Elon Musk: The story of how he became the richest man & how he avoids taxes

Ever since I can remember, humans have ALWAYS dealt with the invisible line that separates the wealthy from the non-wealthy. Every generation has asked this question, especially in our current time: why don’t the rich pay taxes? More and more billionaires are slipping through Uncle Sam’s grasp. 

During the pandemic in 2020, we were able to see how wealthy the rich grew while the rest of the population took a giant nosedive financially. I remember having countless conversations with my partner during these times and asking him how is it possible for the rich to benefit during such unprecedented times. I wanted to understand how the rich could avoid taxes while growing their wealth. 

I tried to look at their lifespan and understand what these billionaires did to escape the matrix. Instead of reading self-help financial books or attending these seminars by “rich fat cats,” I wanted to dive in to truly understand how the rich made their wealth. This segment will focus on the self-made billionaires worldwide to help you know how they got started. Their financial growth ultimately provides suggestions that could help you get on the path to financial freedom like they did. Learn about why we have taxes and why we have to pay for them. 

In this first article, I will focus on Elon Musk. He has become a celebrity sensation and officially holds the title (Nov. 2021) of the wealthiest person alive. He is having an absolute blast trolling Bezos on Twitter about this title as Jeff Bezos was the previous richest person alive.

I will first summarize Elon’s childhood/youth and highlight key moments that led to who he has become. I will go into some of his first projects and practice companies while highlighting the significant accomplishments Musk achieved. This is all to help you better understand what he did to access real wealth and how he has been able to avoid paying high taxes. Lastly, I will recommend implementing things into your daily life, just like Elon Musk did. Let’s dive in!

Many of us are fascinated by Elon Musk, a person who has defied many odds and come out the victor with successful companies such as PayPal, Space X, Tesla, SolarCity, and The Boring Company, just to name a few. There are countless books about Elon Musk’s life, and to give you a quick summary of his childhood and younger years, I will be referencing those books to highlight key traits. 

Elon Musk was born in South Africa to a successful engineer father and a mother who was a model and worked up to 5 jobs to help care for the family. The most important factor that stood out to me about Musk’s childhood is that he was an AVID reader, reading 10 hours per day. When he finally finished reading the books at the library, he switched over to reading the entire Encyclopedia Britannica around 8 years old. I don’t know about most of you, but as much as I love to read, I was never on this level at freaking 8 years old! 

After his parents divorced around age 10, he went on to live with his father. The latter he rarely speaks about but did say that it was difficult living with him as Elon felt emotionally tormented by his father. Elon has also opened up about being diagnosed with Asperger’s. Elon Musk already understood how strict his father was and willingly decided to live with him after his parent’s divorce. He said that if he could handle his father, he could take what life would throw at him.

Give this child a ballsy medal for choosing to live with a problematic parent. Knowing the outcome would result in Musk becoming an emotionally strong kid who could take the kicks & punches that were bound to come his way. Around the age of 12, Musk sold his first video game after cramming all his code learning within 3 days versus the standard 6 months recommended.

I wanted to highlight these things. Not to brag about what a smart kid he was. I am highlighting this to help you understand that his ability to become the world’s richest person is partly because he was a determined child who allowed his imagination to run wild. He was not hung up on how things should be or what society would want him to do. Elon was lost in his own fantasies about inventions. He went out of his way to devour information on how he could turn those dreams into reality.

We will fast forward past his college years and discuss some of the first projects he brought to fruition. Instead of continuing his Ph.D. at Stanford, Musk left 2 days after classes to join the internet boom. He saw the potential of what Y2K was going to bring and decided to start his company called Zip2 with his brother and Kouri. This company was marketing an Internet city guide for different industries, newspapers publishing, directions, yellow pages, and maps. Together, all three men raised the equivalent of today’s $53,000 to buy an office and build their business from the ground up. 

Another point about Elon Musk is his pure determination and consistency in building his dream. He said, “The website was up during the day, and I was coding it at night, seven days a week, all the time.” It is no wonder, with this kind of persistency and grit, they were acquired by Compaq for $307 million in Feb. 1999. This money allowed Musk to co-fund X.com, which he is famously known for because this was an online financial service and email payment company that merged with Confinity, another online bank.

This merge created PayPal as we know it today. This led to eBay acquiring PayPal. Since Elon Musk was the largest shareholder at the time, he received over $100 million. This paved the way for him to build Space X, with Tesla following after. His other successful companies that you can look up and research if you would like to learn how he created them are Solar City, Tesla Energy, Neuralink, Hyperloop, OpenAI, and The Boring Company.

At this point, you are like, okay, I get it, he has a lot of successful companies and did a lot of things. Let’s move on to why he doesn’t pay taxes, please! Before you read this next part, I recommend reading this article about why the rich don’t pay taxes. It will give you a general overview of how the wealthy can avoid that law and help you better understand what I am about to say about Elon Musk.

ProPublica confirmed what so many of us already knew but hadn’t been able to officially pin down in writing. They released IRS documents showing the lack of taxes paid by the 25 wealthiest people. For both 2015 & 2017, Musk paid less than $70,000 in federal income taxes and then got away with paying no federal income taxes in 2018. Keep in mind that by the year 2018, he had already accumulated a net worth of $152 billion. 

For example, let’s say that you make $50,000 a year. According to the government, you must pay 22% in federal taxes since you make $50,000 a year. To do the math for you, you paid $6,784 in federal taxes for that year. If you made $50,000 in 2018, you would have paid more federal taxes than Elon Musk did. Pretty shocking right? According to ProPublica, Musk has an average tax rate of about 3.27% that he paid during those years. Elon Musk has his financial team employ a few different strategies. Still, there is a strategy that he regularly uses that I will mention first: stock options.

A stock option means that you have the opportunity and right to buy or sell a stock you own at an agreed-upon price/date. For example, let’s say that you decide to buy 30 stock options of Company X and agree to sell them all a year from now. As the CEO of Tesla, you can imagine that Elon Musk has the right to a very generous amount of Tesla stock options. A common wealthy tactic that he uses is forgoing his CEO salary. This is a general overview of how a stock option could work. 

The reason why is because the primary way the government taxes us is through our income, aka the income tax you pay every year and report by April 15th. By accepting $0 or even $1 a year as the CEO, Musk can avoid paying taxes through his income. Instead, he makes his money by going to the bank and saying, hey bank, I have X amount of Tesla stock options I am willing to put up as collateral damage. Give me the cash value of all these stock options and pay it out as a loan. When the bank direct deposits him the money because it is labeled as a loan, Elon Musk is not obligated to pay any tax on that money. He will have some interest growing on the loan that he will eventually have to pay back. The interest he may have to pay back on the loan could be around 3%. In contrast, if he was actually paid in income like the rest of us, he would be obligated to pay the 37% instead. Big difference when you are worth $276 billion.

The tax avoidance strategy explained above falls into this category called buy, borrow and die that a famous professor founded. He coined this method because he said that the ultra-wealthy buy assets that will hopefully grow over time to become more valuable. Once that happens, the wealthy owner can put that asset up as collateral damage to the bank to receive a cash loan for the asset’s value. Since these loans are typically in large amounts (like the $88 million loan Elon received in 2012), no one really expects the loan to be paid off in this lifetime. Hence the die part in this method of buy, borrow and die. 

In 2020, Elon Musk was said to have over $500 million of personal debt owed to various banks. You can probably assume correctly that most of this will not be paid off in his life as he continues to receive more loans from banks to fund his lifestyle and pay for his dream city on Mars. Also, at the end of 2021, it was reported that JP Morgan Chase was suing Tesla for $162 million because of a breached deal. 

Now let’s get to the juicy part. Solutions that everyone can start implementing into their daily lives! 

Below are solutions that Elon Musk implemented into his life. These solutions helped him go from making under $100,000 to being a billionaire. These solutions are based on things he did, and I wanted to provide you with ideas to add to your daily life.

• The most important thing you need to do is first figure out your vision. So many of us have become afraid or even feel hopeless to dream because it can seem nearly impossible to get out of our current situation. If you want to see change and growth in your life, you have to start doing new things you have not done before. If your dream is to be a pastry chef, scientist, entrepreneur, florist, lawyer, etc., you need to admit that out loud to yourself and your support team. Dream for yourself and include your family in your dreams. If you don’t have a close family or friend group, reach out to the community with people already doing what you dream of doing. Get involved with that community and ask for advice, resources and even try finding a mentor to help you on your path to your dream. You need people who will hold you accountable and not let you slack on pursuing your dream because we only have this one life as ourselves.

• Elon Musk cannot stress enough how important educating his mind was with all of his reading at a young age. I am not saying you need to read the entire Encyclopedia Britannica. Still, you should be educating yourself on the topic that helps you achieve your goal. If that is becoming a successful chef, you need to immerse yourself in learning from the experts. Thanks to the Internet, you can do that in many different ways! Listen to podcasts, talk to experts in that field, watch YouTube videos of experts, or read books & articles. Challenge yourself to spend 30 minutes a day working on your dream, and if you can do this every day, you will eventually achieve all of the goals you set up for yourself. 

• You have to be willing to work either in the morning, the evening, or even on weekends. Again, not saying that you have to do all of these all the time but understand that Elon Musk is notoriously known for his consistent work ethic. You have probably heard that many successful people weren’t necessarily the most talented. They were the most consistent and hard-working people at what they were passionate about. Elon works 80-100 work weeks, and yes, that is definitely intense, but there is a reason he is as successful as he is. If you really sat down and looked at your schedule for the past week, you probably can admit that you have gaps that could have been filled with something more productive. It is your responsibility to be honest with yourself and ask if you are happy with your current financial situation. If you have everything, you have ever wanted and never need to work again, congratulations! However, most people are not in that position, and the best way for you to get there is to set a schedule for when you are going to work on your dream every day. Don’t think about having to knock out crazy significant goals. Instead, start to build a healthy, consistent habit where you are working on your goals every day for 5 minutes. Then build up to 10 minutes, 15 minutes, 30 minutes, and so on until you get to a point where you can knock out a few hours a day if possible. 

• Pay attention to complaints that you hear or read online because a solution can be found. Today’s successful entrepreneurs all thought about creating a better solution than what was currently available. To create a world that you would financially be happy in, you need to think about a topic or subject you are very passionate about. Then, find out the concerns or flaws within that subject that many people complain about. For example, I love cooking and want more cookbooks, but I get annoyed when I am cooking, and the cookbook doesn’t just stay on the page when I set it down on the counter. Or I have to keep cleaning my hands when I need to adjust the cookbook or the fact that I just don’t like having to look directly down at the counter where the cookbook is resting on. My partner found me a solution to buy a cookbook stand with a glass frame to help keep the cookbook open on the page I wanted. In addition, the glass frame had many different measurements on the left-hand side. Which is was what I needed since I don’t care about memorizing all of the cooking measurements and would complain about that too. There are millions of problems occurring every day. If you are passionate about a topic, you can be sure there are problems in that field just waiting to be fixed. 

• Understand that you will fail. It’s what you do after you fail that really matters. What lesson did you learn, and how can you not make that mistake again? Elon Musk explains how you will fail at what you are doing. If you are not failing, then you are not innovative, he says. Unfortunately, most of us live in a society that rewards perfection but punishes you for failure. If you receive A’s and B’s in school, you are a great student. D’s and F’s are considered failing and looked down upon in school. At a company, the person making the most minor mistakes is rewarded. This type of behavior makes us afraid to take chances and take risks. There is a reason the people who do not follow the rules and step to the beat of their own drums are so highly favored. Life is too short to let your dreams die because you are worried about what some random Lee or Marie will think of you 10 states away. It is your life, your vision. Go out and do your best to make it a reality, and understand that failure is just a part of the journey. The way that you get better is you continue to learn from your mistakes, and you seek help from experts in the field you wish to be in; from experts online, different authors and articles, going back to school, there is an endless supply of knowledge for you to obtain. 

This concludes today’s article, and I hope that it was helpful to you and got you thinking more about financial literacy. I always want to hear your thoughts and questions, especially about finances. Please email me and leave comments below because I want to know what you think. Check out the website to keep reading more!

And remember, like Earl Nightingale said, “Everything begins with an idea.” See you again next time!