When we hear that Mukesh Ambani, one of the richest people in the world, doesn’t take a salary from his company, Reliance, it might seem strange. After all, he’s the owner of one of India’s biggest businesses! So, why would he not pay himself a salary? The truth is, this is a strategy used by many billionaires and successful business owners to manage their money smartly. It’s not just about making money, but knowing how to use it to build even more wealth.
The Secret Behind Big Wealth: Using Money Smartly
It’s not enough just to make money. The truly wealthy understand how to use their money in smart ways. They don’t just focus on earning—they focus on growing their wealth and keeping as much of it as possible by avoiding taxes and making the most of their assets.
1. Owning Shares in the Company
Most successful business owners, like Ambani, own a large portion of their company in the form of shares (equity). These shares represent a big part of their wealth. However, the tricky part is that these shares are not easy to sell for cash without facing problems.
If they sell the shares:
- They have to pay taxes on the profits made from selling (capital gains tax).
- If they sell too many shares, it might look bad for the company, like they don’t trust it anymore.
2. Borrowing Against Their Shares
Instead of selling shares and paying taxes, billionaires like Ambani can borrow money using their shares as collateral. This means they can get cash without selling the shares or paying taxes.
Here’s how it works:
- They use their shares as security to take out a loan.
- This way, they don’t have to pay capital gains tax, and they still own the shares.
- They can use this borrowed money for personal expenses, investments, or business needs.
The good thing about this method is that the value of the shares can keep growing over time. As long as the stock price goes up faster than the loan interest, they can repay the loan and still make a profit.
3. Stock Price Can Help Pay Off Loans
If the stock price of the company rises, it helps the billionaire borrow more money at lower interest rates. They can even use the borrowed money to pay off previous loans. This strategy keeps their wealth growing while allowing them to avoid selling shares and paying taxes.
4. Getting Paid in Shares, Not Salary
Instead of a traditional salary, many business owners are paid in shares or stock options. This way, their income is tied to the growth of the company. This method also helps them avoid paying income tax on a salary. They only pay tax when they sell their shares for a profit, which is often years down the road.
Why Business Owners Have More Tax Flexibility
One reason Ambani and other billionaires don’t draw salaries is that businesses can often deduct many expenses before calculating taxes. For example, they can deduct costs like:
- Business trips
- Employee salaries
- Office expenses
This reduces the amount of taxable income, meaning businesses pay fewer taxes. In contrast, salaried individuals have taxes taken out automatically from their paychecks, with fewer options to reduce what they owe.
The Key: Using Debt Smartly
The main idea behind this strategy is to use debt (loans) in a smart way. Instead of selling shares or earning a salary, billionaires use debt to get the money they need, while keeping their ownership in the company. When done correctly, this can help them build more wealth. However, if debt is used for bad expenses (like buying things that lose value), it can lead to problems.
Final Thoughts: How to Build Wealth Smartly
The reason Mukesh Ambani doesn’t take a salary is a smart financial move that many billionaires make. They use their wealth in ways that avoid high taxes, minimize selling assets, and grow their money over time.
While regular workers pay taxes upfront through their salaries, business owners like Ambani use strategies that allow them to build more wealth. Debt isn’t always bad; it’s all about how you use it. When used wisely, it can help you grow your money, but using it carelessly can have bad consequences.
Have you noticed any other smart ways people use money to grow their wealth? Let me know your thoughts!
