Advice for a new multimillionaire!

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-wig to conservative investor … in order to survive post ‘Your Big Windfall Event’ you’re going to have to make the switch.

Thinking about starting a solo business?

I think, these days, if you aren’t starting YOUR FIRST BUSINESS as an online business then you aren’t serious about making money.

Let’s face it, we’ve all tried lemonade stands, paper rounds, flea markets and even working at McDonalds as ways to make money. But, compared to these, an online business can knock it out of the ballpark.

Let’s take my son as an example:

At age 12 he came to me and said he was starting an eBay business; he asked if he could use my eBay account (I said ‘yes’) and if I would invest $50 in return for 50% of the business so that he could buy stock.

Not long after, he had completed his first transaction and returned my $50 so that he could get my 50% back (I didn’t have the heart to tell him that it doesn’t quite work that way).

Within two years he was negotiating daily with Chinese suppliers, bringing wholesale quantities of stuff to the USA and shipping daily from our house (bless the US postal system … it works!). He also kept a fully-fledged accounting system that he set up himself.

Now, even though he cannot (yet) write code, he has a online web-business (not eBay), carries no stock, spends half an hour a day on his business and earns the equivalent of a good adult full-time salary.

He just turned 17.