I often write on Quora.com, where I am the most viewed writer on financial matters, with over 438.2 million views in recent years.
In the answers below I focused on the following topics and issues:
- How do rich people pay for expensive items?
- Will I have to pay taxes if I’m a UK citizen but a digital nomad?
- If inflation increases on average 3% every year, every year after the first year it was done increases exponentially. What will happen when no one can even afford to work?
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Source for all answers – Adam Fayed’s Quora page.
How do rich people pay for expensive items?
The way of thinking is different.
Most people get a salary or income every month and think, “how much can my money buy me”. Most wealthy people (note wealthy and rich aren’t always the same), think “how much can my money earn me”.
So, the majority of wealthy people are either much more frugal than you think, or assets are used to create cashflow, which buys those luxury items.
This guy explains it well, even though he is biased towards property investment, which is just one way of doing it:
He gives this example for those who don’t want to watch the video. Let’s say you have 40,000GBP, or Euros or USD.
What can you buy for 40k? A car? Many great holidays? I am sure you could think of many other things you could buy with the 40k. They are all liabilities, though.
An alternative is to do this. Put your earned income into assets, which pay out cash flow. That cash flow, in turn, pays passive income, which can buy liabilities.
It just requires patience and delayed gratification. He give an example. You put 40k into a property downpayment (including the fees) or another asset.
You get a 120,000 GBP property in exchange for that property. You make 250 Pounds per month on that. You can leverage that loan into a lease or loan.
It can usually get you between 20,000 and 25,000 Pounds worth of assets. You can also lease a car which is decent for that 250 Pounds.
That way, you get to keep the car and investment.
The same principles can work with stock investing, or a business, just in a different way.
For every 100,000 invested in the markets, you can comfortably get 4,000-5,000 a year safely, with potential for capital growth, plus a loan against your assets.
Of course, it all depends on your circumstances. Some people don’t need the income, and there might be tax advantages of focusing on accumulation, depending on where you live.
Each tax jurisdiction/country has its tax advantageous ways to invest. The point is, that most people either don’t get wealthy or don’t stay wealthy.
The majority of wealthy people go broke eventually, hence old expressions like this, which have been around in China for hundreds of years:
It isn’t just the third generation either. Studies have shown that around 60%-70% of former elite athletes also go broke. So, it is about managing money, not just making loads of money.
Those who keep their wealth usually live below their means and use assets, cashflow and liabilities sensibly.
Or, put another way. You can’t have your cake and eat it. You can have an even bigger cake and eat it, if you are patient and delay your gratification.
Will I have to pay taxes if I’m a UK citizen but a digital nomad?
I am not a tax advisor but have sought advice from people who are to help clients.
It is complex and could change in the future. Firstly, if you have UK-sourced income like you have UK rental property, dividends and so forth, then you usually have to pay tax on that component.
That is regardless of how many days you spend in the UK annually. So, even if you spend 365 days a year in Cayman or Dubai, you have to pay taxes above a certain threshold (there is a dividend allowance) on UK property and other UK-sourced income.
If you have to pay taxes on your non-UK sourced income depends on whether you are deemed a UK tax residence.
The days of the “90 or 180-day” rules being the be-all and end-all have long gone.
Now HMRC looks at ties tests. The more ties you have to the UK, and the more days you spend in the UK, the more chances you are a UK-tax residence.
It is explained here:https://www.gov.uk/government/publications/rdr3-statutory-residence-test-srt/guidance-note-for-statutory-residence-test-srt-rdr3
I have copied the ties test below.
Days spent in the UK in the tax year under consideration UK ties needed
16 – 45 At least 4
46 – 90 At least 3
91 – 120 At least 2
Over 120 At least 1 needed
Table B: UK ties needed if you were UK resident in none of the 3 tax years before the tax year under consideration
Days spent in the UK in the tax year under consideration UK ties needed
46 – 90 All 4
91 – 120 At least 3
Over 120 At least 2
So, if you only spend 16-17 days in the UK and have 4 or more ties to the UK, you can be considered a UK tax resident.
A tie can be as simple as staying in the family home, rather than renting an Airbnb or staying in a hotel when you return to the UK for a holiday.
To simplify it, if you have a non-UK sourced income and don’t have too many ties to the UK, having read the ties test and don’t spend too many days in the UK per year to be safe, you should be fine.
Here is where there are some banana skins for digital nomads, though. If you “don’t have a home anywhere”, it is far more likely that the UK tax authorities will deem you a UK tax residence than if you have a home somewhere.
You can read that in the documents HMRC provide. With the rise of digital nomads globally, it is more likely that they will make this stricter and more precise, as now many nomads are in the grey zone.
The best way to avoid that grey zone is to get a proper visa overseas, rather than just moving around, which indicates that you have a home with property residence somewhere.
This will also make opening up investment and bank accounts easier, as you will have a tax identification number (TIN) or won’t need one if the country in question doesn’t have TINs for individuals like Cayman, UAE and some others.
Simple example. If you get a digital nomad, remote, business visa or golden visa in a 0% tax jurisdiction, and none of your income is sourced in the UK; then you can still travel knowing that your affairs are more clear.
That is much better than moving around from place to place with no clear home, and coming back to the UK for 60-90 days every year in the hope that that is enough not to be a UK tax resident.
That is why many people get a home somewhere, ideally in a no or low tax environment.
I would seek professional tax advice, including the country where you will be living.
If inflation increases on average 3% every year, every year after the first year it was done increases exponentially. What will happen when no one can even afford to work?
Well that would only happen if wages didn’t keep up.
Historically, wages increase with inflation. In fact, they usually outpace inflation, hence why we can buy more things over time.
There are periods of time when wages don’t keep pace with inflation though.
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Adam is an internationally recognised author on financial matters, with over 668.8 million answer views on Quora.com, a widely sold book on Amazon, and a contributor on Forbes.
