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

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.

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.

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?

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.

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.

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.

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.

bump.

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.

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.

A more detailed post about this

6 Steps to Financial Freedom

SteveO,

Non-recourse loans...SWEEEEEEEEEEEEEEEEEEET.

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 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.

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.

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.

I agree...and I can...

Rep++

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?