For whom is it easier to get quick access to their large sums of money: a billionaire with a stake in a company or a millionaire with a huge salary?

  • 13.12.2020 22:44
  • Category: Finance
Photo: Getty Images/Tempting.Pro

Every time when we see Forbes magazine's latest annual report listing the richest people on the planet, don't immediately think that these people can easily take advantage of all these billions of dollars they own. It is not so easy to accumulate 1 billion, it is even more difficult to keep it somewhere near you. And taking a large amount of money for yourself is sometimes not so easy.

How do most people become owners of nine-digit amounts?

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They create their own company, become co-founders, or, in extreme cases, investors. They have some shares in this company, subsequently, the company grows and develops and its capitalization becomes higher and higher, respectively, the monetary share of the owners of shares also increases. When a company is a closed company, its owners can distribute the profits that remain after covering all the costs of maintaining the company among themselves. They can also make any purchases at the expense of the company, for example, buying a car, but use these assets for their own personal purposes.

The director can even have dinner with friends, pay with a corporate card, and then present the restaurant bill to the accountant as a scheduled business meeting. And what about the huge global giants that have already gone public?

Billionaires from companies

After a company makes an initial public offering of shares, its activities become accessible and transparent to everyone else. And for each of its actions - spending a large amount of money, the market will react, which in turn will be reflected in the value of the company's shares. We all know Jeff Bezos as the richest man at the moment. According to the latest data, his fortune is estimated at $ 182 billion (this amount includes the ownership of shares in Amazon, Blue Origin, other businesses such as The Washington Post, and his own accumulated funds).

But it is worth repeating once again that this does not mean that all this money is on his bank card, and he can easily use it. The heads of giant companies, of course, also have salaries, but for many, this is just a formality.

Think of Mark Zuckerberg's Facebook salary, which is $ 1. Some are paid not in money, but in shares, like Elon Musk. He gave up his paycheck (worth $ 0 in annual income) but made $ 2.3 billion in stocks thanks to Tesla in 2018.

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When you are the CEO of a public billion-dollar company, you are accountable not only to your business and employees but also to the shareholders of the company. And in order to cash out at least 1% of your shares, which can be worth billions of dollars, you need to go through the appropriate procedures, which take time. It is necessary to prepare a certain package of documents, choose a way to get rid of the shares: who will be the buyer, exactly how many securities need to be sold, at what time, etc.

Each sale of shares is fixed by the market, and if you sell too much at a time, this may not be reflected in the best way on the capitalization of the entire company. If Jeff Bezos or, for example, Mark Zuckerberg decided to sell all the shares of their companies in one day, this would cause a real collapse in the securities market, and the liquidity of their companies' shares would be severely undermined.

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The problem of dumping a large block of shares is still more suitable for companies slightly lower in rank. When a significant amount of money can be obtained only by selling a large block of shares.

What do billionaires spend their money on?

If we are talking about the largest companies and their leaders, it is worthwhile to emphasize once again that 1 percent of their shares can be worth billions and there is not much point in renting more, because in most cases this money will go to standard purchases, like houses and apartments, cars and yachts and some jewelry, in general, everything that you can invest physical money in and get a valuable asset in return. All purchases of this kind can be well within several hundred million dollars.

If a person wants to buy something really big, say a large share in another company or an entire business, first of all, he can lobby the rest of the management and shareholders of his company in the need to acquire this particular company, thereby making the so-called takeover. But this option is admissible only if this purchase is really suitable for their business, then it will be possible to buy it for the company's money without spending anything from your own wallet. And if you want to buy some kind of sports club, then you cannot do without selling your shares to get a free money supply.

Where do billionaires keep their money?

Photo: Showtime/Billions

To find out where the super-rich in the US keep their money, Visual Capitalist used data from the 2016 Federal Reserve Consumer Finance Survey to show how the distribution of wealth is changing for those with $ 100,000, $ 1 million, and $ 10 million compared to those who own $ 1 billion or more.

Their data reveals some key facts about the difference between 5-digit net worth and much larger capital. For example, for people who have $ 1 million, the most important asset is their primary residence (their real estate).

Those with less money tend to concentrate their wealth on more tangible assets like a car. And people who have $ 1 billion or more keep most of this money in their business (share in the company) and in securities (their investments).

Millionaires from salary

If we take the millionaires who receive the bulk of their earnings from their employer, then everything will be much easier here. This person has his own bank account, to which the company in which he works transfers his salary, every month or according to some other payment schedule. And he can use all this money as he wants, he can easily withdraw all his millions in one day and unload heaps of bags full of money in his safe in the basement of his own house. This, of course, will not be the most reasonable thing to do, considering that money has to make money, and thanks to his bank account, he still receives a certain percentage of the profit due to the fact that he keeps his fortune there, but still, such a person can take possession of a large amount of money without any problems. And this will in no way affect the company's capitalization because these costs have already been taken into account in salaries.

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For example, Tim Cook, the head of Apple, reportedly earned more than $ 15 million in 2018, 3 of which were in salary and a bonus of 12 million for good work + $ 682,000, which were described as "other compensation." But these are absolutely not fabulous sums of money, many heads of banks or funds on Wall Street receive much higher salaries at the end of the year. In addition, it can be recalled that Cook himself also owns a stake in Apple, and this year he sold 560,000 shares, equal to $ 115 million. A block of shares for this amount is naturally too small to significantly affect the value of Apple shares.

Let's turn to football, where in reality there are simply cosmic salaries. Big money has long come to football and many clubs in countries such as England, Spain, France, Germany, Italy, and Russia are willing to pay huge salaries to their players. A mid-level player in a Top Club can easily make $ 1.5-3 million per season, let alone world stars, with crowds of personal fans around the world.

Cristiano Ronaldo's salary in Juventus (Italy), according to official data, is about 31 million euros per year, this amount is already with the payment of all taxes. In addition to wages, there is also advertising and image rights, which, by the way, Ronaldo himself does not have, he sold them to three different companies from the Virgin Islands. Let's not go into details, all millionaires are trying to take advantage of financial loopholes in order to pay fewer taxes, which are quite harsh in Europe and the Portuguese himself has already overpaid double the amount in fines for such cases.

Photo: Instagram

It's worth noting that his Instagram ads made him more money than his official salary. He earned $ 47.8 million from the social network (this amount does not include taxes and royalties to the companies that own his image rights). The cost of one post averaged $ 975,000.

Millionaires whose main income is salary (advertising) are more flexible in making large purchases. They do not need to withdraw their money from the shares of their own company, waste time, go through the appropriate procedures, and put the liquidity of the company at risk. Most of their money, of course, will also not be idle, they will be invested in any businesses, assets, or be in a bank or fund, but it will be faster and less risky to get it from there.

Prepared by: Alexander Boltrukevich