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Jeff Bezos reportedly surpassed Bill Gates as the wealthiest person in the world, at least, for a while. But in 2016, it was reported that he had a salary of around $80,000, but obviously his wealth comes from his stock holdings in Amazon. He is just one example, but in general; how are people able to spend more than what they make, without going into debt?

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    selling tiny amounts of the stock? – JTP - Apologise to Monica Aug 3 '17 at 14:13
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    What is the basis for your assumption that Bezos spend more than his salary? Not saying he doesn't spend more than $80k/year, just wondering what makes you say that he does. – a CVn Aug 3 '17 at 14:28
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    What makes you think he's not in debt? Debt was a huge piece of Steve Jobs' finances. And a couple letters from Larry Ellison's accountant were accidently made public a few years ago warning him to stop continuing to put up his Oracle shares as collateral on the loans he was using to live (read buy a new racing yacht). A debt facility to be paid when it's convenient is a plain vanilla aspect of a very wealthy person's finances. – quid Aug 3 '17 at 15:18
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    @quid: Not just wealthy people - that's what I use 0% interest credit cards for. Likewise a HELOC for many people. – jamesqf Aug 3 '17 at 17:44
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    Salary, income, gross income, net income, deficit, debt and many more words have very specific meanings for finance. Assuming that salary = gross income is where you are falling down here. For many of us it is true that we have a single revenue stream based on our salary. Some people also have; interest on savings, rental income, stock dividends, second jobs, social support from the government, assets they can sell (cars, stocks, etc), the list goes on. – TafT Aug 4 '17 at 8:03
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That's just his base salary for last year. Keep reading in the article:

He also received $1.6 million worth of securit[ies].

Plus, he's probably earned plenty in salary, bonuses, and other compensation in previous years to more than keep up his lifestyle. He can also sell (relatively) small amounts of the stock he already owns to get millions in cash without raising an eyebrow.

how are people able to spend more than what they make, without going into debt?

Well, people can't spend more than they have without going into debt. Certainly money can be saved, won, inherited, whatever without being "earned". Other than that, debt is the only option.

That said, MANY "wealthy" people will spend WAY more than they have by going into debt. This can be done through huge mortgages, personal loans using stock, real estate, or other assets as collateral, etc. I don't know about Bezos specifically, but it's not uncommon for "wealthy" people to live beyond their means - they just have more assets behind them to secure personal loans, or bankers are more willing to lend them unsecured money because of the large interest rates they can charge. Their assumption is presumably that the interest they'll pay on these loans is less than the earnings they'll get from the asset (e.g. stock, real estate). While it may be true in some cases, it can also go bad and cause you to lose everything.

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    Looks like Amazon doesn't, but lots of companies also pay dividends. Even at a measly 1% of the stock price paid in dividends per year, that would add $16k just for the $1.6M in stock he received in that one year. – a CVn Aug 3 '17 at 14:27
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    @MichaelKjörling Plus the $830M from the other $83B in stock that he owns. – D Stanley Aug 3 '17 at 14:29
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    Indeed; I was just lazy enough to not look up his stock holdings. – a CVn Aug 3 '17 at 14:33
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    it's not uncommon for "wealthy" people to live beyond their means - they just have more assets behind them and indeed it's not even a recent phenomena... see Thomas Jefferson, for example. – Michael Aug 3 '17 at 20:34
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    @Michael Or ancient Athens. – chrylis -on strike- Aug 3 '17 at 23:43
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Rich people use debt for various reasons. The question should not assume that billionaires don't use debt. They also pay lower interest rates on that debt because they have enough collateral that their debt is safer than a typical mortgage.

Many rich people will use interest only mortgages on their primary residences so that they can keep their stock earning at higher growth rates than the mortgage interest that they are paying all while writing off a portion of that mortgage interest on their taxes.

Taking an artificially low salary and receiving equity for the larger portion of compensation is also a tax strategy to limit the amount of taxes owed on that income. If paid directly in stock grants, that will count as income, but if paid in options, then the purchased stock will only be taxed at the lower capital gains rates if the stock is held for a year after the options are exercised. Every billionaire will have complicated tax avoidance strategies that will require multi-year planning for the best long-term minimization of taxes. Debt is a strategic part of that planning.

Also consider that a major part of that upscale lifestyle (corporate jets, fancy meals, etc.) is on the company dime because the CEO is always on the clock. As long as he is meeting with business prospects or doing other company business, those expenses will be justified for the corporation and not attributed as income.

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    100%, Debt is not always about living beyond your means. – quid Aug 3 '17 at 19:54
  • And if you take a loan against the value of your stock (or stock options), the loan proceeds aren't taxable because the loan is not income. But, that isn't really an example of spending more than you make. The value of the asset (the stock) means that you could sell the stock if necessary, pay off the entire loan and have money to live on. – Craig Aug 4 '17 at 5:50
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I don't know about Jeff Bezos in particular but, in general, and with a a few other notorious exceptions like Warren Buffet, billionaires also have incomes (salary, dividends, fees to seat on various boards of directors, etc.) in the millions, not the tens of thousand. That's typically still much lower than their wealth but certainly enough to sustain a comfortable lifestyle.

However it's still true that some billionaires have so much of their wealth tied up in a single corporation that they could not practically get it all out at once, if they ever wanted to. But they can still typically sell at least some shares, which is exactly what Jeff Bezos has done to buy the Washington Post for example.

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    If Jeff Bezos tried to sell any significant portion of his stock without a darned good reason (like he did with WaPo) he'd quickly find his stock worth a whoooole lot less. – corsiKa Aug 4 '17 at 6:50
  • @corsiKa Exactly! – Gala Aug 4 '17 at 10:49
  • Fair enough, but, he doesn't have to sell a lot of his stock to live a ridiculously lavish lifestyle. – stannius Aug 4 '17 at 19:55
  • Very nice example of exactly how he spends more than he makes in at least one instance (buying a newspaper). – Ogre Psalm33 Aug 6 '17 at 18:45
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Bezos made very little "money." But he is very wealthy because of stock grants and options, from his previous years.

Banks or brokerage firms will lend him (or anyone else) up to half the value of his stock. In Bezos' case, we're talking about billions. So he could, if he wanted to, cash out half of those billions. If the stock continues to go up (as it has), he will be able to cash out more each year.

Imagine a person earning $1 a year in cash with $1 billion of stock, on which he can borrow up to $500 million. That, in a nutshell, is Bezos (with larger numbers).

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What you "make" is your total income from all sources

If you make $10 in salary, $5 in interest on savings, and $10 in dividends, your income is $25, not $10.

If you have enough value in assets, you can leverage the assets

If you have a billion dollars in well-invested assets, you can take a loan against those assets and the interest payment on the loan will be smaller than the interest you earn on the assets. That means your investment will grow faster than your debt and you have a net positive gain.

It makes no sense to do this if the value of your asset is static. In that case, you would be better off just to withdraw from the asset and spend it directly, since a loan against that static asset will result in you spending your asset plus interest charges.

If you have a good enough rate of return on your investment, you may actually be able to do this in perpetuity, taking out loan after loan, making the loan payments from the loan proceeds, while the value of your original asset pool continues to grow. At any given time, though, a severe downturn in the market could potentially leave you with large debts and insufficient value in your assets to back the debt. If that happens, you won't be getting another loan and the merry-go-round will stop spinning. It's a bit of a Ponzi scheme, in a way. The U.S. government has done exactly this for a long time and has gotten away with it because the dollar has been the world's reserve currency. You could always get a loan against the value of the U.S. currency in the past. Those days may be dwindling, with more countries choosing alternative currencies to conduct business with and the dollar becoming comparatively weaker into the foreseeable future.

For "the rest of us," you can't spend more than you make without incurring debt, unless you sell your stuff

If you have savings, you can spend more than you make, which will put you into debt, then you can draw down your savings to pay that debt, and at the end of the month you will be out of debt, but have less in savings.

You cannot do this forever. Eventually, you run out of savings.

If you have no savings, you immediately go into debt and stay there when you spend more than you make. This is simple arithmetic.

If you have no savings, but you own assets (real estate, securities, a collection of never-opened Beatles vinyl records, a bicycle), then you could spend more than you make, and be in debt, but have the potential to liquidate assets to pay off all or part of the debt. This depends on finding a buyer and negotiating a price that helps you enough to make a real difference. If you have a car, and you owe $10 on it, but you can only find a buyer willing to pay $8 for the car, that doesn't help you unless you can refinance the $2 and your new payment amount is lower than the old payment amount. But then you're still $2 in debt on the car even though you no longer possess it, and you've still increased your debt by spending more than you made.

If you stay on this path, sooner or later you will not have any assets left and you will be in debt, plain and simple.

A little additional complexity

As a wrinkle in the concrete example, let's say you have stock options with your employer. This is a form of a "call." You could also purchase a call through a broker in the stock market, or for a commodity in the futures market. That means you pay up front for the right to buy a specific amount of an asset at a fixed price (usually with an expiration date). You don't own the stock, you just have the right to buy it at the call price, regardless of the current market value when you buy it.

In the case of employee stock options, your upfront cost is in the form of a vesting schedule. You have to remain employed for a set time before a specific number of stocks become eligible for you to purchase at your option price (the stocks "vest" on a certain date). Remain employed longer, and more stocks may vest, depending on your contract. If you quit or are terminated before that date, you forfeit your options.

If you stick around through your vesting schedule, you pay real money to buy the stock at your option price. It only makes sense to do this if the market value of the stock is higher than your option price. If the current market value is lower than your option price, you're better off just buying the asset at the current market value, or waiting and hoping that the value increases before your contract expires.

Here's how it goes down

You could drive yourself into debt by spending more than you make, but still have a chance to eliminate your debt by exercising your call/option and then re-selling the asset if it is worth more than what you pay for it.

But you may have to wait for a vesting period to elapse before you can exercise your option (depending on the nature of your contract). During this waiting period, you are in debt, and if you can't service your debt (i.e. make payments acceptable to your creditors) your things could get repossessed. Oh, don't forget that you'll also pay a brokerage fee to sell the asset after you exercise your option.

Further, if you have exhausted your savings and nobody will give you a loan to exercise your stock (or futures) options, then in the end you would be even further in debt because you already paid for the call, but you are unable to capitalize it and you'll lose what you already paid. If you can get a loan to exercise your option, but you're a bad credit risk, chances are good that the lender will draft a contract requiring you to immediately pay back the loan proceeds plus a fee out of the proceeds of re-selling the stock or other asset. In fact the lender might even draft a contract assigning ownership of your options to them, and stipulating that they'll pay you what's left after they subtract their fee. Even if you can get a traditional loan, you will pay interest over time. The end result is that your debt has still cost you very real money beyond the face value of the debt.

Finally, if the asset for which you have a call has decreased in value lower than the current market value, you would be better off buying it directly in the market instead of exercising your option. But you'll pay transaction fees to do that, and the entire action would be pure speculation (or "investment"), but not an immediate means to pay off your debt. Unless you have reliable insider trading information. But then you risk running afoul of the law.

Avoid debt...it always catches up with you

Frankly it might be better to get a loan to pay off your debt than to buy an "investment" hoping the value will increase, unless you could guarantee that the return on your investment would be bigger than the cumulative interest and late fees on your debt (or the risk of repossession of your belongings). Remember that nothing you owe a debt on is actually yours, not your house, not your car, not your bicycle, not your smartphone.

Most of the time, your best course of action is to make minimum payments on your lowest-interest debts and make extra payments on your highest interest debt, up to the highest total payment you can tolerate (set something aside in a rainy day fund just in case). As you pay off the highest-interest debt, shift the amount you were paying on that debt to make extra payments on your next highest-interest debt until that one is paid off, and repeat on down the line until you're out of debt, then live within your means so that you don't find yourself working at McDonald's because you don't have a choice when you're in your 80's.

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