Why Black Wealth Matters in White America 3

…and what blacks must learn to survive this new economy

By Solomon Ali, Private Equity Investor

We Now Know That Aesthetics Do Not Equal Wealth. How is Wealth Really Defined?

The longer you can go without working and still have the ability to meet your financial obligations and retain your current lifestyle, the wealthier you are. Could you go one month, three months, six months, a year, without working? Or do you need that next paycheck to make ends meet and keep your creditors at bay? The wealthy always save and invest aportion of their income, because they know that money equals freedom. Money also equals the ability to make more money. This is when your money starts to work for you, rather than the other way around. Wealthy and Poor People Focus Their Attention on Different Types of MoneyThere are 3 types of money. Earned money is the result of performing a job (you are exchanging your time, labor and energy for money), portfolio money is the result of money generated from income already earned that is now gaining value from individual stocks or bonds, or a diversified investment portfolio. Passive money is income that is earned from realestate, intellectual property/royalties, or multi-level marketing businesses with a workforce actively selling underneath you. With the last two types of income, portfolio income and passive income, you are essentially getting paid over and over for work that has already been done, or income that has already been earned. You have income-producing assets. Our people need more of the second and third types of money. “Work and Spend” is a paradigm that is no longer sustainable for us. First, you only get compensated when you work, and there are a fixed number of hours in the day and a fixed amount of energy you can output to perform that work. That means there is a cap on how much money you can make through earned income. We exchange our energy for money. You only have so much energy. Earned W2 income through an employer is also heavily taxed. Your salary or wages are taxed by the federal government, your state’s government (with a handful of exceptions) and social security. When all is said and done, you are lucky if you hold onto 50% to 60% of the money you have worked for. Then, if you overspend what you do bring home in a misguided effort to obtain the aesthetics of the wealthy, you are forfeiting any real power and keeping yourself on a hamster wheel. This disparity in how money is seen and utilized is why poor and middle-class individuals attempt to get rich by working more and working harder. Wealthy individuals on the other hand focus on the other two types of money: portfolio money and passive income money. These forms of income are not dependent upon the number of hours in a day or your personal energy output, so they grow indefinitely, and are taxed less. According to Forbes, The current long-term capital gains tax rate ranges from 0% – 20%. Short-term capital gains tax is higher, though short-term investment losses can be deducted from your total tax liability for the year, offsetting and any gains you earn. Point being, a person who is solely dependent upon a W2 salaried income who makes at least $50,000 per year is in the 22% tax bracket, higher than a wealthy person’s capital gains income tax bracket. If you earn $100,000 in exchange for your work, you find yourself in the 25% tax bracket. You are earning less than the wealthy and paying more of a percentage of your income to Uncle Sam.