6 Secrets They Don’t Tell You About Building Wealth

Today we're going to talk about 6 secrets they don't tell you about building wealth. So they meaning the wealthy, because sometimes they might like to keep secrets, but we're going to give you some of those secrets. So my name is Eric Siu and I have a holding company called Leveling Up. It has a collection of different businesses in there and we are here to help level up the world. So the first secret is reinvesting. And this seems counterintuitive, but when you think about business where You might think, oh, okay, a business's goal is to make money. It's to drive a lot of profit. And what I would argue is the business is intended to help stakeholders. Stakeholders could be the team members. It could be people around the world. These are also stakeholders, right? It could be helping the environment as well. And so when you think about the context of a mission around business, when you evolve it beyond just making money, not only are you going to make more money because your mission's a lot bigger, the size of the pie is gonna get a lot bigger. So instead of thinking about profits all the time, thinking about enterprise value. And this is why you see the wealthiest people, they're continually reinvesting back into the business. And so for example, my friend Noah Kagan, he's got a company that does $100 million a year and they're driving the profits to zero. When you think about Jeff Bezos, when he first started Amazon, for the longest time they didn't have profits and everyone was laughing at them, right? And I always thought that intuitively it made sense. And so when I took over my agency, Single Grain, we continually plowed everything back into the company. And some years we try to go zero, we go negative, right? But the whole idea here is that you're creating jobs for the economy, okay? You're paying the payroll taxes, okay? You're paying your fair share. And on profits you pay, you gotta pay the government more too. But if you're constantly putting back into the business and enterprise value of the company is growing, which one would you rather have? Would you rather have a company that pays you Let's say $100,000 a year in profit, which is great. You can do that. The company's doing $1 million a year. But if you're continually taking all the profits out, then it's harder to grow the company. So the growth rate is going to be slower. Now what ends up happening is the growth rate's slower. Let's say 10 years goes by and maybe the company's doing, you know, $2, $3 million a year. Let's say $2 million in profit. Let's say it's an agency. You end up selling that agency for maybe a 3 to 4 times multiple, meaning Because agencies are service-type businesses, there's a multiple that's tied to a business when you're trying to sell it. So let's take the, the multiple of 4. So 4 times maybe the profit is $2 million is $8 million, which is a great exit, by the way. It's a lot of money. It's life-changing money. Or you can choose to eat poo-poo for longer. You can choose to kind of defer, delay gratification, defer the profits for a while. And what happens is— You can sell the company. Let's say you get the company to $5 million a year. At $5 million a year on an agency type business, we are now seeing multiples of maybe 10, 15, in some cases even 20x, which is super rare, but you can see that. So let's use 10 to be a little conservative. 5 times 10 is $50 million. That's in terms of exit. You have an exit value of 50x. So let's even say over the years you take that million dollars in profit, You decide to take it over a 10-year span. So that's $10 million. By the way, you get taxed. Okay, let's say you live in California, 50%, it's gone. So now instead of $10 million, it's $5 million. And then on the $8 million, when you sell your business, your capital gains taxes, let's just call it 15% or so. So $6.8 plus $5. Okay, so $11.8 million, which is a great outcome. But let's say you decide to take a salary for 10 years or so. So let's say you take $150,000 for 10 years. Okay, so that's $1.5 million. And let's say you get taxed. So that's $750K. Let's say you're in California. So $750K, and then you sell the company for $50 million, and then capital gains taxes on that. So 15% capital gains, right? It might be a little more. Someone can quote me in the comments here, but I'm just trying to do basic math here. So 50 times 0.85, that's $42.5 million plus the $750,000. That's $43.25 million. That's the game that people are playing, right? They're understanding what's going on when it comes to kind of the world of taxes and what's most advantageous, right? And I'll come back to taxes in a little bit, but reinvesting, okay, reinvesting is a great way. When you think about the best investors in the world, the Warren Buffetts of the world, Rule number one is to not lose any money. Rule number two is to look at rule number one. Well, one of the things there is to think about how you can continue to make sure that the pie—you're protecting the money as much as you can. So what you've been taught growing up, my parents taught me to save, save, save. But you look at inflation rates as of this recording right now, 5.3%, and if you put money into you know a savings account or a treasury, you're not really going to get much yield at all. So you have to think about how can you invest and get a better yield. In order to do that, you got to invest into things that are productive. For society. So that's number one. Number 2 is your mindset. And I used to think that this was a bunch of rah-rah stuff, mindset doesn't matter, but mindset's everything. Because if your mind— you don't get your mind right, that's gonna directly affect your actions, right? So a lot of times when people talk about, you know, taking care of their body, taking care of their health, that directly affects your mind state, which directly affects how you perform in real life, whether you're performing for your family, your friends, or your business in general. That stuff all matters. Okay, so you got to get your mind right. And in order to get your mind right, you got to get your body right. Okay, you got to get your health right in general. And so these are things I didn't pay attention to when I played a lot of World of Warcraft in college. Sleep is huge, right? I was not taking care of myself in terms of I wasn't going to the gym really. I wasn't eating healthy. I was eating like, you know, fast food at like 4 or 5 AM and then I go to sleep after. So it was really bad. And so again, those Those things start to compound on you, and you just got to continue to think about how you can work on yourself. Therapy helps too. Having a coach helps too. And all these things you might say, I don't have access to this right now. There's levels to this game, and you have to build yourself up to get there, right? Because keep in mind, it's not like I came from money. You know, with our portfolio of companies right now, we do a healthy eight figures a year, but and we're buying other businesses. But I it took time for me to level up to get there, and mindset was a big piece of it. And I'll tell you. You know, reading the right things, the information that I'm taking in, okay? Not doom scrolling all the time. If I'm watching YouTube, I'm gonna watch things that are productive, right? And that's not to say I won't mess around sometimes. Like sometimes I'll watch StarCraft replays when I'm eating lunch, right? So that's number 2. Number 3 is mentorship. We kind of talked about coaches for a second, but you know, I'm in different kind of modern-day guilds like EO or YPO. I'm in these 2 different groups and I also try to put together different entrepreneur groups or different like-minded people and just be able to hang out with these people. You know, that to me is kind of group therapy. It's kind of group mentorship. You know, I'm always looking to learn from people that are maybe 1 or 2 steps, 3 steps ahead of me and asking good questions, but also trying to provide value to them. So the question for you right now is who's 1 to 2 steps ahead of you? How can you get into their world and how can you add value for them? Number 4. So we talked about tax advantages. So, you know, in the United States, as of this recording at least, you can go to Puerto Rico, And you get 0% capital gains taxes, right? In the US, it's like 15%, 4% income tax. Again, if you're in the— if you're in California, or just if you're in US, I mean, your income taxes, depending on the bracket, could be going up to 35%, 37%, right? And in California, taxes 13%, and it might go up even more. So you got to think about, you know, do you have to be in the current state that you're in right now? Like, what other tax advantages can you get? Can you reinvest back into the company? That's an example of a tax advantage, right? You know, are there certain R&D credits that you can claim too? So there's a lot of things that, that are worth taking a look at. And the wealthy, they have tax attorneys that can help them with this stuff and they'll reach out to these people. And these tax attorneys aren't cheap. They might charge you, you know, $500 an hour, but you got to find these people too. At the end of the day, you're seeing a key thing here. If you're looking to build a business, people. You need mentorship, people. If you need to look for things that you don't know, people. Number five, we kind of talked about this a little bit, but saving is not going to get you anywhere. If you're going to put money into a savings account, I think you're getting like a point, I don't know, zero six yield or something like that. That's nothing. And so you're basically destroying wealth if you're doing that. So you got to be thinking about whatever your parents told you around saving. You got to reframe it into investing. What are you going to invest in? What assets are you going to invest in? If you look at Warren Buffett, he doesn't have all the stocks in the world, right? Rule one investing. There's a great book from an investor called Phil Town. You might have 10 investments, 20 investments. You don't need that many companies. You don't need a portfolio of 100 companies if you're investing in the stock market, or if you're investing into crypto, you don't need all the coins in the world. Do your research on the ones that matter. Do your research on the businesses that matter. Or if you have a business, go all in on that one before you try to diversify into a bunch of other ones. But I guarantee you that you're investing in yourself or you're putting in the research and you're investing in other businesses, you're gonna have a better yield than just doing what everyone else is doing. You got to look for an advantage. The more risk you put in, the more reward, but also keep in mind the more risk of ruin. You got to, you got to balance things out a little bit. And the wealthy, they know how to take risks. And also when they become really wealthy, they then know how to go into kind of wealth preservation mode. So there's wealth accumulation and there's wealth preservation. You got to think about those 2 levels and what stage you're in in your career right now. Are you learning right now or are you earning, right? You got to learn and then you can earn. Right? And they could compound the earnings over time. But a lot of people, I mean myself included early in my career, you know, live paycheck to paycheck. You got to constantly be thinking about how can you decrease your costs initially when you're starting out. And then as you build up, then you can start to afford the more expensive things. And it's all relative to what you're making, what percentage of expenses are tied to kind of what your income is. If you keep refining your brain into thinking about your offer, thinking about your marketing, that's also going to help a lot with wealth as well. And by the way, we talk about that. On this channel too, we talk a lot about marketing. We talk about business. We talk about wealth building. We talk about career stuff. Okay, so don't forget to hit the subscribe and the bell button if you enjoyed videos like this. Leave a comment below. Let me know what you think I might have missed in terms of you know secrets in terms of building wealth, and maybe I'll cover that in another video. So that is it for today, and we will catch you in the next video.