Job vs Business - Money Making Machine & Financial Planning of Rich - YouTube

Friends, we all know who is Donald Trump

He is the president of the USA and also a real estate billionaire

That means he has a huge real estate business

But there was news that Donald Trump paid almost 0 tax in the last 10-15 years, i.e Negligible tax

However, there was also a news that Donald Trump claimed hair styling expenses worth $70,000

Some people also call it illegal but we'll not go into that

But how does a billionaire or millionaire pays almost 0 tax

We'll try to understand this in this video

And is it a secret of these millionaires or billionaires to make a money-making machine

And here, the meaning of money-making machine is not in a negative sense

Everything is legal and it is a huge advantage of entrepreneurship

So how do these millionaires and billionaires save so much tax and multiply that money

We'll see how they make a money-making machine, in this video

Namashkar, my name is Mukul and you're watching Asset Yogi

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Friends, we're not going to limit ourselves till tax, we're going to understand the whole money management

That how a businessman manages his money

Or what is the support from the system or the government to create wealth

V/s if anyone is doing a job and is a salaried class

Then how he manages his money

Or how the system does not support him much to create wealth

After watching this video, you might get another reason for seeking entrepreneurship or business in your life.

To understand the content of this video, we need to understand basic accounting

And many people get scared after hearing about accounting

I'll make sure to present it in the simplest way possible

Believe me, a kid studying in an 8th-9th standard can understand this

Firstly, let's talk about job

If anyone is in salaried class, then what is the income, how are the expenses

And how much is he able to save at the end of the month

If the income of an individual is Rs.24 lakhs

I took the higher income bracket to take an example of 30% tax bracket

So that we can see sufficient savings

You can do the calculations for yourself too

If the income of an individual is Rs.24 lakhs and let's assume the payable tax is on an average 25%

However, there are different tax slabs

According to the new tax slabs, 30% tax is applicable on income above Rs. 15 lakhs

Below that, there are different tax slabs

So to simplify the calculations, let's assume that tax applicable is on an average 25%

So he paid Rs.6 lakhs tax

Now the net income left is Rs. 18 lakhs

Now, he'll start spending the expenses and remember that the tax is already paid

Let's say the annual expenses are Rs.10 lakhs

Out of this, he's able to save Rs. 8 lakhs

Now let's understand the accounting of the business side

Let's say there is a professional, I am taking an example of a professional

Because it will be easier to compare

You can calculate the same for any business or Pvt. Ltd. Company

And when it comes to Private Limited or Public Limited companies, then all these calculations are in crores

But let's take an example of a professional or a freelancer

Many doctors, CA's, Architects work as a consultant, i.e Freelancers

So their accounting treatment is just like business and they get the benefit

So how will be the accounting?

Firstly, all the business expenses will be subtracted

What's happening in the job?

Income received and the tax deducted on it

But here, they will first subtract their business expenses from their income

And let's assume that if the total expenses are worth Rs.10 lakhs then let's assume that

The business expenses are Rs.5 lakhs and the professional expenses are Rs.5 lakhs

And what can be these business expenses?

Let's say he pays rent,

If he travels, then he can claim his fuel or flight expenses

And remember that these should be business expenses

You cannot claim your personal expenses in the name of business expenses

So let's assume that all the expenses like electricity bills, internet bills are Rs.5 lakhs in a year

Out of Rs.24 lakhs, if Rs.5 lakhs are deducted, then the operating profit is Rs.19 lakhs

After that, he can claim depreciation. What is depreciation?

Let's say he purchased a car, then he can claim its depreciation

If that car is being depreciated in 5 years, then 20% of its value can be deducted from the operating profit

So let's say that the total depreciation is Rs.5 lakhs

And he can depreciate any of his equipment

If he buys a laptop for work, then he can depreciate that as well

If a doctor buys a machine for the clinic, he can depreciate that

If anyone bought a commercial property for work, then he can depreciate that as well

In our example, let's assume that he claims Rs.5 lakhs depreciation in a year

After that, the interest is also deducted

Let's say he bought a commercial property, then the interest will also get deducted

If he bought a car on EMI, then its interest will also be deducted

Equipments, plant and machinery, whatever he bought on EMI, its interest will get deducted

Let's assume this interest is Rs.5 lakhs

Now, what is the profit before taxes?

19 - 10 = Rs. 9 lakhs

Now how will be the tax applied?

Firstly, the tax bracket is already reduced

So according to the new tax slab, a maximum of 15% tax slab is applicable below Rs.10 lakhs

If we take the average, however, I am taking 10% on the higher side and it should be less than that

But still, let's consider 10 %

So how much is the 10% of Rs.9 lakhs, only Rs.90,000

How much tax he was paying? Rs. 6 lakhs

So the net profit becomes Rs. 8,10,000

But now you'll say that this is not the total money saved, the expenses are yet to subtract

Definitely, here we considered Rs.10 lakhs as expenses

Here I considered that the business expenses were Rs.5 lakhs which he already claimed

But there will also be some personal expenses

So let's subtract Rs.5 lakhs personal expenses

But focus here, this depreciation didn't go anywhere from his pocket

That was only depreciated in the accounting

It's just an accounting entry

Cash is not actually deducted from his pocket

So if we want to find out the total cash in his pocket, then we need to add this depreciation

So let me add Rs.5 lakhs again, so these 5 and 5 are cancelled

So still, the cash available is Rs.8,10,000

Now you would say that what is the difference?

Cash available is only Rs.8,10,000 but here also, the savings are Rs. 8,00,000

But, we didnt subtracted some expenses yet

Let's say that this job person also bought a car or any property, then he has to pay its interest also

If we took interest paid by him Rs.5 lakhs, then we should take this also Rs.5 lakhs

Now focus, these Rs.5 lakhs are subtracted from his savings

And in this case, he didnt paid the tax yet but the interest is already deducted

Here, when the interest is subtracted after savings, then how much cash is left with him?

Only Rs.3 lakhs

And I just took an example, it may depend on the situation to situation

These calculations can vary too much depending upon the situation to situation

But broadly understand that

If someone is into a business, works as a freelancer, or as a consultant

Then he shows his expenses first and after that, the taxes are applied

So tax will always be less payable in that case

So he has many flexibilities to do a better tax planning

So this was one part where we saw an accounting difference

And how the system is helping a businessman

Now let's see the second part

That how there is a difference in money management between a job person and a business person

Firstly, the cash available with the job person is Rs.3 lakhs which is already less

So what generally people do is, buy an expensive house

Maybe their upbringing is like that only

They think of buying an expensive car, travel

However, everyone does travelling

But the businessman has the flexibility to claim the expenses of business travels and it will be declared as expenses

And if we talk about the job person, if he thinks of starting a business and if he travels for it

Then he cannot claim those travel expenses separately because business is not started yet

So those expenses are going from the savings only whether he travels for business or for vacation

After that, he invests the rest of his savings in savings schemes

Generally, in FD or post office schemes

Tax is payable on all these schemes also

And after the tax deduction, the remaining returns are very less which cannot even beat the inflation

However, I am not saying that all the job persons do this

Many people are smart who invest in mutual funds, real estate, and invest in different investing platforms

But for that, you should have a little bit of business knowledge as well

So a businessman who is a professional and financially smart

What will he do?

Firstly, the cash available is more here if we compare with the job person

So the businessman will think of reinvesting the money in his own business because he can get better returns there

Maybe he gets 25-30% returns

Then he will think of investing some amount in the real estate

Some in stocks where he might get 15-20% returns

Some money in the mutual funds, some in gold

And he will definitely reserve some money in cash as well but why cash?

Maybe he get agood deal in the future

You can take the examples of big companies, its not like they invest their whole money

Berkshire Hathaway has billion-dollar cash reserves in today's date

Apple also have high cash reserves

There are many examples among the Indian companies as well who keep the cash reserve

Why? Because they may get a huge merger deal in the future, they may get a chance to acquire any business

And if they're getting any business at a reasonable price, then cash must be available with them to close that deal

Similarly, if there's an investor who thinks there aren't good opportunities in the market today

But if he gets an opportunity in future, then he must hold cash to buy stocks and invest

So broadly, these are the major differences between a business person and a job person.

And if we see, the system is also supporting the business person and is it wrong?

Not at all

Is tax planning illegal? Not at all

If a business is growing, it creates many employment opportunities and this is what government wants

And with that, if anyone is investing money initially to grow his business and he has to pay less tax

Then there's no problem with that

So the government also support businesses

So maybe, this is another reason for us to think about entrepreneurship and business

Now, we discussed that system supports a business to create wealth because of many tax breaks

But, you would ask that if you are a job person then how can you take its benefit

You can take its advantage in 2 ways

First is, if your job has an option that you can work as a consultant there

If your accounting will be done on that basis, then you can take advantage of all the tax breaks, i.e you can claim all the business expenses

If you're using a vehicle for business, then you can depreciate it

So you'll get all these benefits there

Secondly, if your job doesn't have such an option

Then you can think of a parallel source of income or thinks of a business along with your job

Then you can take the benefits of the tax breaks on the income from that business

So let me summarise that there are 4 such elements through which we can make our money-making machine

First is the Tax Breaks in a business.

The second is Debt.

That means if you borrow a loan for business or to build an asset that you're using in your work

You can claim its interest and obviously, you have to borrow a loan for that

Third, you can claim depreciation for the assets

The 4th is, types of investments

Always invest there, where you're building an asset

Or where the returns are high in the long terms

We already saw those examples

You might already know some of the points covered in this video and some may be new to you

And if you learned something new, then let me know in the comments section

And if you have some more points to add, then also you can write in the comments section

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