From: alexhormozi

When observing the Forbes list of wealthy individuals, a notable number of them reside in California, despite it being a high-tax state [00:00:00]. This phenomenon suggests a fundamental understanding of wealth creation that might not be immediately obvious [00:00:05]. This understanding, which has been deeply explored, is sometimes referred to as “wealth outlet” [00:00:09].

Tax-Efficient Wealth Growth

A key strategy for achieving financial success and wealth involves reinvesting income back into a business to grow personal net worth, rather than cashing it out and incurring high immediate taxes [00:00:31].

Consider a hypothetical scenario where someone lives in a high-tax state and faces a 50% tax rate [00:00:15]. If this individual earns 1.5 million after taxes [00:00:22].

However, if that 120 million to the business—this action directly increases one’s personal net worth by that 120 million added to the business and the 123 million, and only $1.5 million in tax is paid on the cash flow, the effective tax rate on the overall wealth could be as low as 1.5% [00:00:42].

Compounding Tax-Free Growth

A crucial aspect of this approach is that as long as wealth is continually built and not cashed out, the growth itself remains tax-free and benefits from compounding [00:00:54]. This understanding can fundamentally alter one’s approach to investing in personal and financial growth and building and maintaining wealth [00:01:01].