I 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
I really like #3: be rent wealthly.
When it comes to planes, boats and even SUVs it’s just better to rent if you need one. Those depreciating assets will reduce your bank account faster than raking your money into a big pile and burning it. That doesn’t keep me from WANTING them just from BUYING them. I want…. I want…
I’m 40 and thinking about retiring… very difficult decision networth in the 5 million USD range, the transition from earner to retirement is a concern, and im working the transition in my portfolio of holdings. Love to hear from those who have done it. I have been with the same F500 company for 20 years and I also own my own real estate just really concerned about losing the safety net of the big company and they give me a NICE paycheck and benifits but im ready to be out of THEIR rat race… advice and those who have done it love to hear from you.
My advice is that when you have an income, you dream about the day when you will have enough capital to retire with.
But, when you have that capital all you will dream about are the ‘good old days’ when you had an income.
Hi Millions & Millions…
I am also 40 and am slightly below your level of net worth… we just had our first baby who is nearly 1 now so that has changed our life.
I’ve been fortunate to go from running a business unit (long hours, have to be there all the time) to becoming the Head of Sales for our company… I still work hard but have more flexibility to work from home and am able to spend time with the baby. Under these circumstances I’m happy to continue working while building up an investment portfolio (investment in early stage companies, established dividend stocks and fully owned real estate).
See what you can do to find a role that is easier to take while cashing in on your 20 year tenure with the company.