{"id":5212,"date":"2024-08-10T17:25:33","date_gmt":"2024-08-10T15:25:33","guid":{"rendered":"https:\/\/taxclimate.com\/?p=5212"},"modified":"2024-08-10T18:21:37","modified_gmt":"2024-08-10T16:21:37","slug":"buy-borrow-die-the-secret-to-wealth","status":"publish","type":"post","link":"https:\/\/taxclimate.com\/buy-borrow-die-the-secret-to-wealth\/","title":{"rendered":"“Buy, Borrow, Die”: The Secret for Avoiding Taxes"},"content":{"rendered":"\n

Ever wondered how billionaires like Jeff Bezos and Elon Musk manage to pay almost zero taxes while their wealth skyrockets? <\/p>\n\n\n\n

Spoiler alert<\/strong>: It’s not because they’ve got some magical accountant hiding their money in offshore accounts. It’s because they’re playing a different game altogether \u2013 one that’s perfectly legal and, frankly, brilliant.<\/p>\n\n\n\n

\"buy<\/a><\/figure>\n\n\n\n

Welcome to the world of “Buy, Borrow, Die” \u2013 the wealth-building strategy that’s been the secret sauce of the ultra-rich for decades. And guess what? You don’t need to be a billionaire to start using it.<\/p>\n\n\n\n

What is “Buy, Borrow, Die”?<\/h2>\n\n\n\n

Let’s break it down in simple terms:<\/p>\n\n\n\n

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  1. Buy<\/strong>: Acquire assets that appreciate in value over time. We’re talking stocks, real estate, and businesses \u2013 not that shiny new car that loses value the second you drive it off the lot.<\/li>\n\n\n\n
  2. Borrow<\/strong>: Instead of selling these assets (and triggering taxes), borrow against them. Use this borrowed money to fund your lifestyle or invest in more assets.<\/li>\n\n\n\n
  3. Die<\/strong>: Hold onto these assets until you kick the bucket. Thanks to a nifty little thing called “step-up basis,” your heirs can inherit your assets at their current market value, potentially avoiding a massive tax bill.<\/li>\n<\/ol>\n\n\n\n

    Now, I know what you’re thinking: “Joe, this sounds like some rich person’s game. How does this apply to me?”<\/p>\n\n\n\n

    Here’s the thing \u2013 understanding this strategy is crucial, even if you’re not flying private jets or buying islands. Why? Because it reveals how the financial system really works, and how you can start positioning yourself to build serious wealth over time.<\/p>\n\n\n\n

    Think about it. Every time you sell an appreciated asset, you’re potentially triggering a tax event.<\/strong> But what if you could grow your wealth without constantly paying taxes on your gains? That’s the power of “Buy, Borrow, Die.”<\/p>\n\n\n\n

    Let’s say you bought $10,000 worth of stocks five years ago, and now they’re worth $50,000. If you sell, you’re looking at capital gains tax<\/a> on that $40,000 profit. But if you borrow against those stocks instead, you can access cash without selling \u2013 and without triggering a taxable event.<\/p>\n\n\n\n

    Now, I’m not saying you should never sell assets or that this strategy is without risks (we’ll get into that later). But understanding this concept can completely change how you think about building and preserving wealth.<\/p>\n\n\n\n

    Step 1: Buy Assets That Appreciate<\/h2>\n\n\n\n
    \"Buy<\/a><\/figure>\n\n\n\n

    Alright, let’s talk about the foundation of this whole strategy: buying assets that go up in value. This isn’t about collecting Pokemon cards or hoarding beanie babies (unless you’ve got a time machine to the 90s). We’re talking about serious, wealth-building assets.<\/p>\n\n\n\n

    What Assets Do the Wealthy Focus On?<\/h3>\n\n\n\n
      \n
    1. Stocks<\/strong>: Not just any stocks, but typically broad market index funds or shares in solid, growing companies. Warren Buffett didn’t get rich by day trading meme stocks.<\/li>\n\n\n\n
    2. Real Estate<\/strong>: From rental properties to commercial real estate, land is a finite resource that tends to appreciate over time.<\/li>\n\n\n\n
    3. Businesses<\/strong>: Either starting their own or investing in others. A successful business can be a powerful wealth generator.<\/li>\n<\/ol>\n\n\n\n

      Now, I can already hear some of you saying, “But Joe, I’m not Scrooge McDuck swimming in money. How am I supposed to buy these assets?”<\/p>\n\n\n\n

      Here’s the secret: You start where you are.<\/strong><\/p>\n\n\n\n

      How to Start Building Your Asset Portfolio (Even If You’re Not Rolling in Dough)<\/h3>\n\n\n\n
        \n
      1. Invest in Index Funds<\/strong>: You can start with as little as $100 in some cases. Platforms like Vanguard or Fidelity offer low-cost index funds that give you exposure to a broad range of stocks.<\/li>\n\n\n\n
      2. Consider Real Estate Investment Trusts (REITs)<\/strong>: Can’t afford a whole building? No problem. REITs allow you to invest in real estate without needing to buy property directly.<\/li>\n\n\n\n
      3. Start a Side Business<\/strong>: Got a skill? Maybe it’s time to freelance or start that online business you’ve been dreaming about.<\/li>\n<\/ol>\n\n\n\n

        Remember, the goal here isn’t to get rich overnight. It’s to consistently acquire assets that have the potential to grow in value over time.<\/p>\n\n\n\n

        Why Appreciation is Key<\/h3>\n\n\n\n

        Here’s where the magic happens. When you buy assets that appreciate, your net worth can grow without you having to work harder or earn more income. It’s like having a little army of dollar bills working for you 24\/7.<\/p>\n\n\n\n

        Let’s say you invest $10,000 in a broad market index fund. If it grows at an average of 7% per year (which is conservative by historical standards), in 10 years, you’d have about $19,672 without adding another penny. That’s nearly doubling your money!<\/p>\n\n\n\n

        But here’s the kicker: You haven’t sold anything, so you haven’t triggered any taxable events. Your wealth is growing, but Uncle Sam isn’t taking a cut… yet.<\/p>\n\n\n\n

        This is why the ultra-wealthy are obsessed with acquiring appreciating assets. They know that over time, these assets can grow exponentially, creating massive wealth that can be passed down through generations.<\/p>\n\n\n\n

        We’ll talk about how to use these appreciating assets to fund your lifestyle without selling them and triggering a tax bomb. But for now, your homework is simple: Start identifying and acquiring assets that have the potential to appreciate. Whether it’s setting up an automatic investment into an index fund or researching potential rental properties in your area, take that first step.<\/p>\n\n\n\n

        Remember, building wealth isn’t about getting lucky with a hot stock tip or winning the lottery. It’s about making smart, consistent decisions over time. And it all starts with buying assets that appreciate.<\/p>\n\n\n\n

        Step 2: Borrow Against Your Assets<\/h2>\n\n\n\n
        \"Borrow<\/a><\/figure>\n\n\n\n

        Alright, you’ve started accumulating assets that appreciate. Good job! But now you’re probably wondering, “What’s the point of having all this wealth if I can’t use it?”<\/p>\n\n\n\n

        This is where things get interesting. Welcome to the “Borrow” part of our strategy.<\/p>\n\n\n\n

        The Power of Leveraging Assets<\/h3>\n\n\n\n

        Here’s a mind-bender for you: The ultra-wealthy often have a lot of wealth but little income. How do they fund their lavish lifestyles? They borrow against their assets.<\/strong><\/p>\n\n\n\n

        Let’s break down why this is so powerful:<\/p>\n\n\n\n

          \n
        1. You Don’t Trigger Taxes<\/strong>: When you sell an appreciated asset, you owe capital gains tax. But when you borrow against it? No taxes. It’s not income, it’s debt. And the IRS doesn’t tax debt.<\/li>\n\n\n\n
        2. Your Assets Keep Growing<\/strong>: While you’re using borrowed money, your original assets can continue to appreciate. It’s like having your cake and eating it too.<\/li>\n\n\n\n
        3. Interest Rates Are Often Low<\/strong>: Especially when you’re borrowing against stable assets like stocks or real estate, interest rates can be surprisingly low \u2013 often lower than the expected return on your assets.<\/li>\n<\/ol>\n\n\n\n

          How Borrowing Can Be Cheaper Than Selling<\/h3>\n\n\n\n

          Imagine you need $100,000 and you have a stock portfolio worth $1 million that’s grown significantly since you bought it. Let’s compare two options: selling stock vs. borrowing against your portfolio.<\/p>\n\n\n\n

          Aspect<\/strong><\/th>Option A: Sell $100,000 of Stock<\/strong><\/th>Option B: Borrow $100,000 Against Portfolio<\/strong><\/th><\/tr><\/thead>
          Taxes<\/strong><\/td>Long-term capital gains tax (e.g., 20%)<\/td>No immediate tax implications<\/td><\/tr>
          Portfolio Size<\/strong><\/td>Reduced to $900,000<\/td>Remains at $1 million<\/td><\/tr>
          Growth Potential<\/strong><\/td>Decreased due to smaller portfolio<\/td>Maintained with full portfolio<\/td><\/tr>
          Costs<\/strong><\/td>Tax on capital gains<\/td>Interest on loan (e.g., 3-5% annually)<\/td><\/tr>
          Tax Deductions<\/strong><\/td>None<\/td>Potential to deduct loan interest<\/td><\/tr>
          Portfolio Management<\/strong><\/td>May need rebalancing<\/td>No change in holdings<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

          Option A: Selling Stock<\/h3>\n\n\n\n