Advice for a new multimillionaire …

shoppingI realized that I’ve been talking a lot on this post how to become a multimillionaire, but I haven’t talked a lot about what to do when you get there!

Let me rectify that right now: for my first example, take this young (and, new) multimillionaire:

What advice can you give me, as a new 32-year-old multimillionaire, that you wish you had known at that age?

Firstly, I told her, 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.

Not many people can make the mental switch from high-flying entrepreneur/investor/big-wig to conservative investor … in order to survive post ‘Your Big Windfall Event’ you’re going to have to make the switch.