

“The middle-class is literally being wiped out as we speak. Today, we’re going to get into three things that all wealthy people do that help separate them from the middle-class and the poor.”

HIGHLIGHTS:

0:00 – Intro
0:59 – There are three things wealthy people do that the average person doesn’t: leverage time, leverage debt, and take advantage of tax law
1:18 – All wealthy people use other people’s time
1:47 – Everyone has the same amount of time and the wealthy people work the same amount as you
2:21 – How many years would it take you to afford a rental property and pay cash for it?
2:43 – The wealthy use debt to their advantage
3:07 – The tenant is actually paying your interest rate
3:31 – Whether you leverage a home or pay cash, you get the same tax benefit
4:21 – People are scared of audits and the IRS, but in reality, the IRS is filled with incentives
5:10 – Mike explains depreciation using a truck as an example
6:23 – The government has incentivized us to invest

FULL TRANSCRIPTION:

Thank you for joining me on the Investing for Freedom podcast. Today, we’re going to talk about an extremely important issue that I see happening. The gap between the wealthy and the poor is as big as it’s ever been. And the gaps widening as fast as I think we’ve ever seen it in the history of mankind. The middle-class is literally being wiped out as we speak. Today, we’re going to get into three things that all wealthy people do that help separate them from the middle-class and the poor.

So, there’s three things that all wealthy people do that the average person doesn’t. Number one is leverage other people’s time. Number two is leverage debt, use debt to your advantage. And number three, take advantage of the tax laws that are built-in for us. Stay tuned to the end as we break down each one of these, because it’s going to be a huge value.

So, all wealthy people use other people’s time and just think about it. How many W2 employees are out there that work for business owners and think about this. So, somebody gets paid $25 an hour, and then what? We sell their time for $50 an hour, that’s literally leveraging someone’s time. All the wealthy people do that in one way, shape or form. It could be through hiring an attorney. It could be through hiring tax consultants. It could be through hiring employees. That’s the only way that you’re going to get ahead without being able to just charge more for your own time. Think about this.

Everybody has the same amount of time in a day as everyone else. The most successful people in the world, they don’t do any more work than you do. They don’t necessarily work 120 hours a week. They’re working probably 30, 40, 50 hours a week just like you. What they do is they leverage other people’s time. We can only make so much money per hour on our own time. So, what you have to do is expand and leverage other people’s time and utilize that to create more income. Does that make sense? You’ll never get ahead by just selling your own time for money. That’s the whole point I want to drive home. And by the way, if you’re getting value out of this, make sure you hit the like button.

So, number two, leveraging debt. Think about this. How many years would it take you to be able to afford a rental property if you paid cash for it? The average rental price pretty right now in the United States probably costs around $220,000. How many years would it take you saving 10% of your income, earning $60,000 a year to be able to pay cash for that property? It’s not a reality. And so, what people do that are wealthy, they use debt to their advantage. So, you could go buy that same $220,000 property with 10% down. So basically, you put $22,000 down. You could buy the same amount of properties in 10 years using leverage that one person could buy in probably a lifetime by trying to save that $220,000.

Here’s the other thing about debt. The tenant is actually paying your interest rate. So a lot of people are scared of debt, but the thing that we’ve got to be careful of is just making sure that our payment is never going to be higher than what we can afford if we don’t have a tenant renting that property, almost all wealthy people invest in real estate in one way, shape or form, and all of them I guarantee you use leverage. Here’s another interesting thing and we are going to get into taxes, as I said. But the nice thing about the tax benefits without going too far into that, whether you leverage a home and you put, you know, $200,000 of debt on it, or you pay cash, you get the same tax benefits.

So, here’s the cool thing. If you put $22,000 of your own cash into a $220,000 rental, you’re going to get a tax deduction of about $10,000, depending on how that all works. You need to see your CPA, cause I’m not a tax advisor, but you’re going to get the same tax benefit that you would if you had paid cash for that property. That’s the secret that a lot of people don’t realize and understand. So many people are scared of debt. And by the way, when it comes to consumer debt, we’ve talked about this before. In previous episodes, I talked about credit cards and bad consumer debt, bad debt versus good debt. Go check that video out if you haven’t seen it yet. But the thing about debt, if you use debt to your advantage, you can scale so much quicker than you’d ever be able to pay in cash. Does that make sense? I hope it does.

So, the last part, taxes. So many people are scared of the IRS and tax audits and mostly CPAs and accountants tax advisors, H & R Block. Most of them are scared to get into an audit. They don’t want to spend the time fighting with the IRS around an audit, but here’s the thing, the best tax accountants in the world, including one of my mentors, Tom Wheelwright, they talk about how the IRS is a set of incentives that the government has written to incentivize business owners, real estate investors, people all over to do what the government wants. What does the government want? They want us buying new trucks. They want us investing in rental properties. They want us investing in commercial buildings. That’s why the tax code is so lenient and forgiving toward real estate investors and business owners.

If you think about this, there’s a thing called depreciation. And so, we’ll keep it simple. When it comes to like trucks and equipment, you can write off your truck that you bought for a plumbing company, let’s say, or even if you’ve got a landscaping company, whatever, you can write that truck off generally over seven years, there’s ways to actually accelerate that. But you could write that truck off over seven years. And so, let’s just say it’s a $70,000 truck. Every year, you get a $10,000. I’m not going to say tax credit, but just for ease of conversation, let’s call it a tax credit. It’s not really a tax credit. It’s a depreciation credit. And what the government’s thinking, this is why they incentivize with depreciation. They’re thinking that if they give you $10,000 of tax back and you put that into a depreciation account, then seven years later, you would be able to buy that same vehicle in cash. That’s the purpose behind it. But we, as businesses, owners can utilize that to decrease our taxable income, make more money, pay less in taxes.

It’s kind of funny because in the previous election, everybody was talking about Warren Buffet and how he said his secretary pays more in taxes than he does. And that might be true from a percentage basis, but I guarantee you dollar for dollar, his secretary didn’t pay more in taxes. And then you talk about Donald Trump, right? Everybody’s up in arms about hey, he doesn’t pay anything in taxes. Well, he made a joke in the last election cycle where he said, it’s because he’s smart. Well, the thing is, that’s the government’s incentive. It’s not breaking the law. It’s not finding a loophole. It’s none of that. The government has actually incentivized us. Congress has incentivized us to take advantage of the tax law and they want us reinvesting in jobs, real estate, providing housing, buying more vehicles that stimulates the economy and all in all, those are the reasons why the wealthy keeps getting wealthier and the poorer getting poor.

More from this show

Subscribe

Episode 87