Over the weekend I had the pleasure to attend an interesting party. I was invited by one of my favorite clients to a quaint house warming party. My client has been in real estate for decades and built up a solid business of rental properties. I thought it would be a great opportunity to socialize with my client outside the job, and just make an appearance.
Now, reading the title you’re probably assuming the party itself cost a billion dollars. It was a mild manner affair, catered of course, but when the other guests began to show up it turned into something I’ve never seen before. The combined net worth of all the guests was in the billions. I was rubbing shoulders with a class I’d never been exposed to before. I took it all in.
When you think of a party of combined billionaires, what do you think of? Maybe what comes to mind is gold jewelry, Crystal poured by the gallon, and whatever else is found in high-budget rap videos. Or maybe your mind is drawn to the more conspiratorial, the secret society of the rich direction, imagining some Eyes Wide Shut affair with masks, cloaks, and ritualistic sex?
The truth is much less extravagant. To me, it looked like most people had just stepped off their yacht. It was shorts and polos for as far as the eyes could see. Some women wore dresses and I only saw one man in a suit. Wearing ‘business casual’ I felt overdressed. The wealth was only obvious in the cars people arrived in; the owner’s driveway contained a BMW, Lexus, and Maserati alone. The house was a thing of beauty — recently remodeled and completely overhauled. But for the most part, the wealthy themselves did not flaunt. No extravagant jewelry, no big watches, no trophy wives. There was no snapping of selfies or showing off.
I was immediately reminded of Stanley and Danko’s The Millionaire Next Door. If you’re not familiar, the authors surveyed hundreds of millionaires across the United States, looking for common statistics among the wealthy. What they found was that almost unanimously do millionaires live modest lives, shopping off brand or generic for most things, buying used cars, and not living extravagant lives.
The other noticeable thing? Most were older.
Why does this matter? It reinforces the idea that to become truly wealthy, billionaire level wealthy, it takes a lifetime of financial discipline. Have you ever seen the ‘hockey stick’ graph of Warren Buffet’s wealth? He didn’t cross $1 billion dollars until he was 56 years old. Unless you invent Facebook or design the Model T, it takes time to be a billionaire.
My mind wandered some more at the party: The extravagant parties (and lifestyles) are usually attributed to entertainment moguls, professional athletes, and…lottery winners. What do all three of those have in common? High bankruptcy rates. Rapper 50 Cent went from a $155 million valuation in 2015 to bankruptcy in 2016, $23 million in debt. MC Hammer went from earning nearly $33 million per year in 1991 to $13 million in debt just 5 years later. Johnny Depp is the latest celebrity struggling with debt and lost fortune. Nicholas Cage had serious financial problems, even blowing a $150 million fortune. According to a 2009 Sports Illustrated article, 78% of NFL players are either bankrupt or under “financial stress” just two years after leaving the league and 60% of NBA players go bankrupt within 5 years of leaving the sport.
And then there are the lottery winners.
According to several studies, 70% of all lottery winners go broke and file for bankruptcy. Here’s another staggering statistic: 90% of surveyed lottery winners believe the money will be gone completely by the family’s third generation. One last one: 44% of all lottery winners spend the entirety of their winnings within 5 years.
What I was seeing at this party was the key to wealth: financial literacy. These were people that built and owned businesses, that invested in real estate, that probably had pretty thick stock and bond portfolios. These were people who made sure that dollars incoming remained much higher than dollars outgoing. Are you paying attention? Because this is the secret to being wealthy.
As Roberty Kiyosaki likes to say, “The poor stay poor.” What he means by this is the mentality doesn’t change, even after winning the lottery or landing the big sports contract. Without financial literacy (with which comes discipline), that multimillionaire still has the mentality of poor person — so they spend on liabilities instead of acquiring assets. They live lavishly, enjoying their new found freedoms with being able to buy whatever they want. Nicholas Cage bought an island. MC Hammer bought a $30 million house. Famous lottery winner Michael Carroll smoked $2,000 worth of crack every day and ultimately ended up in prison at one point. The rich buy assets. Real estate. Businesses. Stocks. They put their money to work to make more money.
Being wealthy is a mindset. And all of these khaki shorts, gray-haired party goers had that mindset. I regret not wandering about more, asking what people did. I would have loved to get a sampling of where their wealth came from. I guarantee you that none of them were lottery winners.
If you want to quit your job and become wealthy, you cannot do it without financial literacy. I wasn’t born into wealth. When it comes to knowing money, the public school system failed me — it fails everyone. Schools do not teach financial literacy. There’s no classroom discussion on debt or taxes or passive income. I plan on writing a post dedicated solely to financial literacy and failure of such in the education system; but for now know that the path to true wealth lies in knowledge.
I leave you with a few tips should you ever find yourself in a billion-dollar party:
- Dress the opposite of how you think you should dress. Head to a department store and pick up an outfit in the Ralph Lauren/Polo section. Shorts and a polo shirt.
- Unless you drive a luxury vehicle, park a block away.
- ‘Catered’ does not mean hors d’oeuvres, caviar, and champaign. It means cold beer, margaritas, and steam trays.
- Bring a gift, or at least, a bottle of wine.
- Don’t be the first one there or the last one to leave
Quit Your Job 