‘I ran out of cash’: Elon Musk once told a court he survived on emergency loans from friends while spending $200K a month

At the time, Musk told the New York Times’ Aaron Sorkin “that he put his last $35 million into Tesla, which only two years ago was on the edge of bankruptcy.”

Sorkin says Musk, who’d made a fortune as co-founder of Zip2 and PayPal, added that “I could have either done a rushed private (Tesla) stock sale or borrowed money from friends” to stay afloat. Musk chose the latter and, in the months leading up to Tesla’s IPO, he hit up pals for $200,000 a month and “still flies his private jet.”

He later penned a rebuke to the “Musk is broke” headlines in July 2010 — after Tesla’s $1.7 billion IPO dropped, providing him a reported $24 million cash injection — claiming he was never out of money but, rather, “committed almost all my cash reserves to the company (Tesla), leaving a few million dollars to cover living expenses.”

He added that “the enormous” legal fees for Justine’s divorce lawyers — which he put at $4 million — “forced me to seek emergency loans from friends.” He also noted that he possesses “exceptionally valuable ownership in Tesla, SpaceX and SolarCity” — offering a glimpse into how the wealthy can have a fortune on paper but still need to borrow a few bucks from friends.

The difference between wealth and cash

The 2010 divorce proceedings weren’t the first time Musk told a court that he didn’t have much actual money. During a 2019 lawsuit, Musk claimed a net worth of $20 billion but very little cash.

That’s because the ultra-rich have most of their wealth tied up in things like real estate or, in Musk’s case, stocks — illiquid assets that don’t pay the bills. Mark Cuban, for one, estimated that, for most billionaires, only about 5% of the net worth is liquid — still a hefty sum but far less than their net worth would suggest.

Instead, the wealthy can exploit tax loopholes in ways that average American can’t. For one, as ProPublica explained, the rich can borrow against their billion-dollar stock portfolio without ever having to sell assets — avoiding taxation and living off the loans.

“This system allows them to enjoy luxury cars, yachts, homes on multiple continents and occasional trips to outer space while reporting, in some cases, a salary of a dollar a year or less to the IRS,” they added.

Meanwhile, for regular folks, one Wall Street Journal story showed that, last year, American home ownership equated to $35 trillion in wealth but that associated taxes, interest rates and other costs keep many homeowners feeling cash-strapped.

Similarly, earlier this year the Washington Post reported that more Americans are millionaires than at any time in the country’s history, but that $1 million dollars today “stretches about as far as $480,000 did 30 years ago” due to the rising cost of living.

And unlike billionaires, regular Americans can’t just borrow against their assets to fund their lifestyles. However, like the ultra-rich, many average Americans don’t enjoy financial liquidity.

In an October Pew Research survey, 53% of Americans said that they don’t have three months worth of emergency funds. And the Federal Reserve found that only 63% of Americans could afford a hypothetical $400 expense “exclusively using cash, savings, or a credit card paid off at the next statement.”

Let’s get liquid!

Liquidity in personal finances is key — especially in the event of a job loss or emergency expense.

The good news is that there are simple ways to start building that liquidity, from setting a savings goal and making regular contributions — automate them for more consistent results! — to auditing your expenses.