From: alexhormozi
The presence of numerous wealthy individuals in California, despite its high taxes, prompted an inquiry into a deeper understanding of wealth creation among the affluent [00:00:00]. This insight led to a concept referred to as “wealth out” [00:00:13].
The Concept of “Wealth Out”
The conventional view might involve significant taxation on income. For example, if someone lives in a high-tax state and is subject to a 50% tax rate, a 1.5 million taken home after taxes [00:00:17].
However, a different approach shifts the focus from taxable income to increasing one’s personal net worth through business reinvestment. If $120 million is added back into the business, this expenditure can increase personal net worth by that same amount [00:00:31].
Minimizing Tax on Growth: An Example
Consider a scenario where an individual has accumulated 3 million in cash flow. If they only pay 123 million (the sum of growth and cash flow), their effective tax rate becomes approximately 1.5% [00:00:42]. This illustrates a strategy where a substantial portion of wealth appreciation is not immediately subject to high income tax rates.
The Power of Compounding and Not Cashing Out
A crucial aspect of this strategy is that as long as the wealth continues to be built and is not cashed out, the growth itself remains tax-free and benefits from compounding [00:00:54]. This realization can fundamentally alter an individual’s financial mindset and approach to wealth management [00:01:01].