The Rich Man's Game Nobody Taught You || Masterminds Podcast EP72

Note: This episode was recorded before Elon Musk became a trillionaire. The net worth figures referenced reflect his valuation at the time of filming.

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Most people spend their entire lives chasing income. The wealthy are playing a completely different game — and nobody told you the rules.

In this solo episode of the Masterminds Podcast, Richie Mensah breaks down the financial concepts that separate people who earn well from people who build real wealth. Net worth. Good debt vs bad debt. Cashback loans. Shareholder loans. Why wealthy people buy $200,000 watches and $10 million paintings. And how Elon Musk bought Twitter without spending a single cent of his own money. This is the episode most people will have to watch twice — because once you understand how this game works, you cannot unsee it.

In this episode, you'll learn:

• Why your income is not your wealth — and what actually determines your financial position
• How to calculate your net worth and why it should be your financial scoreboard
• The difference between good debt and bad debt — and why the wealthy love debt
• How the cashback loan strategy works and why banks offer it to people with assets
• Why buying an expensive watch or a piece of art can be smarter than putting money in the bank
• How Elon Musk bought Twitter using loans — not cash — and why that was intentional
• How the wealthy use debt to avoid paying taxes legally
• Why a person earning 5,000 cedis a month can get a loan faster than someone earning 50,000

Transcript

SPEAKER_00 0:00

Hi fellow masterminds. Today I want to talk about one of the biggest misconceptions. I'm going to talk about three things. Please don't misunderstand the pronunciations. Income, wealth, and net worth. So the first thing is your income is not your wealth. Understand that again. Your income is not your wealth. And now let's talk about net worth. Net worth is the most misunderstood concept in this world. Let me give you an example. When most people hear that Elon Musk is worth over 800 billion, what they imagine is that Elon Musk has some bank account that has over 800 billion dollars in the bank account. That is not what net worth means. When you hear someone is worth $10 million, they are not holding $10 million cash. Your net worth is a specific calculation. It's a very easy calculation. That calculation is everything you own minus everything you owe. As simple as that. When you understand what net worth actually means, then it changes the way you think. And that is when you fully understand that income is not wealth. Because your wealth is based on your net worth and not your income. So understand it properly. A high income does not equate to a high net worth. And not understanding this concept is one of the most expensive mistakes that you can make. So in this episode, I'm going to take my time and break it down for you so you don't make this mistake as you climb up the ladder of wealth. So let's go back into breaking down what your net worth is. So as I said, your net worth is a simple calculation of everything you own minus everything that you owe. Which means it is a deduction of all your liabilities. Anything that has taken money away from you, your debts, your credit card debts, your loans, your mortgage, every single thing that you are paying out consistently is a liability. And your assets are all the things that you own. Calculating it from your treasury bills to your index funds, your stocks, your real estate, all the property you own at current market value, not the price that you bought it. So let's say you bought a car for $500,000, but currently on the market it's worth $200,000. When you are calculating your net worth, you calculate with the $200,000. So to calculate your net worth, very simple. You add up everything that you own, like I mentioned, all your investments, all your property, even if it's a laptop that you bought five years ago, you add up everything that you own at the current market value and deduct every single thing that you owe to someone else. Now, when you do that calculation, whatever number you land up you land with is perfectly fine. You can have a high net worth, a high net worth, or you can be at complete zero because maybe you have a salary and you don't own anything yet. That's fine. It's a baseline figure to start with, or you can even be negative. It's possible to have a negative net worth. In fact, a lot of people I know have negative net worth, and that's fine too, because it's a baseline that you know you can now start to build from. So please understand having a high salary, a high income where you are using it to buy flashy cars that are depreciating very fast, and buying you know expensive clothes that you cannot sell at the same value, and going on trips that's that money will never return to you. Having a high income and living a fast life does not equate to having a high net worth. So let's go over your assets versus your liabilities so you understand how to calculate your net worth. So remember the formula your net worth is equal to your assets minus your liabilities. So assets can be things like your cash and savings in your bank accounts, your investments from stocks, bonds, mutual funds, treasury bills, real estate, the current market value of any property you own, your business ownership, the estimated value of any business you have, or the equity in it, your vehicles, the current market value, not the purchase price, and any other valuables from land, equipment, intellectual property at the current market value. All these are your assets, and then your liabilities are your mortgage balance outstanding, your car loans, your personal loans, your credit card debt, your business loans, any other outstanding debts, even if it's just a friend you owe, all those fall under liability. So now, as we're talking about net worth and talking about liabilities, let's talk about debt. Let's talk about loans. You know, growing up, everyone told you, especially if you didn't grow up rich, everyone told you that loans are bad. It is very bad to take loans. Let me explain something to you. There is a difference between a good debt and a bad debt, and that difference is just one fundamental thing. People who take loans to buy liabilities are accruing bad debts, and people who take loans to buy assets are accruing good debts. So let me give you an example. Taking a loan to buy a car is a bad debt. First things first, when you buy a brand new car, the moment you buy that car, the value of the car depreciates instantly as soon as you drive out of the showroom by at least one-third. This means that if you take a hundred thousand loan to buy a car, as soon as you drive out of the showroom, your car is now worth maybe $66,000. So not only are you paying back that hundred thousand loan plus the interest on it, you've also lost value on the item you use the loan to purchase. So it's like you are losing net worth in two different ways. But a good debt is buying something that is either going to appreciate in value or bring in revenue, like buying gold. So in Ghana, I heard that gold prices in the past six months have gone up by 25%. So this means that if you are able to get a loan that you use to buy gold, and that loan you need to pay back 15% over one year. I mean, these are just figures I'm making up in my head because you can't get any loan in Ghana for 15% per annum. But if you get a loan where you need to pay back 15% at the end of the year, and you use that loan to buy gold, which is appreciated by 25% per annum, at the end of the year, you are able to pay back the loan and you own the gold. Do you understand? Because you've actually made interest on it. So I'm coming to show you a strategy which I was introduced to when my money reached some level. You see, when when your money hasn't reached some level, they won't tell you certain things. When the stars come in, then now they are your friend. The same people who are rushing you now, they are your friends. They'll be showing you the they'll show you the way. I remember the first time that I did a big bank investment. I did a big bank investment because I hadn't decided what I was going to do with the money yet, and I didn't want to just risk it or have it line in my bank account and be tempted to spend it. So I did a big bank investment. And then when I was ready to do the business I was about to do with, I was going to use it for, I spoke to my RM and told the RM that, oh, I wanted to, you know, liquidate the investment, or I didn't want it to roll over because I was going to use it to do business. Then my RM asked me, but why would you do that? Why don't you just take a cashback loan? It's like, what's that? Said, oh, just take a loan against your investments. Let your investment be your collateral. You can take a loan up to 75% of the amount of investment that you've done. What that does is it secures your loan. If anything goes wrong with the business that you are now going to do, they will take your investment, they will liquidate your investment and use it to settle the loan. They are taking 75% so that even after paying the interest, there will still be enough to pay off the loan and leave a little for you. But if it goes well, by the time your business succeeds, you still have your investment, which is still accrual interest, by the way, because it's sitting in the investment, and you have your business which is doing well and has been used to pay back the loan. I hope I'm explaining this properly so that you fully understand it. And you see, they say certain things are a rich man's game because when you understand some of these things, then you understand some of the decisions people take. Let me give you an example. You know, I've said so many times that buying a house is a bad investment. Honestly speaking, buying a house does not make any sense if you are trying to build wealth. Now, let me explain to you certain reasons and times why you should buy a house. So buying a house is what we call a security, it's not an investment. Let's say right now I have an idea to do a certain type of business, but the business isn't so secure, so I don't know what is going to happen if I do it. I don't know if I'm going to lose money quickly or it'll take a long time. But I know that buying a house gives me security. And I have just come across maybe some 5 million CDs and I don't know what to do with it. I don't want to go and buy Treasury bills worth of 5 million. Oh, what's wrong with me? With that 5 million, what I can do is I can buy a house. Now the house that I just bought becomes a secure asset with which I can now take a loan with the house as collateral. So let's say the risky business or the business that I'm planning to do, I need 1 million CDs to do it. Instead of taking my 1 million CDs cash and just investing it in that business, I buy my house first for the 5 million and then I do a loan of the house and get 1 million from the bank and use that 1 million to invest in the business. If it goes well, I am able to easily pay the loan back with the revenue that's coming from the business. If it doesn't go well, I have a secure asset which I can use to pay back the loan. But however, even in this instance, I would still suggest that do a cashback loan instead of buying a house. Because you see the example that I just gave? If you buy a house worth $5 million and you go and take a loan of $1 million and you need to now pay back the bank because your business didn't go well, they need to sell your house to pay off the loan. And at which point they may be selling the house at less than its value so that they can get their money back quickly. Whereas if it's a cashback loan and you have five million in investments, all they are going to do is pay back with the 1 million and the rest can continue being invested. So even in that case, personally, but that's a personal choice. Personally, I would prefer to own the cash than to have the houses. But I just want you to understand this mindset. So when you see a rich man buying plenty houses, let me use another example that most people don't understand. Today I'm revealing the tricks of the wealthy. You see wealthy people buying very expensive watches, buying very expensive art. Someone bought a watch, $200,000, $300,000, they bought a piece of art, $5 million. And you're thinking, are these people crazy? What is wrong with them? You're thinking about all the good things that they can do with that money and they are wasting it on a wristwatch. They are buying appreciating assets. So now they understand the fact that if I put my $200,000 in the bank because of inflation, that $200,000 is going to keep reducing in value. Whereas if I buy a Patek Philippe for $200,000 in 10 years, it is either going to be worth the same amount or much, much more, which is what has been proven over time, that those kind of assets appreciate. So the day this person needs money, they can go sell that watch for a higher amount than they bought it and get their money back. Or they can put that watch up as collateral, and any bank, any financial institution will give them exactly what they need because of that asset. So when you see wealthy people buying crazy things, oh, they bought this piece of art, $10 million, and Da Vinci painted this, that, that, $10 million, these people are mad, they are wasting their money. No, they are putting their money in secure assets which they are going to borrow against to do business so that they continue to own the assets, own the business, and make revenue. So you need to understand this properly. The wealthy don't avoid debt, they use it as a tool. Let me use Elon Musk as another example. We all heard when Elon Musk bought Twitter, what was it? Was it $40 billion or something like that? When you hear these kind of stories, are you imagining that Elon Musk is calling his relationship manager at the bank and saying, oh, transfer $40 billion from my account to buy Twitter? No, it doesn't work like that. He goes to the bank and says, Hi, you know me, right? Elon Musk? You know, I am worth so-so-and-so. He probably has just like $500,000 in his account. He says, I am worth this much based on my stocks in Tesla and SpaceX and this and you know the boring company, blah, blah, blah. I am worth over $800 billion. So give me a loan of 40 billion and use that 40 billion loan to buy Twitter. So he didn't actually take out any cash. He takes a bank loan to buy it. Now, the wealthy people actually do this for so many reasons. The first reason is it secures their money. The second reason is they actually avoid taxes. Because I don't know how much you guys know about taxes, but the first thing to understand about taxes is you can only be taxed on income. You cannot be taxed on a debt. So let me explain it this way. If I'm an owner in Lynx, and when links makes money, they are making shareholder payouts. Every time I am given my dividends as a shareholder in Lynx, the government will come and tax me because I just got income. So they will take a percentage of the money that I'm taking out of my own company. Even though the company is paying tax, the fact that now as an individual I am taking out part of my revenue, they will tax the revenue as well. So instead, what I'll do is I'll go to the bank and say, hi, Richie Mensen here. These are my shares in links. Do you see how much is worth? Oh, yes, yes, we know your company is worth a lot. I want you to give me a loan based on my shares. My shares are my collateral. So, because of that, you cannot tax me on the loan I've taken from the bank because it's not revenue, it's a debt. So the wealthy play these games over and over and over again. So let's say I start company A, and Company A is massively successful, and right now Company A is worth 10 million CDs. Then my shares in Company A come up to 6 million CDs. I go to the bank and with my shares as collateral, I take a loan of 3 million CDs from the bank and use that to set up Company B. Company B becomes very, very successful. So I'm paying back the loan with the income from Company B. But as I'm paying back the loan, you can't tax me on that because I'm paying back a debt, and I will never actually take any income from there. So you can't tax me on that either. Now, when Company B is now worth 30 million, I go back to the same bank that gave me the loan. I'm like, I'm back, bro. You see how I pay my debts? This time, give me a loan of 10 million. Then I use the 10 million to open company C. So within a span of maybe 10 years, I've opened three companies with loans from the bank, and I keep growing my net worth. So the reason, now I want you to understand the reason why net worth is an important calculation because that is the conversation of the wealthy. That is how the banks see you. You see, the banks don't know your name, the banks know your number. The banks know you based on your net worth. You know, when you're walking into the bank, all they are doing is calculating your net worth on top of your head. That's why you hear certain people are credit worthy and some aren't. That's why you see somebody who is doing good in life, but they can't even get a loan to save their life. Because this person has zero as their net worth, they have a very high salary. Maybe you are being paid 50,000 CDs a month, which is an amazing salary, but your net worth is useless because you are spending 50,000 CDs a month, so they don't care that you are a high earner. When this person being paid all this money wants to start a new company, no bank is going to touch them because their net worth isn't enough. But somebody else is being paid 5,000 CDs a month. But because of how they've been putting money away in investments, because of all the assets that they have accrued, when they want to start their new Jolov business, the bank will say, Oh, yeah, sure, why not? This person isn't risky because they have a high net worth. So, what I'm trying to tell you is instead of trying to look at your income as what determines how wealthy you are, concentrate on your net worth. Let your net worth be like a scoreboard. Calculate your net worth today. Even if you calculate it and it's in the negative, that's fine, it's a starting point. And every quarter, recalculate your net worth so you can understand your position in the game of wealth and know how you are going to build it. And like I always say, the level of your financial knowledge is always going to be equivalent to your financial status. So learn these concepts, understand net worth, understand income, understand expenses, understand how to play these games, cashback loans, shareholder loans, understand how to play these games and build your wealth over time. And I know you're going to be the mastermind that you are destined to.