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

[Vigilante]

It would be fascinating to follow the stories of the RIP posters from this thread, including the OP. Some undoubtedly went broke. Some probably made it. Some probably left with their tails between their legs. Some are probably back working for the man.

I'm not going to make this thread gold, but there is certainly some gold worth reading within a few of the posts.

My backstory is a lot like Sue's from this thread. I was a paper multi-millionaire and living like a rockstar before I crashed and burned. The main difference between the first time and the second time... is debt. The first time, thinking the money train would never end, debt never concerned me. The second time, now I realize that debt was the noose around my neck. The executioner may have cut the cord, but the debt was the rope.

 

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[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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[MTF]

@Vigilante, @AllenCrawley, @Andy Black, @MJ DeMarco, this thread is super old, but I believe it deserves a GOLD tag and should be required reading for everyone here. Sooooo many great posts in this one.

 

[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.

 

[SteveO]

Wow... I remembered making some of these posts as my empire crumbled. I also remembered them as things were building back up.

Blast from the past....

 

[AllenCrawley]

It would be fascinating to follow the stories of the RIP posters from this thread, including the OP. Some undoubtedly went broke. Some probably made it. Some probably left with their tails between their legs. Some are probably back working for the man.

I'm not going to make this thread gold, but there is certainly some gold worth reading within a few of the posts.

My backstory is a lot like Sue's from this thread. I was a paper multi-millionaire and living like a rockstar before I crashed and burned. The main difference between the first time and the second time... is debt. The first time, thinking the money train would never end, debt never concerned me. The second time, now I realize that debt was the noose around my neck. The executioner may have cut the cord, but the debt was the rope.

Good lesson. Some peoples wealth are tied to debt so much it's scary.

Thread tagged "Notable".

 

[SteveO]

Good lesson. Some peoples wealth are tied to debt so much it's scary.

You miss out on a lot of acceleration in certain businesses if you don't leverage. There is nothing wrong with managing certain amounts of growth with debt. It can bite but it can also jump you levels ahead!

It is only scary if you are scared.

 

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[MJ DeMarco]

You miss out on a lot of acceleration in certain businesses if you don't leverage. There is nothing wrong with managing certain amounts of growth with debt. It can bite but it can also jump you levels ahead!

It is only scary if you are scared.

I think RE is somewhat of an exception because it has tangible value. An apartment building (and its land) will never be worth $0. As long as LTV's are reasonable and not RE bust type levels (1 to 1) people can survive downturns.

Some probably left with their tails between their legs.

But only surely after donating to the child with cancer.

Some are probably back working for the man.

My guess is half, so not too bad a ratio. Patrick P has done real well from what I hear. He had some really great posts around here -- truly miss him.

 

[SteveO]

It would be fascinating to follow the stories of the RIP posters from this thread, including the OP.

Have you been in contact with Russ at all? I just talked to him the other day. He almost went bust during the downturn and needed to restructure his loans to avoid doing so. But he is now killing it!!!

 

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[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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[socaldude]

I suppose if I was concerned about image or lacked self-worth I would go out and buy a Mercedes or something "millionairesque" but I don't even want that.

I went through a similar "identity shift" or "shift in focus" about 2 years ago.

I used to spend all my money on designer clothes; dress shirts, seven jeans, hugo boss dress shoes and dress shirts etc. I mean I was a walking advertisement for Nordstrom and Bloomingdales.

Until one day it just hit me: I buy this garbage to fill a void, to mask an insecurity. I was basicly a tool adopting the mainstream path of over consumption, attention seeking, and impressing.

Now fast forward I just wear $20 Levi's some Nike walking shoes and a blank sweatshirt bought on Amazon for $12.

And you know what, I'm happier than ever. Almost proud of my simplicity and self choice of style. I say to myself "this is me, this is what i want" not what society wants.

I mean look at Steve Jobs, he didn't wear designer clothes despite being a Billionaire, he wore Levis and some old a$$ New Balance walking shoes. (Funny he preached "think differently")

Now I just spend my money on books from Amazon. Reading a good novel with my girlfriend on a comfortable sofa is all I need to be happy.

Today all I want is Time and Freedom to do what I want with family and girlfriend. Just to be left the hell alone.


I look around and all I see is people wasting 12 hours at shit jobs instead of wanting to use that time spending it with loved ones. They spend all that time working so they can afford the BMW, the big 4,000 square foot house they can't afford, the designer clothes, the fancy gadgets.

Seriously how about you pursue the Fastlane so you can have FREEDOM with your loved ones? And stop chasing this stuff that is not gonna make you happy and frankly not gonna help you.

Nothing wrong with that stuff but that should be the icing on the cake. All that stuff should be something YOU want not something society says you should have.

Seriously your time is limited, you are not gonna be on your death bed wishing you worked more hours at the office or bought more stuff.

Seriously once you release yourself from society's over consumption culture of "let's see who has the coolest stuff". You find peace in yourself and you begin to see whats really important to you. And frankly you become WAY happier.

All you need is your Freedom and your loved ones IMO.

 

[CJ Turner]

How to keep your millions:

• Never personally guarantee anything.
• Keep making more money.
• Get a prenup.

 

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[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.

 

[BeingChewsie]

I somehow overlooked this thread!

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

We are a huge lesson that this is 100% true. From the mid 1990's to 2004 Robert had a multi-million dollar company and an exponentially growing net worth. By the time I met him things were starting to decline but the spending and lavish lifestyle had not yet stopped. Fast forward to 2009, we are now negative almost $200,000, the business is long gone and he is trying hard to reconcile himself to his new downgraded lifestyle, and having a job working for someone else. We will this year get out of the negative and be debt free when we finally sell the house in Chicago. We are slowly starting to climb out from the rubble. Luckily we had some savings, mostly from me because I'm cheap and didn't live his lifestyle until the very end and then only on his dime.

The lesson he learned was to get out sooner when the ship starts sinking, the $100k he put in trying to save the company was money he could have used to start something else. He also learned the importance of living below your means and saving vs consuming.

We didn't end up homeless but we came far closer to it than I ever intend to get again. From now on we live way below our means, even though he doesn't like it one bit. He misses his former lifestyle and adapting to the new one is a hard, hard thing. I'd hope that someone would learn something from our experience and not have to go through it.

Our target net worth was 9.6 million. If this had not happened I can only imagine how far our fall would of been had we actually been successful at reaching that number considering the consumer gluttony we engaged in along the way. It was a hard lesson to learn but one that can be avoided.

Sue

 

[MJ DeMarco]

They say "If you think you can afford it, you can't."

In other words, if you go buy a box of cereal, affordability doesn't come to mind because you can afford it. If you go to Best Buy and buy a HDTV and reason to yourself "Hmmm ... I can afford this because ..." ... you really can't.

 

[Rickson9]

I'm not doing anything different now than when I had no money.

For better or worse, investing hasn't been difficult for me. If I went broke, I would know how to make it all back.

I recognized that I was a bad entrepreneur when I was young so I stayed away from that. It was a lot of work. Instead, I was better at identifying good businesses so I just focused on that - and road the coattails of others. I didn't make as much money as the entrepreneur, but the benefit was that I didn't have to work hard.

I don't have any emotion tied to money. Money just "is". If I do certain things, money comes in. If I do other things, money goes out.

Speaking for myself, deals don't "get bigger" just because I want them to. Deals get bigger because I just have more money coming in. When I started in the mid 90s $1000 was a big deal for me.

I "made it" in my early 30s (I'm still in my 30s), but I don't work hard at all. Most of the work is done by the assets I own. I do relatively little.

I had more "toys" when I was younger, but I don't have many now because I don't find them as fulfilling as I used to I suppose...

 

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[MJ DeMarco]

I posted this over at my FB page...

It was a beautiful 80-degree day of sunshine. I walked into the garage and once again, opted to drive my "no drama" Toyota over my Lambo. This was when it hit me: It was time to let it go... I've been officially "Lamboless" for 2 weeks and surprisingly, I don't miss it. I wonder if this is my mental age finally catching up to my physical age.

In the comments section, people asked "what was next?" and I replied that for the first time in my life I had NOTHING on the radar that I wanted. I suppose if I was concerned about image or lacked self-worth I would go out and buy a Mercedes or something "millionairesque" but I don't even want that. It's strangely liberating although I'm sure the feeling is made in part due to simply being able to say "been there, done that".

My current car, a Toyota, is over 6 years old and asks for nothing; No drama and very little maintenance cost in terms of time and money. The car "says" absolutely nothing. (It doesn't say "Im rich!" or "I'm poor" -- it says NOTHING!)

Now, I'm sure this could all change when I see something that "I gotta have!" but its been years since that happened.

 

[SteveO]

I think RE is somewhat of an exception because it has tangible value. An apartment building (and its land) will never be worth $0. As long as LTV's are reasonable and not RE bust type levels (1 to 1) people can survive downturns.

Yep. I went bust though and still survived. Reading back through this thread brought back some thoughts and actions that were taken that seemed perfectly logical at the time. It is all a learning process.

There are many capital intensive businesses though. How about a trucking or road construction company, machine shop, auto repair, or airline? Most people or businesses of these types of companies must find capital somewhere. Leverage is one of the options.

 

[Ecom man]

Lotery winners almost always end up broke. So sad.

Horror stories

Someone who wins the lottery and someone who starts/runs a business to the million dollar mark should be quite different. Many lottery winners are people who aren't so good at math (have you seen those odds). Not being good at math is a good way to go broke quickly.

 

[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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[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.

 

[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]

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.

 

[CommonCents]

Having been on both sides, wealth generation is much much different than wealth preservation. Entrepreneurs should remember that and get some help where you need it!

Kinda like a football team. Some specialists are on offense and can generate points, others specialize on defense on preserving leads. What baller plays both ways on the field these days? Nobody.

Different skills, knowledge and mindset to be successful. Get your panel of wealth preservation experts lined up ahead of time. Good tax/liability attorney and CPA's are a must.

 

[GlobalWealth]

I had more "toys" when I was younger, but I don't have many now because I don't find them as fulfilling as I used to I suppose...

I find this also to be true. At one point I owned 27 motorcycles at once. Yikes.

I also had a nice motorhome and a few cars.

Then I was asset rich and cash poor. I think it was a way to show people how successful I was.

Now I have eliminated all of the toys and focus on 'experiences'. I have a couple of businesses and and much more cash rich, but from outward appearances seem poor.

Its a bit ironic actually, but I think it is common that when you are cash poor you want to flaunt success but when you have 'made it' as rickson9 stated, the flash looses a bit of its appeal. At least for me anyway.

 

[458]

50/50 chance, with 1-2 million with the opportunity to turn it into 50-100 million I'll roll the dice every time

 

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[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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[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.