I guess I am one of the few personal finance writers qualified to answer this interesting question that came to me the other day:
What advice would you give a new 32 year-old multimillionaire that you wish you had known at that age?
Firstly, don’t overestimate your wealth.
Spectrum (a Chicago-based consultancy that specializes in understanding the High Net Worth individual and family) surveyed a number of people whose net worth was in the $1m, $5mill, and $25m+ ranges about how much money that they would need in order to feel wealthy.
Almost invariably, the answer was: “about double”.
Having lived through the ups and downs of wealth, I think I understand the reason:
Wealthy people spend capital. What they should be spending is income.
That’s another way of saying that it’s very easy to live beyond your means no matter how much money you have.
Here’s how to control your wealth:
1. Take your capital and divide it by 20. That’s roughly how much you have a year to live off (if you’re going to live on bonds and savings, well, divide by 40 instead).
2. Invest 95% of the capital as though it’s the last money that you will ever see (because, it most likely is).
3. Be Rent Wealthy, not Buy Wealthy. Rent Wealthy means that you rent what you need: want to holiday in Aspen? Rent a villa … but do not, under any circumstances, buy one. Want to travel? Go First Class but do no buy the plane!
[Note my rule on personal ‘capital purchases’ (eg houses, cars, boats, etc.): only buy something when it makes absolutely no sense not to]
4. How you invest your money during Life After Work (a.k.a. early retirement) is VERY different to how you might invest your money while you’re still trying to build your fortune:
– Pre-retirement investments include: businesses, francises, property development, share trading, and so on.
– Post-retirement investments include: TIPS (inflation-protected bonds); dividend stocks; 100% owned commercial real-estate, and so on.
The sad reality is that most people who make multimillions that young do it by chance: inheritance, lottery, corporate payout.
Even when they do manage to earn it (as I did), not many people can make the mental switch from high-flying entrepreneur/investor/big
Absolutely – getting it and keeping it are two very different games
That said, if I had to advise anyon who received a windfall and wants to stay wealthy it would be along the lines of:
1. don’t tell anyone
2. keep doing what your’re doing for 6-12 months (i.e. until the adrenaline wears off)
3 don’t go on a shopping binge (bad habits are hard to break)
4. do a realistic budget
5. invest as per your post after you have educated your self on investing (and until then nice boring CDs etc only)
PS – wellcome back, your fans missed you
I love the comment of high flyer to conservative investor, it makes good sense. Sadly in the coperate world once you get a promoted, upgrade car or more holidays or bigger house. This is the sad reality. However for me i am eyeing my next 20 property investment…:)
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