I already know that billionaires do not in fact have billions of dollars lying around, rather the money is assets in business, but how come they don’t get all the money when they rack it all up? And what can they do with this “asset” money if they don’t technically have it?
In: 0
In order to convert their assets to cash the assets must be sold, which triggers a significant tax bill. What they often do instead is borrow against their assets since loans aren’t taxable. So if a billionaire needs a lot of cash they get a loan then repay the loan out of the interest/investment income generated by the assets they used as collateral on the loan.
They have the money when they sell the asset. Also, they can leverage against it. If you tell a bank that you have a million dollars in assets, they will give you money so you can get $2 million in assets. And so on. You can do things like lie to banks and inflate your assets so they will lend you more money than they normally would have, and also lie to the IRS and deflate your assets to avoid taxes. There are all sorts of ways you can have money, even if this is not liquid.
The vast majority of billionaires’ wealth is not in cash, but in assets such as stocks, bonds, real estate, and businesses. While they may have some cash on hand, it is a small percentage of their overall wealth.
What they can do with this asset money is use it to generate more wealth. For example, they can use it to buy more shares of stock, which will increase in value over time. They can also use it to invest in new businesses, which can create more jobs and generate more tax revenue.
Being an billionaire doesn’t mean that you have billions of dollars in actual cash.
It just means that, if you add up the value of all your assets, you’ll have a sum of at least one billion.
So, for example, someone like Jeff Bezos doesn’t have however many billions lying in his bank account. He may have a few million?
The rest of his worth is tied up in stuff like his homes, yachts, cars, stock holdings, patents, and whatever else he may have that’s worth money.
As for what they can do with their assets, they can sell them or borrow with them as collateral. Just like how you can take a loan with your car as collateral, Bezos could take out a loan with equivalent stock holdings as collateral.
That’s actually how Elon Musk is going about paying for Twitter – taking a loan (or several loans) with some of his assets acting as collateral.
Latest Answers