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John Hope Bryant (1:48)
Listen to the American west with Dan Flores on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts. Welcome to Money and Wealth with John Hope Bryant, a production of the Black Effect podcast network and iHeartRadio. Yo, yo. This is John Hope Bryant and this is another exciting episode, at least I think it's exciting. Of Money and Wealth. Money and wealth is the one of the top 100 business podcasts in the country. Top 40 on entrepreneurship. Tell all your friends about it. This is John o' Brien and I'm about to break some eggs. I'm going to tell you how the wealthy do it. And I'm not some guy selling books and tapes. Whatever. I don't mind people doing that. There are a lot of great teachers doing that. This is this. I'm a practitioner. I'm somebody who've done who's Done it, I'm doing it. I have 400 employees right now. My payroll is a million and a half dollars every couple weeks. You know, we have $100 million of annual activity in our various enterprises. Invested $4.5 billion, $4.8 billion through the various enterprises in the communities and individuals and homes and small businesses, et cetera. About 300 million in private enterprises. So I'm talking from experience, right? Had some successes, had some failures. I was homeless. My credit score was at one time three to 400. When in Compton. Grew up in Compton in South Central la. From the bottom quartile. The bottom. The worst zip code. Not worst, the one of the poorest zip codes in America, certainly in the West Coast. Confident, South Central to, you know, the 0.01% or above the 1% group on income and wealth in one generation did it legally, right? So the first thing is you hear people saying, I hate rich people. No, you don't. You hate rich people until you become rich. What you hate is a gamed system. You hate a system that no matter how hard you work, that you feel you just can't get ahead. You feel like you just can't succeed, like you've got too much month at the end of your money and you feel the system is rigged against you. And in many ways it might be, and in some ways it is. And then there's bad capitalism, right? There's bad capitalism is where I benefit and you pay a price for it. And good capitalism is where I benefit and you benefit more. I try to practice good capitalism and capitalism and democracy are horrible systems, except for every other system. I've been to 100 countries around the world, so about little under half of all countries in the world. And I've seen a lot. And I can't think of a better system with regard to being able to go from the bottom to the top than ours. It can be better, it can be improved. There's a reason why everybody in the dang on world wants to get to the United States of America. Even with our current challenges and problems, even with the politics of division, even. Well, by the way, it's been worse. You had slavery in this country, you had Jim Crow in this country, you had black like legal racism in this country, you had assassinations in this country, like, be hopeful, the sun will come up tomorrow. Everything's going to be okay. Now let's get into this episode. By the way, thanks to everybody who participated in green socks day, April 30, the last day of financial literacy month. Walmart, thank you very much for making the socks at no cost to Operation Hope and Financial Literacy for All Initiative. It was co sponsored by Financial Literacy for All Initiative, which I co chair with the CEO of Walmart, Doug McMillan and Operation Hope. I'm the founder of Operation Hope and it involved all the sports franchises. So thank you. Roger Goodell, NFL. Thank you. Adam Silver of the NBA. Thank you for the commissioners of the Major League Baseball, Major League Soccer, nascar, Hockey. Miss anybody out going from memory. So all the sports franchises did it. Organizations, thank you so much. You didn't have to do it. First time, I think they've ever collaborated on something like this in a public effort. It was the first time we ever had they were on one stage together in a public way when they came to our forum, December 2024. If you've never seen that, go back and watch it. It's online. You see it on YouTube. Pretty amazing. And then we had a bunch of corporations and companies and housewives and folks from the streets to the suites from urban America. Rural America is really quite beautiful. The color for a moment, black or white as in race, arguing over that. Or red or blue as in, as in politics, but green, the color green, which is at the root of everything. I keep saying, your day is not about God or love. Your day is about money. So let's learn about money. And this segment is about teaching you how the wealthy use their money, right? And I don't just want you to get rich, I want you to build wealth. And how did I build wealth? How do I continue to build wealth, by the way? Because this is an ongoing process. I'm in the arena of capitalism every day, right. And I think the best is yet to come. My biggest endeavors, I think in the offing you'll hear a few of them that gets announced here soon. I mean, I've done some big stuff, but I think the biggest is coming. So I'm still learning. But I'm, to quote my friend Quincy Jones, I'm just nosy as hell. I've got two ears and one mouth, so I listen twice as much as I talk, right? I'm just nosy as hell. I want to know everything about everything and I want you nosy. And I don't want you resentful of people who are successful. I want you to learn how to go get some yourself. This is the James Brown version of affirmative action. Open the door. I get it my dang self. So let's get into this. So this episode is learn from the wealthy how they Spend how they borrow, how they, how they pay, and don't pay taxes. And no, this is not some tax avoidance scheme. I'm going to break it all down for you. As I keep saying, I like math because it doesn't have an opinion. That is a quote from my friend Melody Hobson that I try to give her credit for all the time, even though I've taken ownership of this dangle thing because it's so much of what I believe. Okay, get your pen and pencil out, or your iPad or your iPhone or your notes app or whatever. If you're running, you may need to stop and take some notes or you may want to come back with your girlfriends or your guy friends and get in the huddle. And really, this is an episode you may want to replay back and have a conversation about because I'm going to really unpack a number of topics I'm trying to top. I'm going to try to tackle three big areas at the same time in one episode that I think are major areas of major and misunderstanding about the wealthy, not just the rich. The wealthy you make rich as a contract. So you make so rich you can make money on a contract, as I keep saying, $30,300, $3,000, 30,000, $3 million. You can still lose it, okay, because it's a contract, it's income, right? And if your outflow exceeds your inflow, then your overhead will be your downfall. If a contract stops, then your expenses continue and you've not built wealth that will allow the income to sustain your way of life. You can still go broke, which is why you hear about, you know, professional, professional sports players with a hundred million dollar contract, you know, into working at Starbucks or something in eight years because they thought it was going to last forever and just spent, spent, spend, spent, spent. Okay? So you make money during the day, you build wealth in your sleep. And my brother, Tony Ressler told me this one day and it just really blew my mind. This was, I don't know, six years ago. I really thought I knew something until I didn't realize I didn't. And Tony's one of the most successful business owners in the business leaders in the country and a good friend of mine and has been a partner in a couple of my initiatives and ventures. I also want to give some credit to Michael Araghetti, who is also an early partner in my promise Homes company. Okay, let's start this. We're going to pull back the curtains on how the wealthy really live, talk about how they finance their lifestyles. How we finance our lifestyles. I guess I'm now part of this group. Then I'm going to talk about how they can lose it all. Okay, the wealthy. I'm also talking about how to navigate taxes and I'm also going to talk about unique financing tools that the wealthy use. Okay, concept number one, wealthy people borrow against assets. They don't just spend cash. This is, I mean this is so important. The power of margin accounts and security based lines of credit is something I'm going to break down for you. So I'm going to come back to that. If I give you sort of this framework. Borrowing at low interest rates against stock portfolios or real estate, using leverage to keep assets growing while still accessing cash. All this is part of the same conversation. Rich people don't sell stock, they borrow against it. This is really important. While this delays or avoids capital gains is a mystery to most people. Or how this avoids capital gains and just taxation is a mystery to most people. I'm going to unpack that for you. I'm going to relate this to Elon Musk. I'm not picking on Elon Musk. I think he's a genius, actually. I use a Starlink technology. But I'm going to explain why and how he did some of the stuff he did. Not just him, but I think he's the most notable example because he doesn't earn an income. Best based, I can, best I can tell, okay, wealthy homeowners take out HELOCs instead of refinancing or selling home equity lines of credit. Philosophical point that's important to note here. The poor sell time, the middle class sell labor. The wealthy sell or borrow against assets. And by the way, just going back to the Elon Musk thing for a minute, this is a trait that I want you to pick up in your life, which is I want you to not be emotional about decision making. Emotions have incredible value. In fact, I think that if you're, if you don't have EQ emotional intelligence and you just have IQ intellectual intelligence, then you're at a loss. I mean, you're a human doing. You're not a human being. We're not human beings having spiritual experience. We're spiritual beings having a human experience. So energy matters. And so you can have a lot of brilliant people who have a blind spot called people. Some finance brilliant people have this issue and some tech brilliant people have this issue where they just have a blind spot called people and they're just not complete leaders even though they think they're Smart in one area, it can make them smart in others. A great leader who's well rounded. Okay? And that's what I want you to be. You have a multipl, multiplicity of skills. You have IQ and EQ intellectual intelligence and you have emotional intelligence, right? Which includes empathy and caring for people, in my opinion. Treat others as you want to be treated when something happens. Capitalism is a gladiator sport, right? I don't want you getting locked up and all getting your emotions all wrapped up because somebody in business took a jab at you or somebody in business took an advantage over you. That's in the broader context, it's just business. And when you. I've explained that often capitalism is a negotiating table, right? On one side of the table is the seller and the other side of the table is the buyer of a product. And the seller's job is to to extract as much from you in price and deliver, I guess as little as you in resources in that product so they can make the maximum profit. Your job on the excited act table is to give the least in price and to extract as much in value. And every negotiating table is a good negotiation. Everybody leaves slightly annoyed. I said that in a previous podcast. You can't say that enough. So you're going to have disagreements in business. You're going to have people who are gladiators at the highest level who are going to take swipes each other from time to time. I try not to make that my business. My business is business. I try to stay focused and you know, I'm just not one ounce of my self esteem depends on somebody else's acceptance of me or not or not. So I but I do recognize that other people see a win lose situation, not a win win situation. I want you to be win win oriented and you treat people lovingly and with respect because that's how you're built, not because how anybody else rolls, right? So don't be emotional in business. So the wealthy again, think differently. This is a very powerful point. The poor sell time, the middle class sell labor, the wealthy sell or borrow against assets. Okay, so let's dig into this a little bit. This is so powerful. Okay, let's talk about. In order to understand what I'm talking about, we got to unpack a couple of the vehicles. The biggest one I want to talk about are margin accounts and securities based lines of credit. So these are major vehicles for the wealthy. They use them smartly to build wealth, to reduce taxation taxes and maintain liquidity, availability or access to cash without selling Their investments. Right. I use these vehicles, by the way. So the definition, let's start there. Because people throw these terms around and nobody actually ever tells you what this stuff means. A margin account lets you borrow money from your brokerage firm using your existing investment, investment or investments as collateral. Okay, I want you to think about a stock account, etf' bonds, et cetera. It's often used by more securities, publicly traded investment grade products, and is used primarily to leverage your portfolio to grow it. And that's different from a securities based line of credit? Slightly. I'll explain that. So how does this work? So let's say you deposit, I'm going to say a million dollars. But you can, by the way, you can put $100,000 in it, you can do $50,000 in it. I guess there may be some minimums, but theoretically you could have a $25,000 margin account. But let me make this easy. It's a million dollar in stock that you have in this hypothetical example. Because in this example you're wealthy, your brokerage firm might let you borrow, let's say 50% of that. Okay. It depends on the kinds of stock. If these are perceived to be riskier stocks, maybe they're technology stocks, then the brokerage might say, we only want to give you 50% on the value. If these are stocks that are considered blue chip, as they say, you know, the best of the best, what they call the flight to quality. And I'll start naming names, but like, you know, the companies that you, it would be obvious to you then they might let you borrow beyond 50%, sometimes as much as 70%. Okay, I don't think you should be borrowing 70% of the value of the stocks. I'll explain in a minute. I'll explain why in a minute. That borrowed money now can be used to buy more stock or for other purposes. This is America you can use. No one can tell you what. Well, if there are restrictions, they can tell you what to use it for. But in this example, the margin accounts that I'm aware of, they would not attempt to restrict your movements as long as it's legal. So now you have a million dollars worth of stock you now borrow. You have a margin account of $500,000 in this example. Do not use all $500,000, please. But you could theoretically borrow up to $500,000 in this example to buy more stock. Now you're going to pay interest on the money you borrowed. Now let's say your name is Joanne here. You've become the bank of Joanne. John, the bank of John. So you're not borrowing from a bank or financial institution or whatever. You're borrowing from yourself. These are your assets, right? But you must pay for the person, the institution, extending the credit to you against your assets. You must pay an interest rate and margin. Interest rates Vary, you know, 7 to 12% on average. I pay a little less than that. The more of a preferred customer you are, the less you pay. But 7 to 12%, and it might actually be lower for this next product. I'm going to tell you. But just one step at a time.