Justin Donald, #1 WSJ/USA Today Best-Selling Author and Founder of The Lifestyle Investor, helping entrepreneurs achieve financial freedom.
For years, I watched people chase bigger net worths. They believed that the number on paper defined their success, so they calculated the value of their assets. However, I’ve learned that net worth can be misleading. Businesses can be overvalued. Portfolios fluctuate. Many entrepreneurs find out the hard way that they don’t actually own a business. Instead, they’re self-employed operators who work longer hours than their employees.
The wealthiest people I know measure success in different ways. For me? It’s not about net worth. It’s about financial freedom.
When your passive income covers lifestyle expenses, you don’t need to trade hours for dollars. When you’re no longer governed by money, you can make decisions with clarity for your family, your team and your business.
And, you don’t need to be a millionaire to get there. Choosing the right approach now can help accelerate your journey to freedom.
So what’s the single most powerful tool that helped me (and others) reach that goal? A proactive tax strategy that you can literally buy back your time with.
The Power Of Proactive Tax Planning
During tax season, most people think their CPA handles everything. But if your accountant only files your taxes each April, you have no strategy—just compliance. Compliance keeps you out of trouble. Strategy builds wealth.
Let’s say you save $30,000 a year in taxes with an effective plan. In 10 years, that’s $300,000. If you invest those savings in conservative alternative investments earning 15% annually, that number could surpass $1 million in a decade and exceed $13 million in 30 years. This comes from the standard future value of an annuity formula used to calculate compound growth—try it yourself with any compound interest calculator.
That’s the magic of tax-free compounding. If you doubled a dollar every year for 10 years and paid taxes annually, you’d end up with about $28,000. If you did the same in a tax-free environment, you’d have roughly $1 million. The example is illustrative, but it shows how taxes erode compounding. For context, see Investopedia’s guide to tax-advantaged compounding.
This isn’t theory. Over the past decade, my blended tax rate has been below 12%. Some years, my bill was nearly zero—legally and audit-proof. Why? Because the IRS doesn’t just collect taxes; it publishes guidance designed to influence economic behavior. The government rewards activities it wants to promote, such as renewable energy investment, affordable housing and business development. You can see examples in the IRS energy credits page and the U.S. Department of Energy’s federal tax incentives guide.
Aligning your strategy with this playbook can help reduce taxes and multiply wealth faster than you ever imagined.
Escaping The Self-Employed Trap
If you haven’t read Robert Kiyosaki’s Rich Dad’s Cashflow Quadrant, I highly recommend it. It reshaped my perspective on income. Kiyosaki outlines four categories of earners: employees trade time for money, the self-employed own a job instead of a business, business owners run systems that work without them and investors make money work for them.
Many entrepreneurs assume they’re business owners when they’re actually self-employed. If your business can’t function without you, you’re more of an operator. I lived that reality for years before finding true freedom, which only came when I built autonomous systems and shifted into ownership and investment roles.
Anyone can earn money. Few manage it well. Very few master the art of multiplying it. It’s key to surround yourself with tax strategists, alternative investment experts and mentors who’ve already achieved what you want. Based on experience, the right network accelerates growth more than any single tactic.
How The Wealthy Really Invest
Wall Street encourages investors to buy stocks, mutual funds or index funds. But public companies represent a fraction of all businesses. There are over 215,000 private equity—or venture-backed—companies versus less than 9,000 publicly traded firms worldwide, according to HarbourVest. Similarly, Advisorpedia reports that only about 13% of U.S. companies with more than $100 million in revenue are public. Essentially, the most opportunity lies outside the public markets.
The wealthy understand this and often build expertise in one business or industry, then diversify into alternative assets—private equity, real estate, private credit and other noncorrelated investments—to securely grow their capital.
When people ask what a “typical billionaire’s portfolio” looks like, I emphasize that there’s no official formula. The following is based on professional observation, supported by surveys from financial service firms: a strong focus on private assets, substantial real estate holdings and smaller allocations in public equities, fixed income and other alternatives.
In contrast, the average retail investor holds nearly all their wealth in public equities. While figurative, most retail portfolios are heavily concentrated in the stock market, according to allocation surveys from major brokerages such as Vanguard. This over-concentration can amplify volatility and limit access to higher-yield, less correlated private opportunities.
Performance data also supports diversification. VisualCapitalist data shows that a maximum of 87% of active large-cap fund managers have underperformed the S&P 500 over 15 years, and many fewer beat it over shorter periods. VisualCapitalist also shows almost no active managers outperform the market over a 30-year period. In other words, only a handful of professionals consistently beat the benchmark, and virtually none sustain it long-term.
You can’t achieve freedom by paying high fees for consistent underperformance. Pairing a proactive tax strategy with well-diversified, alternative investments is how sustainable wealth is built.
Financial Freedom: The Real Goal
Chasing a higher net worth might look good on paper, but it doesn’t guarantee freedom. Passive income requires a harmonic balance between your investments and life strategy. By following IRS guidance, escaping the self-employed trap and thinking beyond Wall Street, you can securely multiply and enjoy your wealth.
Ultimately, money is just a tool. Its actual value isn’t measured by accumulation—it’s in the freedom it provides in time, choice and the ability to live life on your terms.
That’s the life I’ve built—and the one I want every investor to experience.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
Forbes Finance Council is an invitation-only organization for executives in successful accounting, financial planning and wealth management firms. Do I qualify?
