After you're a millionaire, will you go broke?

[Russ H]

Most of the talk on these forums
has been about how to get millions of $$$.

And how to do it, quickly.

Some of the talk has been
what you want to do with those $$$
once you have it (exotic cars, big houses, travel, etc).

All good stuff.

But something very important
hasn't been discussed very much.

*******

In fact, it's almost MORE important
than how to get the $$$
or how to spend them.

Ready?

How will you keep your wealth?

Once you have all those $$$,
what are your plans for not losing it all?

******

It's understandable that this topic
hasn't been discussed much.

After all, it's much more fun to dream
about millions of $$ and big flashy toys
than to consider the boring
(and, it must be said, limiting) process
of hanging onto your wealth.

********

So I ask all of you:

If you have worked on your PLAN
to develop wealth
and the toys you want to acquire

What are you doing
to insure that you are able
to sustain your wealth?

A further question:
If you've looked at all the neat stuff
you plan to own when you're rich,
have you totalled up what it will cost?
And how much it will cost to maintain?

Once you have those amounts,
does that increase your end $$$ goal?

There are many lottery winners
--recipients of millions of $$$--
who wind up penniless
after just a few years.

These people don't know how
to live within (or below)
their means.

The moral of the story:

Whether you are rich or poor,
if you don't learn how
to live within (or below) your means,
you will wind up broke.

*********

What will you do to make sure
this does not happen to you?

******

(thanks to rxcknrxll for giving me the idea to ask this question)

-Russ H.

 

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[SteveO]

The cashflow game provides the correct concept. Once you have found how to make millions, you will likely be able to replicate it. If your plan is to make a couple million and quit, then you will need to focus on wealth preservation.

The tools that you build in the process of obtaining wealth should allow you to continue down that path. Missteps can and will be made and corrective action will always be important.

I like to plan ahead to what I will be making. That does not mean that lines can't be drawn in the sand that are designed to hold what you have already.

I am not an extravegant spender but I have not done a personal budget in years. Looking ahead and planning the future earnings is very important. Once you have the initial tools in place, this should be the easy part.

 

[SaraK]

Once I have reached accredited investor status I plan to invest in "big deals", probably in multi-family house and/or commercial real estate where I can get significant cashflow to cover monthly expenses. I will only increase my expenses (i.e., buy those flashy toys) as my passive income increases to pay for it.

I will always keep 3-12 months of expenses in cash (or similarly liquid investment) to cover emergencies, regardless of my financial situation.

I will only use debt to buy sound investments, not doodads.

That's my plan so far. Am I missing anything?

 

[Russ H]

I am not an extravegant spender but I have not done a personal budget in years. Looking ahead and planning the future earnings is very important. Once you have the initial tools in place, this should be the easy part.

Is it easy, though?

For someone who has craved a big house
(or multiple houses in different part of the world)
and a few exotic cars (or boats) . . .

What will make them STOP
once they have just one or two?

They've worked so hard to get to the point
where they could finally buy a few toys.
If they don't have experience
in knowing when to say "enough!"
what will prevent them from going broke?

It should be mentioned that a few of my
wealthy clients who had made their $$$
with stocks or royalites (like hit songs)
sometimes woke up to find
that all their millions were gone.

Thing is, they never learned how
to maintain their wealth.

Just wasn't ever part of their PLAN.

I agree with the concept that
once you know how to make $$$
it's easy to make it again.

But why let it get to that point?

Why not learn the skills for
hanging on to your money,
while maintaining a great quality of life?

-Russ H.

 

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[SteveO]

I am not disagreeing with you. Just wanted to add another piece to a great post.

The line in the sand that I referred to was for preservation. I carved out a few hundred units from my normal aggresive buy and sell model. These properties were financed on 10 year, non-recourse loans. I have to be able to live within the means of those properties while working on other projects.

If things change, I may have to do a budget. :smxB:

 

[Russ H]

SteveO: By the same token, I'm not trying to disagree or criticize you either.

I've spent very little time with you
(not enough-- gotta work on that)
but even from this small amount of time,
I know that you are a planner
and that living within your means
is part of who you are.

AND . . .

that financial planning
(from an apt yields standpoint)
is an integral part of your everyday life.

I just wonder how many others on these forums
especially those with big dreams
of fast cars and a jet-set lifestyle
have actually done the math?

-Russ H.

 

[Russ H]

I will only increase my expenses (i.e., buy those flashy toys) as my passive income increases to pay for it.

I first read this approach in a Rich Dad book, where RK talked about his wife Kim wanting a mercedes, and how she worked at getting enough investments over and above her day to day expenses so that the surplus would cover the payments for her dream Benz.

Makes a lot of sense, and it's the same approach we're using.

-Russ H.

 

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[Russ H]

bump.

 

[AroundTheWorld]

I first read this approach in a Rich Dad book, where RK talked about his wife Kim wanting a mercedes, and how she worked at getting enough investments over and above her day to day expenses so that the surplus would cover the payments for her dream Benz.

Makes a lot of sense, and it's the same approach we're using.

-Russ H.

I read a similar strategy - I'm pretty sure it was one of Diane's books ...

Only she even went beyond that... (passive) income would have to be 1.3 or 1.4 of the new expense (don't remember exactly where I read this or the exact "forumula".... just the general concept... sorry. Diane? Recognize this?)

Why? Incase something goes wrong...

Either the doodad costs more than expected
Or the income declines - unforseen circumstances.


Seems to me that the underlying strategy is making sure that your new "rich" lifestyle is supported by your passive income rather than your capital.

 

[AroundTheWorld]

I just wonder how many others on these forums
especially those with big dreams
of fast cars and a jet-set lifestyle
have actually done the math?

-Russ H.

Oh, and on doing the math...

That was actually the STARTING point for us...

1) This is the lifestyle we dream of
2) This is what that lifestyle will cost
3) Therefore, this is how much passive income we will need.
4) And finally - - - this is the target net worth we need to produce that income.

 

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[Russ H]

That was actually the STARTING point for us...

1) This is the lifestyle we dream of
2) This is what that lifestyle will cost
3) Therefore, this is how much passive income we will need.
4) And finally - - - this is the target net worth we need to produce that income.

:smx9: :smx9: :smx9: :smx9: :smx9:

 

[AroundTheWorld]

A more detailed post about this

6 Steps to Financial Freedom

 

[PurEnergy]

SteveO,

Non-recourse loans...SWEEEEEEEEEEEEEEEEEEET.

 

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[australianinvestor]

Easy:

Likely scenario: proper management of various cash flow streams

Worst-case scenario: reliance on income from government bonds (as close to risk-free as it gets, so unless the government collapses, I'm very likely to be OK).

 

[SteveO]

SteveO,

Non-recourse loans...SWEEEEEEEEEEEEEEEEEEET.

I just completed a transaction today that closed a $10.3M non-recourse loan. Turns out that a number of posters on this forum are investors in it.

 

[rxcknrxll]

Russ H...I'm humbled.

Must live below your means...this is key. This answers Around the World; you are right! So is Diane! 1.3-1.4; OK. Nothing is fool proof. You must competently INVEST the surplus, so there is a return.

RK has talked about not being afraid of living on nothing. I've taken this to heart. I've gone from making thousands a day to about 7k a year. I'll say this...it sucks to ride your bike to work. ha. I laugh as I write this now, but it's what actually happened. It sucks, but it makes you a grown up. And it makes you think ahead. I don't care who you are...Trump, Kiyosaki...all these guys have made millions and lost it all. It doesn't matter. Your education, your creativity, your network and your faith...that's all any of us has. If you have these things, you can make millions in short order. Money is a byproduct of a successful life, not the measure of it.

 

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[Bilgefisher]

Money is a byproduct of a successful life, not the measure of it.

That is a very powerful statement. Well said. I'd give ya rep if I could ++

 

[rxcknrxll]

That is a very powerful statement. Well said. I'd give ya rep if I could ++

Thanks man. you made my day I believe it, for what that's worth. I think most people feel this way, but it's difficult to internalize.

 

[australianinvestor]

Easy:

Likely scenario: proper management of various cash flow streams

Worst-case scenario: reliance on income from government bonds (as close to risk-free as it gets, so unless the government collapses, I'm very likely to be OK).

I'd like to clarify this further.

Invest $x in government bonds, where the risk-free rate of return paid by the government, multiplied by the $x I have invested exceeds my living costs ( + y% for safety), after inflation and after tax.

$x represents only a portion of my total investments. I call these government bonds my "security portfolio". It guarantees I will never need to work again.

Done. Never poor again, never work again.

Never, ever, ever.... And my (yet-to-exist) kids will receive that benefit too.

Daniel.

P.S.: I was thinking of writing a (real) book on this topic, as it is one of the topics I am most passionate about. I have developed a formula for all this stuff, including spreadsheets which tell you everything. Would you buy such a book if it existed?

 

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[Russ H]

Great comments/ideas!

Daniel, have you ever read "Your Money or Your Life"? (Dominguez/Robin).

It talks about the very things you mention, and is considered a "classic" by many followers of the Voluntary Simplicity movement in the 'states.

-Russ H.

 

[Russ H]

BTW, our plan is very similar.

We figured that we'd need about $100,000 a year to have fun as a family in Northern California (2 adults, 2 kids). Cost of housing would be limited to prop tax (prob about $5000 to $12,000 a year, depending how many homes we have).

We don't have extravagant tastes (simple pleasures, mostly), so $100K allows for a few nifty vacations each year as well.

So we worked backwards (as ATW did): If we want $100K/year, how much money will we need to put into 30-year Treasury Bills (paying ~5% annually)?

Answer: $2,000,000 nest egg x 5% = $100,000 per year.

*******

We got to that point in 2005, only TWO YEARS after we started our PLAN. It would have taken us another year to liquidate our assets and convert, but we were having so much fun that we wanted to keep going.

So: Next goal: $200,000-250,000 per year from 5% interest.

$4-5,000,000 x 5% = $200-250K per year

We're past 4 mil, on our way to 5.

Should get there within the next 12 months, and it would (again) take another 12-18 months to liquidate and convert.

Not sure if we'll do it, or keep going.

Or maybe we'll take a break for a few years. Travel the world, live in Paris for a year (or Oz-- love the Barossa Valley). Who knows?

(dollar keeps sinking, and we'll HAVE to keep the money machine going if we want to do any world travel!!)

Great thing is: Keeping focused got us here MUCH MUCH faster.

****

But I don't want to give the wrong idea: Going broke is a very real fear for us. Seems silly, but what happens if we want something and decide to "raid the cookie jar" (our stash of millions) just a little bit?

Best analogy of this was given by a cardiologist I know.

We were talking about poor habits (eating bad foods, not exercising, etc.).

He didn't really know about us and our PLAN, so his example really had unknown impact.

"Let's pretend you have a million dollars" he said. I nodded.

"And you take out $100. Are you going to miss it?" I thought about it a bit.

He said, "No, $100 is such a small amount compared to a million dollars, it won't be missed."

Hmm . . .

"Each time you choose something unhealthy-- that pizza, the dessert, driving when you should have walked-- each one of those occurances is like taking a hundred bucks from your bank account. It really doesn't have that big an effect."

He continued: "Do this for enough days, enough times and guess what happens? One day you look at your balance, and it's ZERO! Heart attack! Each of those stupid things you did wasn't much, but over time, they all added up. You're dead."

It was a great example, healthwise.

And it had extra relevance for us.

So, to keep our financial health, we won't be "borrowing" 100 bucks from our millions.

We're just going to live off the interest.

It will be interesting to see if we can actually do this.

-Russ H.

 

[AroundTheWorld]

Hey Russ,

Why T-Bills?

 

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[australianinvestor]

Great comments/ideas!

Daniel, have you ever read "Your Money or Your Life"? (Dominguez/Robin).

It talks about the very things you mention, and is considered a "classic" by many followers of the Voluntary Simplicity movement in the 'states.

-Russ H.

Thanks, Russ!

Never heard of the book you mentioned. In fact, I've never heard of the movement, either, so I'll have to check into it.

 

[australianinvestor]

Russ,

You say once you are up to several million, more will go into the T-Bills.

I am hoping you can explain the reason you are foregoing the vastly better return from other investments to put more than a minimum in the T-Bills. Is it because you want your minimum guaranteed lifestyle to improve, or is it more as a hedge against the desires of "borrowing $100"?

Daniel.

 

[HumBull1]

No way

 

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[Russ H]

Daniel, Sonya-

The reason we chose 30 year T-bills is b/c they're very "hands off".

Once we put the money in, the only thing we have to worry about is the US Govt going under (hmm . . . perhaps we should look at Chinese T bills for the long term? )

If, when we cash out, we wind up with less of a nest egg than we planned on, we either have to:

1. Stay in the game/fastlane longer (make more $$), or
2. Use a passive vehicle that generates more (higher interest)
3. Since we've been making our money in RE, do a 1031 into something like a NNN commercial prop that nets 5-8% per year, since we wouldn't lose anything to taxes that way.

I've started talking about this here.

-Russ H.

 

[WheelsRCool]

Remaining wealthy after you get wealthy is definitely a thing to pay attention to. Me, I will probably remain very active in watching my fortune once I build it, I view that as just one of the things from being wealthy. Also though I find the topic fascinating, so I don't think I will mind it.

I have a few plans for maintaining my wealth, though:

1) Buy stock in very solid companies, or possibly build a company that can hopefully get acquired by a very solid company.

2) Build a solid business. For example, technology fortunes can be the quickest to make one wealthy, but those fortunes can also be very fickle. IMO, I would want to build a few blue-collar businesses, which take longer to build up, but I think are pretty solid as long as you make the business solid.

For example, the Dollar General chain or 99 Cents store chain (founder worth about $700 million, but he and his family live a strict blue-collar lifestyle!). The thing with these types of businesses is that they are more recession-proof and solid I think, if a recession happens, it might even increase the business done by such businesses.

Overall, try to own some businesses that service needed sectors; for example, Waste Management, a HUGE company, I'd think is pretty recession-proof, as no matter what, people and businesses will always need their trash hauled away.

3) Be diversified to some extent (i.e. not have all my wealth tied up in one company that I founded).

4) Own some gold

5) Buy a lot of precious jewelry. I was reading jewelry is one of the main things that retains value and can be traded as a currency, even in times of severe economic collapse. For example, when the Japanese invaded China during WWII, many wealthy, or formerly wealthy, Chinese families were able to not go totally poverty-stricken because they used jewelry to trade for services and help.

Also many formerly wealthy Jewish families who had their lands/properties and businesses confiscated from them by the Nazis, but who managed to escape to the United States, were able to not be penniless upon arrival here because of jewelry.

So I would keep a good chunk of jewelry so that even if I lost my entire fortune somehow, I might lose all the trappings of luxury, but wouldn't starve.

6) Invest in hedge funds, and keep an eye on them.

7) Keep a cash reserve.

8) Do some of my own investing along with having other professionals handle certain investments as well.

9) Watch everything very closely, do value and growth investing.

10) Keep building businesses

Of course all this is when I am worth like $100 million or more

With a smaller fortune, it would be certain of the above, and in smaller degrees. A fortune though can be very fickle though, as companies can go under (like Bear Sterns!), markets/industries can have crashes, etc...Ted Turner, after the Dot Com bust, went from net worth $7 billion to $2 billion, still very rich, but $5 billion is a large loss. Then there's that guy who went from $10 billion to $100 million, talk about a loss!

 

[Yankees338]

Most people who get into the Fastlane are financially literate. I would like to assume that they have a good eye for investments and could manage their money well, but, of course, there are those that give in to the temptations a few too many times (as in Russ' illustrative example).

I plan on ultimately ending up in real estate, so for the majority of my later years, I plan to live off of the cashflow. If I decide to liquidate, I'll likely stick most of my money in T-Bills. Otherwise, I might as well stick to the real estate investing, no?

 

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[PEERless]

It seems that if you can make a comfortable living without touching principal, you will be OK. I'd create a daily budget, and stick to it just like the rest of us. It's fun to imagine having so much automatic income that you can buy whatever you want with your walking-around money. I work at a jewelry store in Jackson, Wyoming, and I see it happen every day.

 

[MsMoney]

Russ H...I'm humbled.

Must live below your means...this is key. This answers Around the World; you are right! So is Diane! 1.3-1.4; OK. Nothing is fool proof. You must competently INVEST the surplus, so there is a return.

RK has talked about not being afraid of living on nothing. I've taken this to heart. I've gone from making thousands a day to about 7k a year. I'll say this...it sucks to ride your bike to work. ha. I laugh as I write this now, but it's what actually happened. It sucks, but it makes you a grown up. And it makes you think ahead. I don't care who you are...Trump, Kiyosaki...all these guys have made millions and lost it all. It doesn't matter. Your education, your creativity, your network and your faith...that's all any of us has. If you have these things, you can make millions in short order. Money is a byproduct of a successful life, not the measure of it.

I'm in the same boat as you rxcknrxll! I was making more money in a month than most people were making in a year! I was having my money make more money for me...but I had made some very poor personal choices and have basically started over. That's the best thing that could ever happen to me. The money that I am about to make far exceeds what I used to do (and it doesn't even seem like work to me!), yet I feel I had to go through this entire experience in order to truly respect money (and myself)!

I love your final thought...."Your education, your creativity, your network and your faith...that's all any of us has. If you have these things, you can make millions in short order. Money is a byproduct of a successful life, not the measure of it."

++ to you! :smx9: