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How Did Elon Musk Just Become the Richest Person In the World? The Answer is Simpler Than You Might Think

How Did Elon Musk Just Become the Richest Person In the World? The Answer is Simpler Than You Might Think

By at least one way of defining success, Elon Musk is exceptionally successful: Tesla's seven-fold stock price increase just sent his wealth

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By at least one way of defining success, Elon Musk is exceptionally successful: Tesla’s seven-fold stock price increase just sent his wealth (lame pun alert) rocketing past Jeff Bezos. (Shares in Amazon have also risen in value, but not as sharply; plus, ex-wife Mackenzie Scott received a 4 percent stake in Amazon as part of the couple’s divorce settlement.)

Despite the fact Tesla only recently recorded its first actual profits, the automaker’s market cap is now bigger than Toyota, Volkswagen, GM, Ford, and Hyundai. Combined.

Which makes Musk the richest person in the world.

So yeah: If becoming incredibly wealthy is your goal — not that there’s anything wrong with that — then a visionary risk-taker like Musk might make a good role model.

But for a more fundamental reason than you might think.

Hold that thought.

Many people aspire to be incredibly wealthy. (How you define “incredibly wealthy” is of course up to you; my version of incredibly wealthy may seem like pocket change to, oh, Sara Blakely.)

If amassing considerable wealth is one of your goals, you face an inescapable truth: You will never become incredibly wealthy by working for someone else.

Say you want to have $10 million in the bank, a figure that would definitely make me feel incredibly wealthy. That will probably never happen if you work for someone else — even if you’re highly educated, a path many people follow in hopes of earning higher incomes.

According to 2015 Census Bureau data (old news, but for the government relatively recent), people with doctorate degrees earned an average income of approximately $81,000. People with advanced degrees earned an average of $72,000; men averaged $90,761 and women averaged $50,756.

(Try to convince me that disparity makes sense. You’ll can’t. It doesn’t.)

And if you’re lucky enough to earn double those salaries, or triple those salaries, still: Even if you can manage to save $100,000 per year and average a 7 percent return on your money, it will take you over 31 years to save $10 million.

That’s the problem with working for someone else. Unless you’re the CEO of a Fortune 50 company — and there are only so many of those slots available — you will only make so much money. 

Work for someone else, and you can do well. Even extremely well. But you probably won’t get super rich. 

Think my perspective is wrong?  Then check out the data. The IRS used to publish “The 400 Individual Income Tax Returns Reporting the Largest Adjusted Gross Incomes Each Year.” 

Here’s a breakdown of how those folks made their money:

  • Wages and salaries: 4.4 percent
  • Interest: 4.2 percent
  • Dividends: 10.9 percent
  • Sale of Capital Assets: 65.2 percent
  • Partnership and S Corp Net Income: 16.2 percent

The takeaways are obvious. Salaries account for a small percentage of a wealthy person’s earnings. So do interest and dividends.

And even though owning a business, or multiple businesses, does account for approximately four times as much income as earning a salary by working for someone else… eventually selling a business or some of its assets can generate a huge financial windfall.

Of course you might not trust the IRS. Fine.

Check out the Forbes billionaires list. Go down the list of names. Musk. Bezos. Gates. Buffett. Zuckerberg. Ellison. Ballmer. Koch. Page. Brin.

All are entrepreneurs. All of them built, or helped build as early partners with ownership stakes, incredibly successful businesses.

But not just businesses — businesses capable of scaling.

Which is the second basic point.

Even though, in 2019 Toyota sold more than 10 million cars and Tesla sold only 368,000, someday Tesla could theoretically sell cars to everyone on the planet.

To become incredibly wealthy, Musk couldn’t open a customer car shop that converted gas-powered cars to electrics. Even if he opened multiple locations, still: Scalability — and economies of scale — would always be a problem. (Despite the fact its operations are relaatively centralized, achieving economies of scale is still a major problem for Tesla.) 

Of course there’s nothing wrong with opening a custom car shop and making a living doing something you enjoy. If that makes you happy, that’s awesome.

But if you want to become incredibly wealthy, here is the primary lesson to take from Musk’s success: Starting a successful business, one that can scale, is the only realistic way to become incredibly wealthy.

And because achieving that level of success will also take considerable time — while its success might seem overnight, Tesla was founded in 2003 — the time to start is now.

If taking a shot at becoming incredibly wealthy is your thing.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.

This article is from Inc.com

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