But, I’m not smart enough to be rich!

Firstly, let me warn you: this post will have absolutely no bearing on how wealthy you will become!

Now, do you need to be smart to become wealthy? Is “but, I’m not very smart” a valid excuse for not even trying?

It turns out that the answer to both questions is NO.

You see, your IQ (more correct: your cognitive ability – i.e. your ‘smarts’) has very little to do with how wealthy you will become …

… studies have shown that 97.5% of the factors that can explain wealth have nothing to do with how smart you are:

Zagorsky found a correlation of 0.30 between IQ and (recent annual) income, which is relatively low — roughly 9% of the variance in income can be accounted for by IQ, and the other 91% is due to ‘other factors’. On average, he found that each IQ point added about $200 to $600 in annual income. As for net worth, the correlation with IQ was even lower, at 0.16, meaning an explanatory power of about 2.5% (leaving 97.5% of the variance to be explained by non-IQ factors). In his words, “Since the statistical results are not distinguishable from zero, this suggests IQ test scores and net worth are not connected.” You can view a scatter plot of net worth vs. IQ here: http://www.flickr.com/photos/pke…


the non-relationship between financial worth and iq

from the journal intelligence

He also dives into about 30 other variables with interesting outcomes. For example, your net worth at age 28 has only a slight correlation of 0.13 with your net worth at 33-41. Self esteem has a correlation of 0.11 with net worth. Being US-born (as opposed to being an immigrant) has a correlation of negative 0.01 with net worth, while having siblings has a net worth correlation of -0.06; but don’t worry, those aren’t significantly different from zero either.

Ironically, you will need a reasonably high IQ just to understand what this is all telling you, so let me simply remind you of a story that I shared some time back:

I bumped into a friend of mine, who was voted “least likely to succeed” at high school. I was surprised to see him stepping out of a shiny, new, red Ferrari.

After we exchanged pleasantries, I congratulated him on his success, told him that I wrote about personal finance, and asked him how he made his money.

He said that he simply bought and sold stuff on a 3% margin, and that’s been enough to fund an amazing lifestyle and a huge real-estate portfolio to underpin his retirement.

Well, I was incredulous … only a 3% margin?! And, I told him so.

But, no, he said: “I really do work on a 3% margin: I buy stuff for $1 and sell it for $3. That’s 3%!”

As I said, whether or not this post makes any sense to you whatsoever, it will have absolutely no bearing on how wealthy you will become … thank goodness 😉

Win my car!

writing competitionI have a confession …. and, an announcement!

First, the confession:

I am a little tired of blogging …

I’ve been doing it for 4 years now, but – so far – I have earned $0 from my investment in sweat, blood, and tears.

You may have noticed that I’ve cut back from daily posts, to 2 – 3 times a week … and, sometimes, not at all.


So, I have decided to cast out for somebody to continue writing my blog for me.

I get reasonable SEO rankings, so I want to maintain those and the right person will be able to monetize this blog even better than me …

… and, I’ll split the income 50/50 with the winner.

The winner?

Yes, because I’m also doing this as a competition!

The winner will be the person who sends me the best one page proposal (with a sample of your work and an outline of what you have already written). You can send it to me at: ajc@7million7years.com

But, that’s not all …

Since I am planning to upgrade my car [AJC: do the words: Italian, Red, and Ferrari mean anything to you?], I am prepared to let the winner drive my ‘old’ car for a year.

That’s not all …

… after the year, if you’re still writing my blog (which means that I – and my readers – are happy with you), I will simply hand over the keys to the car.

That’s right: if you’re the winner, you get to keep the car!


We will make so much money, together, monetizing this blog that in just one, short year, one little car will hardly matter …

Now, this ain’t no ordinary car; this a 2008 BMW M3 convertible (special edition) in excellent condition:

Screen Shot 2013-04-01 at 3.06.04 PM

So, are you up to the challenge????

Great! Get your proposals in!!!

The winner will be announced next week …

Good Luck 🙂

I’m going to make a fortune, effective immediately!

Screen Shot 2013-03-22 at 9.21.59 PMAs catchy as the title is of today’s post, it has very little (but not, nothing) to do with the image on the left …

… which image simply serves to illustrate my preferred – or, should I say ‘accepted’ – approach to investing.

But, wait, you say!

Surely, the quadrant to the bottom-right (where the combination of profit and risk is optimized) is the most efficient?


So, why would I want my arrow to hit the target in ‘no mans land’?!

Well, that’s the exact question that I threw to my readers in my last post

There were a lot of amazing comments (and, you should go back and read them all), but Dustin wins a signed copy of my book for his comment, which summarizes my views nicely:

there are significant gains to be made with a moderate increase to your risk … however the long term of the investment should moderate that for the endgame result. Technically it is a less “efficient” investment, but only statisticians care about that, not real world investors.

And, JD earns an ‘honorable mention’ (and, also wins a signed copy of my book) for his comment, which adds a crucial caveat to my views:

I worry less about potential losses for incremental investments. I may be biased since I am young enough to earn it back (I’m in my late 20s)

Whilst I would argue (as would Warren Graham who provided the source chart and much valuable commentary to my original post), that learning about the efficient frontier is valuable to investors, not just statisticians, Dustin has hit the nail on the head by focussing on the “endgame result” …

… for me, your overall investment objective drives everything.

The aim, in my opinion, isn’t to find the optimal investment where ‘optimal’ is defined as sitting on some curve, it’s to find the investment from the limited range typically available to you in the real world that delivers the result that you need.

If you’ve been following this blog for a while, you’ll realize that – in order to pin down that ‘result that you need’ – I advocate a Top Down Approach To Investing:

This means, knowing how much money you need; when you need it; and, using those answers to derive your required annual compound growth rate.

It’s this growth rate, as indicated by the horizontal line on the chart below (the positioning of this line will be different for everybody) that should dictate what investment choices you go after:

Screen Shot 2013-03-22 at 9.41.46 PM

Each of these investment choices (and, in my experience, there will be very few to choose from, since you need access, education, and aptitude in each type of investment in order to proceed) will bring with them their own risk profile …

… and, you will be amazingly lucky, if one of those choices (e.g. as represented by the black squares on the chart above) happen to fall on the intersection of the horizontal line and the ‘efficient frontier’ curve.

If not, and if you want to achieve your Number by your chosen Date [AJC: you do, don’t you?], you will go ahead and make that investment, anyway, even if it doesn’t fit neatly in the quadrant on the bottom-right of the image at the top of this post.

Because, as JD says, even if your investment fails, hopefully, you will still be “young enough to earn it back”.

We get one opportunity to live our Life’s Purpose; we get many opportunities to make investments to help us get there, but only if we have the mettle to choose the ones that have the potential to meet your minimum required annual compound growth rate.

To me, the investment choices that can help us reach our Number are the most effective of investments …

… they just may not be the most efficient 😉




The myth of the millionaire next door …

weep warning

This post will make you cry.

But, it is a post that I have to write.

It’s one that I have been putting off … and, off … and, off.


Because, I am going to tear apart one last (well, until the next) tenant of finance …

… one that even I have not dared touch until now.

But, I have finally decided to bite the bullet, because there has been a whole generation weaned on an aspiration that, in itself, is a lie.

Yes, I am talking about:


The Myth of The Millionaire Next Door.


In case you are too young to remember, The Millionaire Next Door is the title of a 1996 best seller by Thomas Stanley and William D. Danko that was touted at the time as revolutionary but, to me, produced a totally mundane and obvious conclusion:

Most of the millionaire households that they profiled did not have the extravagant lifestyles that most people would assume. This finding is backed up by surveys indicating how little these millionaire households have spent on such things as cars, watches, suits, and other luxury products/services. Most importantly, the book gives a list of reasons for why these people managed to accumulate so much wealth (the top one being that “They live below their means”).


The perception after this book was released, becoming an instant – and enduring – best-seller, is that the typical American millionaire is actually your neighbor, the small business owner who has been working for 20+ years on his business, investing (and, reinvesting) its profits rather than spending on lifestyle and luxuries.

In other words, somebody who slips under your radar; somebody you probably ignore; for good reason …

It’s all fine and dandy: like all “spend less than you earn and save, save, save”-driven strategies you, too, will no doubt become a millionaire by the time that you retire, but there are two problems:

1. What about inflation? Start now and, if you take 20 years to become a millionaire, you are really still only half of one in today’s dollars, and

2. Who says that you can wait 20 years?

I certainly couldn’t.

That’s why I call this type of ‘Millionaire Next Door’ business – an ATM business – little more than ‘a job with benefits’ …

… if you really do want to have one of these businesses, then here’s what you need to do:

Do NOT spend the spare business cashflow on personal lifestyle building (homes, cars, vacations, etc.); instead, use that cashflow to fund an aggressive investment portfolio, outside of your business: one that will one day grow to replace your personal income i.e. the amount of money that you DO take from the business to live off.

When the day comes that this passive income surpasses your personal business income, you become free.

However, this freedom does not come simply from saving and investing passively – otherwise, you are simply following the advice given in the Millionaire Next Door and you, too, will slave for the next 20+ years to get there.

Rather, this true financial freedom comes from investing your business profits aggressively and actively, with a mixture of your money and borrowed money, in things such as direct stocks (no funds for you!), and real-estate.

In this fashion, you may still need to work your business for 20 years before you shut it down, but at least you will retire a real millionaire (or better) in today’s dollars.

Far better, instead of starting a lifestyle business that relies on YOU being the front man (e.g. lawn-mowing round; accountancy practice; design studio; etc.), or a business that is tied to a single location (such as a car-wash; a restaurant; a corner shop) …

… start a business that can scale like McDonalds, invest aggressively, and you (too) may be able to do it in 7 😉

A personal finance hieroglyph …

Screen Shot 2012-12-10 at 7.05.04 PMIf you left a review on Amazon for my new book, then your personal, signed copy is on it’s way!

[There’s still time: if you downloaded the Kindle version, please leave an honest review at Amazon and I will send you a personally signed, printed version as my way of saying ‘thanks’]

Inside the front cover, along with my ‘AJC’ signature, you will find a scribbly hieroglyph much like the one above …

… hopefully, it’s not too difficult to translate; it simply means:

Your Money is not your Life!

Too many of us live our lives as though money was its sole purpose: we work more than 1/3 of our life away; we constantly argue with our spouses about it; and, we spend much of the remaining time simply worrying about it.

I haven’t been immune; this was me until a critical date in 1998, when I discovered my life’s true purpose. Without getting all New Age’y on you, I’ll give you a hint: it had nothing to do with money.

My Life’s Purpose was all about how I really wanted to live.

But, I quickly discovered that money does come into it …

… but, only as a means to an end.

My first book (co-written with Debbie Dragon) shows you how to separate your money from your life; but, it doesn’t shy away from the subject of money. Because, as I discovered, money is the key enabler of a fulfilling life for many of us – not all – but, certainly for me.

Probably, for you, too.

So, the real purpose of my book is to help you find out how much money you need in order to be happy. Simple!

If you want to understand a little more about my journey and how I think about money and its real (subordinate) place in life, check out my video interview; it’s with Jaime Tardy at Eventual Millionaire:

Screen Shot 2012-12-14 at 3.41.21 PM

And, if you can, leave a comment to share how you think about your Life … and, your Money!


What if money did not matter?

In my new video interview with Jaime Tardy (EventualMillionaire.com) I talk a lot about finding your Life’s Purpose. Now, here is an even stronger argument for finding your Life’s Purpose before working out your financial plan …

Note how the philosopher, Alan Watts, suggests that if you do what you love, the money will follow!

Failing that, do what you need to, but only for a short period of time, so that you can put aside the money that you need in order to do what you want. That’s why I came up with my original ‘$5 million in 5 year’ target (that eventually became $7 million in 7 years, achieved) …

What would you do if money was no object?



Personal Finance = Emotive Finance

How many of you can honestly … and, I mean honestly … say that you are totally rational about money, and your personal relationship with it?

If that’s you, think again …

All financial decisions are made emotionally, then justified rationally later.

Of course, there will be a very few, clinical souls out there who are able to be totally rational about their personal finances: they read all the (good) books and blogs; they follow the experts; they max their 401k’s (at least to take full advantage of the company match); they examine investment classes and returns; and, they (generally) make sound investments.

But, they will never be rich.

Here’s why: in order to become rich, you need to drive your required annual compound growth rate sky high.

That takes passion … the kind of passion that drives massive action … and, it’s the massive action that will eventually lead to outstanding results.

But, passion is fueled by base emotion.

And, the two most powerful emotions – when it comes to money – are:

Fear and Greed.

I think, by far, the most useful of these two emotions is Fear.

You see, Greed will drive you to take speculative risks that may (highly unlikely) make you rich, or may (likely) send you broke. Even if you fail, Greed will make you try and try again, until you become rich …

or, you keep on failing until we simply never hear from you again.

But, Fear is the slow burn.

It drives some of us to:

– Create emergency funds: because we fear that we’ll run out of money

– Diversify: because we fear the market will tank

– Pay Off Debt: because … well … just because!

– Max our 401k’s: because we’re scared of retirement

– Live Frugally: because we’re simply too scared to spend money

Unfortunately, these tactics simply pander to your fear …

The irony is that these are the exact same financial mistakes that will – for most of us – bring about the outcome that we most fear: lack of financial security.

But, Fear also drives a fortunate few  of us to succeed, because we fear:

– That we won’t be financially secure

– That we will have to work for the next 40 years in a job that we will grow to hate

– That we will be overtaken by others

– and, so on …

So, we use that powerful emotion to push us well and truly out of our ‘comfort zone’ and help drive us to the only rational solution available: making the short term sacrifices, and taking the short-term (but, calculated) risks, that will ensure that we never have to worry about money again.

Still, if you discuss your wealth – or, desire for wealth – with most people, they will assume it’s Greed that drives you; typical is Kevin’s (@ Ask For Benefits) response:

Even 7 million is not enough if you allow your net worth and lifestyle to become your idol. At 7 million you begin to think, “if only I had 8, then I would be happy”.

True, for the person driven by money and Greed, $7 million won’t be enough … and, neither will $8 million. They’ll keep going and going until something stops them.

But, for the person driven by Fear – like me – we stop exactly when we have what we set out to get. And, that amount has been carefully calculated in advance to match exactly what we need for a financially safe, and fulfilling life.

No more, no less will do …


How do I multiply my money?

This is quite typical of the questions that I am asked:

How do I turn $20k, to $50k, to $100k, to $300k, to $1m etc. through the process of investment in different markets and/or general investing whether it be in an idea, or business.

Who could argue with a nice, smooth progression like this? 😉

However, our reader is missing two things in her question: 1. time frame and 2. an objective.

With the “etc.” on the end and the jumps of 2x to 3x between the values in this series, I am assuming that her plan is to keep going past $1 million to $3 million and then to $10 million (or more).

Also, I will assume that she plans to take 2 years for each ‘jump’ i.e. from $20k to $50k, $50k to $100k, $100k to $300k, and $300k to $1million … an 8 year period in total.

A few minutes with an online compound growth rate calculator (http://www.investopedia.com/calc… ) will show her that she needs a 63% annual return from her ‘investments’.

Shooting for $10 million in 12 years increases the required return to 68% and stretching her time frame to 3 years between ‘jumps’ reduces her required return to a ‘more manageable’ 40% annual return.

Now, what to invest in for that kind of return?

The reason for the higher returns as you work your way down the table is: higher risk + more hands on + leverage of time (using Other People’s Time) + leverage of money (using Other People’s Money).

No ‘passive’ investments allowed …

Who ever said it was going to be easy?!

A financial path well-trodden?

A short while ago, I received an e-mail from a reader who said:

I’m on the same path as you once walked.  I have a small business that is making good money and just started into real estate.  So far I have 7-9 houses and I’m looking for my first commercial building.

Michael told be that he started a consulting company with his partner about 7 years ago, and ventured into real-estate investment after he realized how much hard work it was and how little the consulting business returned (Michael’s business only had $80k in the bank after 5 years of hard work). I guess that situation has finally improved …

Michael and his business partner stumbled onto the idea of real-estate investing when Michael realized that the one rental property that he had owned for years had halved in value!

For most people this would be a sign to run away from real-estate, instead Michael took the Warren Buffet line (“be fearful when others are greedy, and greedy when others are fearful”) and ran towards it …

… but, he quickly realized that he could find other houses that had halved in value since the ‘crash’ and maybe pick up some real bargains.

This is the sign of a true investor – Michael had found his niche.

He began by making a ‘low-ball offer’ that was “too low to accept” on one property … yet, it did get accepted and Michael had made his first (actually, second, since he still owned that rental) real-estate purchase.

Except that Michael forgot to mention the deal to his business partner; so, his next phone call to his business partner that went something like this: “I got this great idea!”

Fortunately, his business partner shared Michael’s vision, so that first purchase followed with a flurry of other purchases and after just one year they now own 8 single family rental houses!

I asked Michael to share with you how he invests in real-estate:

The residential real estate market has been a boom to investors.  It seems that everyone now is cashing in on the housing downturn.  Here is a breakdown of the steps that I use to determine which houses to invest in that will turn a profit; here are my basic criteria for a good rental house:

  • At least 1000 sq ft
  • 3 to 4 bedrooms (3 bedrooms that can easily be converted into a 4 bedroom house)
  • Garage (no one likes to park outside in the winter)
  • Split level house (this configuration tends to be popular with rentals in my area)
  • Decent sized yard
  • Has sold or been valued for at least 100k or greater in the last 10 years based on Zillow.com
  • Property taxes around 2k

I use Zillow and Home path to find properties in my desired zip code.  I run the available houses through my criteria and start to narrow them down.  I then will call up my realtor and set up appointments to look at the houses.  It honestly takes me about 2-3 minutes to walk though a house and figure out what the house is worth (to me), how much it will cost to fix it up and what it will rent for.

The houses that I typically buy are about 45k.  Some more, some less.  My target is to have no more than 65k in each house total.  That allows me to rent them between $945 and $1095 depending on the property.  I try and average at least $1000 in rent per property.  Once the house has been renovated I usually create 20-40k in instant equity.  Here is a real world break down of two houses that I have.  One was paid for with cash the other was purchased with a mortgage.

Cash property

  • Asking price: 35k
  • Purchase Price: 25k
  • Approx renovation total: 30k
  • Total investment: 55k




Property Taxes



Property Insurance






This house rents for $995 per month and the tenants pay all of the utilities.  I manage this property myself so there is no management fee and they deposit the rent directly into a bank account setup for that property.

The net income that I receive from that property is $818 per month [$995-$177] or $9821 per year (not deducting personal income tax).  This represents about 18% cash-on-cash return per year [$9821/$55,000].

Mortgage property

  • Asking price: 65k
  • Purchase Price: 47k
  • Approx renovation total: 15k
  • Total property cost: 62k
  • Mortgage: $32,830
  • Cash down payment: $12,713
  • Interest: 4.773%



Property Taxes



Property Insurance



Mortgage Payment






This house rents for $1095 per month and the tenants pay all of the utilities.  I manage this property myself so there is no management fee and they deposit the rent directly into a bank account setup for that property.

The net income that I receive from that property is $752 per month [$1095-$343] or $9020 per year (not deducting personal income tax).  This represents about 71% cash-on-cash return per year [$9020/$12,713].

I’m already acquiring equity in these properties at a deep discount.  In 5 years the gross rents will average close to 60k.  Again some more, some less.  At that point my plan is to sell all of these houses for an average of 100k (I have 8 houses) and cash out with about 2.5x my money invested.  Ideally it looks like this:

60k rents over 5 years + 100k selling price – 65k total purchase price.

Now I don’t get caught up in all of the cost of my time, turnover allowances or maintenance of the property arguments.  If you are busy constantly crunching those figures you have lost focus on the big picture.  In the end a few thousand one way or the other doesn’t make ANY difference.  Remember focus on the BIG PICTURE.  Spend money up front on quality renovations and tenants and these will be insignificant expenses in the end.

Michael says that his average cash-on-cash returns, even in the current market, average 20-22% which is outstanding. And, if the real-estate market recovers in the near future, he should expect a tidy capital appreciation, as well.

But, not one to rest on his laurels, Michael is currently negotiating to buy not one, but two multi-million dollar commercial properties:

 Today was the first day that I made an offer on a commercial property.  It is a type “A” building with a 10% cap rate.  I’m pretty excited.  Our real estate company is small but growing rapidly.  We have the down payment for the property which is priced at 4.25 million … I understand that 4.25 million is a big jump but the property will be professionally managed and cash flows very well.  We are contacting about 8 different commercial banks.  This will be a big step for our company.  We just have to have a bank take a chance on us.

Michael actually ended up negotiating a ‘smaller’ $2.8m commercial property that he is purchasing with $250k down and the owner carrying $250k, which would leave them with sufficient cash in the bank (~$500k) allowing Michael and his business partner to pick up another property at about $2.5million.

A $5m + property portfolio puts Michael and his partner into the ‘big league’ …

Now, it’s not the value of the portfolio that you own, but the cash that you can realize if you sold it all off (or, the net income that it generates) that determines how well-off you really are, but I’m guessing that it won’t be much longer before Michael and his business parter can write their own “how I made $7 million in 7 years blog”.

I like reader stories like these … good or bad, rich or poor, heep ’em coming 🙂


How does being rich change your life?

Buying islands aside, how does being rich change your life?

Paul Graham, not depicted in the photo to the left, the founder of Y Combinator [AJC: the incubator for famous internet startups such as Drop Box and AirBnB …. if you have to ask what these are, you are over 30] says this (when asked “how did your life change after FU money?”):

There are some things that change. For example, you learn to distinguish problems that can be solved with money from those that can’t. You can buy your way out of a lot of schleps.

Life doesn’t get an order of magnitude more enjoyable, because you still can’t buy your way out of the most serious types of problems, but a lot of annoyances are removed.

The best part is what I thought would be the best part: not having to worry about money. Before Viaweb I’d been living pretty hand to mouth, doing occasional consulting. It felt like treading water, in the sense that while it wasn’t hard, I knew in the back of my mind that I’d drown if I stopped. Getting rich felt like reaching the shore.

One thing you learn when you get rich, though, is how few of your problems were caused by not being rich. When you can do whatever you want, you get a variant of the terror induced by the proverbial blank page. There are a lot of people who think the thing stopping them from writing that great novel they plan to write is the fact that their job takes up all their time. In fact what’s stopping 99% of them is that writing novels is hard. When the job goes away, they see how hard.

I can relate to this on a number of levels:

Firstly, you can buy yourself out of what Paul calls “schlepps” and what I will simply call “annoyances”.

The pool dirty? Call The Pool Guy.

Something broken around the house? Call the handyman.

Can’t be bothered cooking? Eat out … expensively. In fact, never eat a cheap steak again.

But, you can’t solve personal problems (of the really personal kind) or health problems with money … you, of course, can afford to treat them a little (or a lot) quicker/better than before.

But, what I’ve found is that your major problems become about money: how to stop losing it; how to make it last; how not to be cheated out of it; how to invest it … and, so on.

I’m not not sure if there’s a bigger Number, where even some of these problems go away …

… if there is, I’m guessing it’s well-north of $10m.

I can sympathize with Paul on the book thing: it’s hard to write and publish one. Just ask Debbie, my coauthor [AJC: ours is finally coming out … soon].

But, the question remains: what exactly is FU money?

Well, a LOT more than you think!

Here’s what David S Rose, a well-known ‘super’ angel investor in Silicon Valley, says:

Being a millionaire ain’t what it used to be :-).

In thinking about net worth, it’s helpful to consider everything using a common denominator, such as your potential annual income based on the return that the wealth could theoretically generate. (Because otherwise, if you start spending your principal, you won’t be a millionaire very long.)

So, for example, a million dollars put into the safest CD you could find, might, if you were lucky, generate 1.5% interest each year… which is $15,000!

Even if you had, say, $5 million, and were willing to take a fair bit of risk and put it all in the stock market where it might (with real luck) generate 4% annually, you’d still be making “only” $200,000 a year. Take out taxes (being generous, let’s use the 20% rate at which Obama paid) and you’re at $160k.

That’s enough to rent a nice apartment (or pay the mortgage on, say, a +/-$1m house), take a nice vacation each year, and probably pay private school tuition for one or two kids… but you’re certainly not going to be flying your own Gulfstream with only $5 million.

Next, if we skip over the run-of-the-mill deca-millionaires and jump to someone with $100 million in assets, NOW for the first time are we just getting to the point where you have a good bit of flexibility.

Assume that with this kind of cash you begin to have access to some good hedge and venture funds, so maybe you’ll be able to consistently get 8% on your money. And now that you’re in the privileged class, we’ll figure you can match Mitt Romney’s 13% tax rate. This means you’ll net out to about $7 million disposable income annually.

At this level you can do pretty much anything you’d reasonably want. Pay the mortgage on a $10m mansion as well as a $5m summer place in the Hamptons, put four kids through Ivy League colleges, fly first class anywhere you’d like, make half a dozen angel investments at $250K each, eat out every night at five star restaurants, vacation on the Riviera, and have a full-time cook, butler, nanny and chauffeur. I expect you’d even tithe $1m annually to good causes, which probably gets you named Man of the Year for a big local charity.

All in all, not a bad place to be! But still no Gulfstream, no $35 million penthouse in midtown Manhattan, no building named after you at your alma mater, no mega-yacht docked outside your Riviera estate, no getting Justin Bieber for your daughter’s quinceanera, no 24/7 security detail like the President, no executive-producer credit on Avengers 2, no invitation to the Allen & Co retreat, no mega-trophy-spouse.

All that needs to wait until you get your first billion and put it to work.

Here we’ll assume that with enough portfolio diversification you’ll finally hit a Google or LinkedIn, and be able to comfortably plan on >10% annual returns from your professionally-managed holdings. And since you’re now an oligarch, let’s say that your hardworking gnomes will figure out how you can limit your taxes to the same <10% that will likely surface once Mitt releases his older returns.

This means you’ll now have close to $100 million a year after taxes, and FINALLY you can afford all those things you’ve always dreamed of! While you might not be able to pull off in the same year BOTH the $85 million pièd a terre in Manhattan that Russian guy bought for his daughter, AND the $150 million megayacht of the Sultan of Dubai, you’ll be in pretty good shape.

However, those constraints DO make a difference when you’re playing in the big leagues, so figure that you’ll have to step up to the next category, before there really are NO practical limits to what you can do and how you can live.

Once you get above the $10 billion level, all is good, and you can both help change the world (viz. Bill Gates) AND indulge yourself in any way you desire (viz. Larry Ellison and various sultans). From this point on, it’s simply a matter of score-keeping in the great Monopoly Game of Life. You’ll need to decide for yourself how important your place on the Forbes list is, and whether you care about your standing relative to Mark Zuckerberg ($10 billion), Michael Bloomberg ($22 billion), David Koch ($25 billion) or Warren Buffett ($44 billion).

Some of David’s points are spot-on: for example, retiring today with $1m nets you $15k (to $40k, in case you’d rather believe the financial planners who advocate a 4% ‘safe’ withdrawal rate than David) …

… retiring in 20 years with $1m is poverty level (roughly halve whatever number you believed, above, because of the eroding effect of inflation).

And, I can’t talk about anything more than $7m.

But, at that level, I can certainly agree with David that it buys me a (very) nice house and I certainly can afford to “take a nice vacation [or two] each year, and [definitely] pay private school tuition for one or two kids”.

But, is that FU money?

I certainly don’t feel that way …

… I still have ‘money worries’ of the kinds that I listed, above.

But that just may be the syndrome that Spectrum (a Chicago-based consultancy that specializes in understanding the High Net Worth individual and family) found when they 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”.

Hmmm …. 😉