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

[kimberland]

We figured that we'd need about $100,000 a year to have fun as a family in Northern California (2 adults, 2 kids).

That is SO funny.
$100k is the 'magic' number for the hubby and I too.

When we first got married,
I told the hubby "no one needs more than that."
It was an unimaginable income to me.

A decade later
and much has changed
but that is still the 'magic' number.

 

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[venom]

Fastlane people following Suze O . Ugh (;

100k wont buy what it used to.
I am still shooting for less than that anyway.
I have seen many $$$$$$$$ disappear. Ah for the good times when I invested with Steve. Sorry I missed the 10 million dollar deal. Might of searched the couch for a few pennies if I knew ...

 

[Russ H]

I have seen many $$$$$$$$ disappear . . .

I've seen a pretty special spidey friend disappear.

Were ya exterminated?

Or did Doc Oc finally get to you?

Good to see you on the boards, Spidey.

We've missed you. :seeya:

-Russ H.

 

[Double D]

I got careless early on and watched a bunch of money go bye bye. After being poor most of my life I became the "big spender" when I first got my hands on some cash. This post hits home for me. I think most people have to be taught how to keep money. I am still "in training" but I must say it is beginning to pay off. Thanks for some more insight. I am addicted to R/E and will always be. Will probably follow something similar to Steve O. Wish I could say I had a rock solid plan..........

 

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[MooreMillions]

NO!

 

[hatterasguy]

The trick to keeping your wealth is not going out and blowing it on stupid toys. Thats the difference between old and new money. New money feels the need to impress, or has a chip on their sholder. Old money doesn't give a damn and is just as happy driving a 10 year old Suburban as a new Escalade. Or a VW cab to a new SL or Ferrari, convertable is a convertable.

The problem is the kids, they usualy spend it all. I have seen the next generation squander wonderfull business and fortunes built by the parents.

Nothing wrong with buying a toy or two, but balance is key. Don't act like a lotto winner...

My motto is only buy toys with cash, and take on debt for investments.

 

[australianinvestor]

The trick to keeping your wealth is not going out and blowing it on stupid toys. Thats the difference between old and new money.

I don't agree, my friend

I think the key to keeping it is to have a proven investment strategy in place, which ensures that:

• assets provide substantial income,
• personal expenses are totally covered by this income,
• the budget for personal expenses increases above inflation annually,
• income from assets is always far above all expenses,
• that toys are budgeted for (regardless of how stupid they may be - I might want a Lambo covered in pink fur one day ;-),
• investment income is always reinvested (minus personal, investment and toy expenses) so that its returns are always significantly above inflation.
• assets are invested in such a way that risk-carrying events will not reduce your investment income by any amount sufficient to cause your income to be lower than your expenses.

If these are followed, your life is paid for, you get the toys you want, your assets provide a stream of cash which just keeps growing (above inflation), market crashes won't cause you to have to work again, and your lifestyle can improve every year. Oh, and you'll never be poor again!

 

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[dnuge3]

After I have my celebration of making my first million, which will basically be me down by the beach by myself, before I have a big party, I intend to keep them through investing in real estate and long term stocks, as well as dividing it up into a few banks and accrue interest that way. I intend to be able to live off that and limit the risk as much as possible. Risk is for the young, like myself, I won't be able to afford it later.

 

[hatterasguy]

I don't agree, my friend

I think the key to keeping it is to have a proven investment strategy in place, which ensures that:

• assets provide substantial income,
• personal expenses are totally covered by this income,
• the budget for personal expenses increases above inflation annually,
• income from assets is always far above all expenses,
• that toys are budgeted for (regardless of how stupid they may be - I might want a Lambo covered in pink fur one day ;-),
• investment income is always reinvested (minus personal, investment and toy expenses) so that its returns are always significantly above inflation.
• assets are invested in such a way that risk-carrying events will not reduce your investment income by any amount sufficient to cause your income to be lower than your expenses.

If these are followed, your life is paid for, you get the toys you want, your assets provide a stream of cash which just keeps growing (above inflation), market crashes won't cause you to have to work again, and your lifestyle can improve every year. Oh, and you'll never be poor again!

All that was implied in my post. Old money knows how to live within there means, something new money doesn't always figure out. Thats why some families have money for hundreds of years, and others are always broke.

Also lots of loud toys are considered vulger in some social circles. Just because you can afford 6 pink Lambo's doesn't mean you should buy them.

 

[CMCarlin]

Great thread, so I'm tagging this for later.

 

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[365]

I was raised in a very moneysaving environment. I feel "guilty" when I buy luxurious items or services that I actually cant really afford. I worked a little on this attitude in the last couple of years to become more "balanced". It is important not to save on the wrong ends.
On the other hand I think it is extremely important to save money in the first place. Did that all my life.

If you dont habitually save money, becoming rich on the fast lane might get you on a serious spending spree. I just assume that - havent been richt so far:smxB:

In my opinion you need clear systems that help you deal with your own money.
Divide up your bank accounts in as many as you need.
I.e: your monthly cheque arrives at your bank account. One day later you have 10% transferred to your personal retirement account (from where you can redistribute it to different long term investments). You dont touch this money. Ever. Just leave it there. You might live off the passive income created by these investments one day. You can also split this into kids's college funds, parents' retirement support,... This is your last resort if all hell breaks loose. Whatever cool stuff the world offers: not with this/these account.
Another 20% is redirected to your "bigger things & emergencies" account. Need a new kitchen? Car breaks down? Medical bill pops up in your life? This is where you get the money.
Another 10% might be given to your favorite charities.
And last but not least I would recommend to have another savings account for your/your family's next big cool thing. New car, next vacation, dinner at your favorite place,...

The numbers depend pretty much on your income and your personal preferences. The point is: put up a system on how much of your money will be saved and for what purposes. Then split the accounts and establish some simple but clear rules.
It seems important to me that you develop these rules together with your partner (if you are married or share money in your relationship). I mean, it doesnt have to be you who goes on the spending spree once the money is there.

Long story short: develop system, put rules and principles down on paper, split accounts and automate transactions.

 

[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

 

[hatterasguy]

Your story reminds me of some brothers I know who are multi millionaires, well one still is.

Brother A made $1m and spent $1
Brother B made $1m and spent $2m.

Brother B had a kick a$$ house, choper and some nice toys.
Brother A worked, had some nice stuff, but nothing crazy.

Today brother B is broke, and starting over.
Brother A took over his projects he lost and is increasing his net worth.

 

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[msa1]

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?

Not there yet, but even with some smaller purchases, simple good sence kicks in. If you have really strived to get to your station in life you will go to great lengths to protect it, and maybe owning three personal residences will look different to you when its within your grasp.

Priorities change the more we learn.

8 years ago I bought three Camaros within a 2 year stretch, now I have no interest in buying anything that doesnt create an income for me.

 

[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.

 

[WildFlower]

I think one thing that most self-made millionaires feel is that if they lose it they can make it again. I’m not talking about the cocky spending of money frivolously… most people that earn the money themselves over time don’t go blow it with big parties. But, even so… they are confident they can make it again.

One thing I said over and over to new Real Estate Investors is to take the $ off! Once you put the $ on.. it makes it personal. I’ve heard many people say to me.. “If this deal closes, I can pay my car off, my credit cards…†etc. Once they say that I know they will more than likely lose the deal… because they made it personal. Once you detach yourself from the $ part.. it’s just a numbers game. Sometimes you win.. sometimes you lose. It’s difficult to do.. but, worth it. It’s like Fame.. they let it get to their heads.

 

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[MJ DeMarco]

In the other "The Rich Are Getting Poorer" thread an article stated that John McAfee, the founder of McAfee software allegedly went from $100 million net worth to $4 million. OMG! Exposure to risky assets? Living beyond your means? I'd bet that both played the A and B to equal C.

I'd really like to see what "living beyond your means" looks like with $100M -- I imagine it involves private islands, yachts, jets, and maybe an Argentinian mistress to boot.:smxB:

 

[hatterasguy]

Sounds like all his money was tied up in a risky company that went belly up.

Lots of paper fortunes evaporate in times like these.

 

[WildFlower]

Yeah... that's the cocky spending I'm talking about.

Uhhhh... they have way more than just an Argentinian mistress... that's another whole world of.. well.. satisfaction... I guess... let's just say Wow....

 

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[WildFlower]

Thanks BeingChewsy... one thing I always tell my kids is if you can listen to other's mistakes you will be that much further ahead. Why repeat it if you can learn from others. And most people are willing to share their story.

That and I also always say: Desperate people do desperate things!

 

[Caesarion]

Learned the hard way about "Cocky Spending" (I love that term). lol After that I took my Cocky Spending habit to the desert and beat it to death.

 

[lightweight99]

No, I will not go broke. I grew up with money and without money. My father likes to please others and in so doing spent way more then he was taking in. I have been there and seen what it is like when money is of no object.

I have also been fortunate enough to recieve some capital from a lawsuit in which I purchased the car you see in my avatar. The car cost me 22,000 and I outright own it with still plenty of money in the bank. I have learned through my Sti that performanced based cars, or cars that are not often seen on the road, are expensive in avery espect and require the proper income to enjoy such a toy. I am now looking at selling it for the same price and downgrading to possibly an acura integra type r. While owning toys is fun, I would rather have the lifestyle and money in the bank providing what feels like a saftey net. The feeling of knowing that you have some substantial money in the bank is a feeling you will never forget.

I also believe that self discipline/control plays a huge part in determining whether or not one will go broke or not once they have the millionaire status. As already stated, a prime example is lotto winners.

 

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[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.

 

[sharper]

a quote from McAfee

I fully agree that I had little need for most of my toys. I spent money on houses that I seldom visited. I conspicuously consumed. A majority of America’s wealthy live and act the same, not that that excuses any of my excess. But I achieved a degree of economic success within a culture that was created by the world’s most excessive consumer society. I blindly accepted this culture.

wow

i wonder what make people feel the need to buy houses they dont live in... just because you can?

 

[KyJoe]

Some go broke. Some don't. Chances that you take when you have zero are sometimes not smart ones once you accumulate a sizable amount. Double or nothing works on tv, but rarely in real life. If your money came pretty fast, you could be at risk. A good example is many lottery winners. If it was slower, you might be more cautious. The examples I know personally, alcohol has been a big factor, combined with over spending, and leverage. Always know your exit points.

 

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[Russ H]

a quote from McAfee

wow

i wonder what make people feel the need to buy houses they dont live in... just because you can?

Nope. It's all about freedom. If you have crazy amounts of money, why not own homes in your favorite vacation spots, instead of staying at hotels? (or B&Bs? ).

The reason most of their homes are vacant most of the time is they can only stay in one house at a time. So the rest go empty (or have caretakers, living in a small cottage onsite).

At least that's how it was for my clients, when I did the home theater thang.

-Russ H.

 

[eloise]

Great advice..And another thought to add. Never become greedy and selfish because it will only backfire. I have never been one to have to have alot of "stuff". I like to have my basic essentials to get by in life. Like a house, car, food, etc. the rest is just "stuff". Now my husband on the other hand, he likes the big boy toys. Though, I have often thought that I would like to have one of those huge motor homes with everything in it and travel the USA from coast to coast!!

 

[Russ H]

bump up-- relevant to other discussions.

-Russ H.

 

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[Gaulkin]

House paid cash.
Taxes paid on house through annuity.
Cars, boats and planes rented as needed or on yearly prepaid plans.
Best case situation, buy everything else on interest.
Worst case situation, live on your cashflow and hope things stay stable.

 

[FDJustin]

If I go broke after I get rich, it'll most likely be from starting new projects that just suck my resources to nothing.

I do understand for my toys, I'll either need to get them with the money I'm (reasonably) guarunteed to get, or when I have enough over their cost that it's not a bad choice. For example, the jetpack I want is 100,000. If I had 1 million, I'd think long and hard on it. It's 10% of what I have. Once I had closer to 2, I wouldn't think much of it. 5% is something I should reasonably be able to spend if I'm not doing it constantly.

I haven't made a real plan before, and I currently don't have one. So let's go with a "There's a good chance that yes, I will go broke."