Millionaire - RICH or Middle Class?

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Millionaire - RICH or Middle Class?

Shiloh LundahlPro Member
Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes

I have had a interesting discovery recently. At the end of last year, I was finishing updating my financials and I realized that my networth had reached over 1 million dollars. That had been one of my financial goals over the last couple of years but last week I had a sad, disappointing realization. 

I posted a question on the forums asking if there was a shortcut to wealth. Many people on the forums said yes and a few suggested I read the book The Millionaire Fastlane by MJ DeMarco. I started listening to that book on Audible and it basically stated that 1 million dollars today is not worth what it used to be and that you would really need 5 million today to live a millionaire lifestyle that I saw when I was a kid.

Unfortunately, I think there is a lot of truth to this perspective. 

As my networth has gone up, I have relaxed a lot on my spending habits. I signed my kids up for music lessons, sports, and other activities without considering the cost because in my mind, I am a millionaire and millionaires are wealthy and that is what wealthy people do. When I would eat out I would think more along the lines of what do I feel like eating rather than comparing the prices of each meal and then asking myself, “how much do I want to spend on lunch.” Each month when my wife and I would do the budget, we were over spending by $500 - $1000 and I would need to pay myself more by transferring more money into our personal account from my business accounts. I was getting confused and frustrated at this. If I was a millionaire then why was I still feeling strapped financially?

DeMarco explaines in his book that the millionaires are not really wealthy but are considered the middle class or the upper middle class. And that if you spend like you are wealthy, you will ultimately become poor. So now I am back to budgeting more strictly and living more frugally - darn it! I thought that I had arrived just to find out I am only one-fifth the way there.

Have any of you come to the realization that what you thought was wealthy today isn’t really as wealthy as you thought? 

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Erik W.
Real Estate Investor · Springfield, MO · Member since 2017 · 1k+ posts · 2k+ votes
7y

For decades, I've heard people saying, "$1 million isn't a lot these days."  I wonder how many of those are broke people living paycheck to paycheck, spouting off statements like this make them feel better about their (lack of) drive and accomplishment?

Let's state the obvious: Inflation is a booger!  It's a "silent thief" that drives down our purchasing power every year.   "A loaf of bread was 10 cents and gasoline was 15 cents a gallon when I was a kid..."  Yes, yes...I get it.

But...a personal computer in the 1980s used to cost $2000 and couldn't do more than run DOS games. Today, the $50 Trak Phone from Wal-Mart can run circles around that ancient PC!

Most people's quality of life has also vastly improved.  Think about basic things such as central HVAC and indoor plumbing.  The wealthiest emperor 200 years ago couldn't make it 70 degrees inside on a 100 degree day.  You and I can with the touch of a switch or the turn of a dial (or just tell Alexa to set the NEST t-stat for us!)  You and I can travel coast to coast in 2-3 days in a car, or fly in 5 hours.  Could Dale Carnegie?   Nope.  How many multi-millionaires died on the Titanic?  Today, you and I would just hop over the Atlantic via Delta coach class and get there with far less risk (though admittedly with less comfort)...easy peasy!

Value and wealth are always relative to the time and place in which one lives.  Does that make sense?  We can't just say, "$1 million aint what it used to be".  That's a given.  But a wise person asks, "What IS $1 million today?"  I live in a medium size Midwest town.  $1 million will purchase 2-3x the assets you can buy for the same million in some high cost of living locations.  So is $1 million "a lot" in my town but barely "middle class" in San Francisco bay?

Over 98% of the world has less than $100,000 net worth.  I made that stat up, so don't bother Googling it, but I'd says it's fair since we know over half of American's can't handle a $400 emergency.  That is a real stat you can Google.  So if a person who has $1 million USD net worth today isn't wealthy, I don't know who is.  Is that person hyper-consumptive rich?  No, probably not....but is hyper-consumptive rich a true picture of what it means to be "wealthy?"  I don't think so.

In conclusion: Daddy Warbucks (movie Annie, set in the year 1933) stated, "I made my first million by the time I was 23 (around 1910)....that was a lot of money back then!"

Just for some perspective on how people view their personal wealth, always have, and probably always will.  ;-)

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  • Alan Pederson
    Investor · Kennedale, TX · Member since 2016 · 219 posts · 349 votes
    7y

    When we hit the million dollar mark my wife asked me what that meant. I told her if we sold everything and cashed out our retirement we would have over a million dollars. She said we're not doing that so what changed? I could only tell her "nothing", other than being able to say we're millionaire's now. It doesn't change the way we spend money, save money, pay for vacations, or alter where we go for dinner on Friday nights. I still drive my same old paint pealing truck and still go to work at my same old job working graveyard shift just like I've been doing for the past 30+ years. I think of it as an interesting footnote in time on our way to 2 million and beyond. Three years ago we were only at $500,000 so I think we're heading in the right direction with a good plan in place.

    I contacted my finance person today and told her we needed to get the ball rolling to get pre-approved because we finally have enough saved up to buy the next rental.

    I work with a few guys that think if they had a million dollars that they would retire. I keep trying to tell them that they wouldn't be able to retire for very long on that amount. Between me and my wife I figure we need about $100k a year to live on. A million would only last 10 years at the most. We could be retired for 30 years so a million isn't even close to what we would need. I figure we would need in the 3-5 mil range or have enough passive income to go along with our 401k, social security, and pension to put us in the $100-150k range when we retire. If we had 2 more houses, it would get us real close to that mark so we keep living our lives like normal until we get there. My plan is to buy about 6-7 more houses before I retire so we will have a large cushion between what we need to live on and what we bring in so we can spend a little crazy at times.

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  • Randy E.
    Rental Property Investor · Durham, NC · Member since 2014 · 1k+ posts · 1k+ votes
    7y
    Originally posted by @Shiloh Lundahl:

    @Randy E. It’s funny that you would use the example of someone sleeping in their car.  I sleep in my car every week on Friday nights.  And it isn’t the cold that gets to you. You can usually solve that problem with enough blankets and a good sleeping bag. It’s the heat that will get to you in July and August when the low is in the 90’s. It’s hard to sleep when it’s that hot in the middle of the night without keeping the car’s AC running all night. I know that isn’t really relevant to your post, I just thought it was ironic that you mentioned that specific example.

     Yeah, being in a car when it's 90 degrees makes it hard to sleep.  And the seats don't make it any easier.  I remember driving to NY in my early 20s only to find out that the place we were planning to sleep in was no longer an option.  So, three guys slept in a small Hyundai parked under a street light in front of a brownstone with one blanket stretched across the front and back seats in Harlem in the late winter.  Not.fun.at.all.

    If I ever had to sleep in a vehicle again, I hope it's a minivan.  At least I could put the rear seat down and lay down property in the back.

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  • Krishnan T.
    Real Estate Professional · Tampa, FL · Member since 2017 · 104 posts · 47 votes
    7y

     I am not sure when people say "retire" at million that it means you stop working and sippin on gin and juice ..laid back all day on a beach .I think what most people mean by "retire" at a mill is that they can consider stopping to work for who ever they do 9-5 and switch careers. For example if someone needed 30k to sustain their current lifestyle and had to work a 9-5 cubicle job which pays 80k, they could consider switching to a 9-5 job on something they truly liked doing or maybe something social that pays just about to sustain your current lifestyle. Lifestyle and ability to tough it out is very important because you never know, a million or even 2 million might become useless if US ever goes thru hyper inflation... How far will 2 million buy you if a loaf of bread is 20k?. 

    1Reply
  • Stone Jin
    Rental Property Investor · Chandler AZ and Sylvania, OH · Member since 2009 · 708 posts · 561 votes
    7y

    @Shiloh Lundahl ha, now I know the next time we meet for lunch you can pick up the bill!!!  Congrats on your journey.

    I remember when we hit that milestone years ago and my wife and I were in shock for about a minute then we got over it and moved on with our lives.  Having a million dollars in equity doesn't make sure feel rich when our bank account said 100K because we were throwing every penny into real estate.  I think the mindset is different when you have 1 million in cash in the bank vs 1 million in equity that you can't see.  I know as my networth and income started increasing, so has my spending.  I used to buy items only if they are on sale, these days I just buy what I need for that oh so good instant gratification.  

    I think an interesting spin off to this conversation would be what first world problems did you not have pre millionaire status vs now post?  For us it became trying to figure out if we were getting the most return on our equity and figuring out all the legal structures to protect it.  When we had no equity, those weren't even a concern.

    Let's do lunch soon!!

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  • Courtney Kimbrough
    Investor · Alabama, United States · Member since 2018 · 31 posts · 17 votes
    7y

    @Shiloh Lundahl first off, congrats on reach that milestone. I've heard the first million is the hardest. And I think it's because you are building Tha habits and the income that will get you there. Now you know the habits and how to build the income. Just figure out a way to scale that and double then triple and keep going until you feel comfortable enough to relax and take your foot off the gas because your business is making money without you.

    Try not to focus so much on making your budget smaller than your income, but rather making sure your income exceed your budget. That has been my understanding from the many books and video series that I've encountered so far.

    If you would, please keep us updated on how things are going and how you reach your next milestone. It really gives me faith that I can do this for my family when I see the an everyday person like myself getting out and making a major change in there "financial status".

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  • Daniel Claroni
    Rental Property Investor · Omaha, NE · Member since 2019 · 32 posts · 9 votes
    7y

    @Shiloh Lundahl I'm just starting on my road to wealth, but the book The Millionaire Next Door has been a huge influence on my outlook on spending and budgeting. I would recommend it to anyone really serious about personal finance. There are some interesting statistics and analysis on exactly WHO most of the millionaire's in the US are (as of year 2000) and what they did to get there.

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  • Account Closed
    Lender · Pensacola, FL · Member since 2017 · 658 posts · 626 votes
    7y
    Originally posted by @William C.:

    . . . They always say the first million is the hardest.

    The saying on Wall Street is the first million is hard and the next ten million is inevitable. If you know how go from a thousandaire to a millionaire, you know how to manage money (rather than let your money manage you, as some lottery winners do and go broke). Once a millionaire, you know how to make your money work hard for you, 24/7/365.

    A "million" becomes a figure of speech. Start with your checkbook and calculate your living expenses. For every $1,000 a month, you need about $300,000 of diversified income-producing assets as a ballpark (the 4% safe withdrawal rule). This number is scalable. To use hyperbole to make a point, if you need $1 million a month of income to cover your living expenses, you need a portfolio of $300 million of investments. People can debate whether the 4% SWR rule is the right number (perhaps 3% is safer, or perhaps a larger number if you know how to take bigger risks for the bigger reward).

    There's also no law requiring you to spend 4% (or 3% or some other number) of your money each year, not even any minimum distribution requirement from some kinds of retirement accounts. You can have $10 million of income-producing assets and potentially draw $400 thousand a year if you want, but if you only draw $40 thousand a year as if you have only $1 million in assets, your money will last a lot longer and be able to survive a larger variety of potential economic and financial shocks to the system.

    The 4% SWR means there's a 95% chance you'll run out of time before you run out of money over a period of several decades. In other words, the 4% SWR means you are playing financial Russian roulette with a gun that has 20 chambers. I also like strategy diversification. I've read where the rule of Old Money was never dip into principal. Only spend the income generated by your assets and never spend the assets themselves. 

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  • William C.
    Real Estate Agent · Souderton, PA · Member since 2016 · 591 posts · 414 votes
    7y
    Originally posted by @Randy E.:
    Originally posted by @William C.:

    Great thread.

    My take on this subject is that it’s all about context. $1m net worth can mean 1 million different things. If I live in LA and own a house “worth” $2m and only owe $1m on it, yet lost my job and have zero income and no other assets, I’d be in a different position than the guy who owns his $100k house free and clear and has the other $900k invested in 50 doors producing $10k net cash flow a month. As many have said, location and lifestyle all matter as well. Congrats on reaching your goal, now it’s just time to start working on the next million. They always say the first million is the hardest.

     Options.  That's the difference.

    Taking your example.  A woman lives in a house in LA that is worth $2M, she owes $1M, she loses the ability to work, and she has zero income and no other assets.  She realizes she has the option to move away from the money pit that is LA now that she can no longer afford it.  She can sell her house, pocket the $1M, move to the midwest, pay $100K for a decent house in a safe neighborhood, put the rest in an index fund, and draw about $35K/year for the rest of her life.  She won't be living high on the hog, but she'll be safe, sheltered, fed, and clothed.  

    Another example.  A man lives in St Louis in a house worth $110K, he owes $55K, he loses the ability to work, and he has zero income and no other assets.  He can sell his house, pocket the $55K, move to a C- apartment that costs $650/month, and live very frugally on another $450/month.  He can't invest the $55K because it won't generate significant income and without the ability to work, he needs to have a way to access money on a monthly basis.  In about 4 years, the $55K has dwindled to little more than $0, the man is summarily evicted, loses the few worldly possessions he has left that can't fit in his car, and begins sleeping in his car parked in a grocery store parking lot.  He depends on the local food bank for meals.  It's October.  He dreads the coming winter, imagining sleeping in his car to be like sleeping in an icebox.

    $1M provides options.  It provides a safety net.  It doesn't promise a lavish lifestyle, but to be able to live life in a home of your own and paying all your bills seems pretty doggone "wealthy" to me, compared to the other scenario which is where people with no significant net worth might one day find themselves.

     You missed my point completely.  Nor was I ever implying $1m did not give options.  And anyone can take my examples and spin them in a way that serves their narrative.   I simply believe that $1m 'net worth' is a world of a difference from $1m in income producing assets, or $1m cash.  Point, end of story.  You make it sound sooo easy to just sell off that house in LA and move to the midwest.  Seriously?  Just like that?  No questions asked? While practical, it's highly unlikely.  Pull the 4 kids out of school where all there friends are?  Move halfway across the country from the other 36 direct family members that live in the houses that line the street?  What if the house doesn't sell?  Sure its "worth" $2m according to Zillow but what if it sits on a lot that makes it undesirable to everyone shopping in that price range.    And your Midwest example isnt even remotely close to the Midwest example I gave.  The guy owns $1m worth of property, FREE and CLEAR generating a net cash flow of $10k/ month, managed but someone else.  My point was Id rather be that guy.  Simple as that.  But they both have '$1m net worth"  It all relative here.  Not sure why you chose to twist my examples around.    

     We can sit here and come up with hypotheticals until our faces are blue, this will prove nothing.  I agree $1m in net worth gives someone options.   Never said otherwise.  I'd just rather be the guy with $1m in cash, or assets, or both, than the person with $1m in unliquid equity.  That WAS the point I was trying to illustrate. There is no right or wrong answer here.  I even went on to say it lifestyle matters in all this.  Confused why it got twisted. 

    What $1m of net worth would you rather have?

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  • Sylvia B.
    Rental Property Investor · Douglas County, MO · Member since 2014 · 1k+ posts · 1k+ votes
    7y
    Originally posted by @Rehaan Khan:
    @Sylvia B.:

    Words have meaning. Sometimes people get confused about the meaning of a word, but the fault is with the one who is confused, not with those who are using it properly. 

    Millionaire = one who owns at least $1,000,000

    Multi-millionaire = one who owns at least $2,000,000 (thogh some dictionaries define it as having many millions) 

    Your example of a collector is a good one. Collector is based on collect, which means to gather together or accumulate, thus implying multiples.

    1Reply
  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    7y

    I personally have never measured myself by other peoples standards. I have chosen to live a middle class life style and as such others have no idea of what my level of wealth is. No way they would imagine it is beyond 1M. Although accumulation of wealth has driven me it is the earning not the having that I gain value from.

    In my opinion anyone earning 100K a year is RICH, or should be, but each person has their own standard of wealth. To fully retire a middle class person would need 1M in savings to maintain their same lifestyle. 

    For some 1M would be rich, for others poor.

    5Reply
  • Nicole Heasley Beitenman
    Investor · Youngstown, OH · Member since 2017 · 2k+ posts · 2k+ votes
    7y

    If you can afford to do anything without considering cost (and not have the realization of overspending like OP did), you're rich. I own 2 properties and make $58k a year, and I consider myself rich. I don't really think about what I spend, but I've been conditioned to be a frugal person. I won't stop shopping at Kohl's once I hit a million because it's unnecessary to shop at higher-end places. I don't think about what I spend because I've been taught how to not spend much. 

    I grew up not knowing if the lights were going to turn on in the morning. You can't know what rich is if you don't know what poor is. 

    Then again, I thought we were middle class back then, so I suppose I'm just proving the OP's point. I guess I'm just one of the very few middle-classers out there. But the lifestyle I have now is what I always imagined being rich was like. 

    3Reply
  • David Zheng
    Investor · Saint Louis, MO · Member since 2016 · 970 posts · 1k+ votes
    7y

    I used to resonate with this feeling a lot. For example... at first I was like I'll just have 1 super car but now I'm telling myself why can't I have a bmw i8 with my lambo.

    the answer I found wasn't to spend less. that's hard once you've inflated your lifestyle. in my mind the only way to do it is to make MORE. its more motivating to try and chase something than give up what you have.

    for myself I never compared wealth to what other people thought or any static number. I compared it to what I wanted. private jet charters, yachts, beach houses. I'll track these prices and as inflation/price goes up, so do my monthly cashflow goals.

    1Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    7y
    Originally posted by @David Zheng:

    I used to resonate with this feeling a lot. For example... at first I was like I'll just have 1 super car but now I'm telling myself why can't I have a bmw i8 with my lambo.

    the answer I found wasn't to spend less. that's hard once you've inflated your lifestyle. in my mind the only way to do it is to make MORE. its more motivating to try and chase something than give up what you have.

    for myself I never compared wealth to what other people thought or any static number. I compared it to what I wanted. private jet charters, yachts, beach houses. I'll track these prices and as inflation/price goes up, so do my monthly cashflow goals.

    I was waiting for Mr. Young entrepreneur Lambo owner/driver to comment.. its interesting from someone of your age and success to learn your thought process.

    AS for Jets  maybe try the Jetsmarter app I have that one.. I have not activated it yet but tempted.. . you can get rides on G 4 one way from Vegas to NYC for as little at 2500.. I am going to try it once and see how it goes.. now my thought process is this is where a lot of millionares will be and B C grade entertainers.. give me 4 hours and they cant get away from me and see if I can come up with some great contacts.. Just think of all the people on this site .. who say HOW do I attract private money.. well thats one way..  :) let you know how it goes.

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  • Randy E.
    Rental Property Investor · Durham, NC · Member since 2014 · 1k+ posts · 1k+ votes
    7y
    Originally posted by @William C.:
    Originally posted by @Randy E.:
    Originally posted by @William C.:

    Great thread.

    My take on this subject is that it’s all about context. $1m net worth can mean 1 million different things. If I live in LA and own a house “worth” $2m and only owe $1m on it, yet lost my job and have zero income and no other assets, I’d be in a different position than the guy who owns his $100k house free and clear and has the other $900k invested in 50 doors producing $10k net cash flow a month. As many have said, location and lifestyle all matter as well. Congrats on reaching your goal, now it’s just time to start working on the next million. They always say the first million is the hardest.

     Options.  That's the difference.

    Taking your example.  A woman lives in a house in LA that is worth $2M, she owes $1M, she loses the ability to work, and she has zero income and no other assets.  She realizes she has the option to move away from the money pit that is LA now that she can no longer afford it.  She can sell her house, pocket the $1M, move to the midwest, pay $100K for a decent house in a safe neighborhood, put the rest in an index fund, and draw about $35K/year for the rest of her life.  She won't be living high on the hog, but she'll be safe, sheltered, fed, and clothed.  

    Another example.  A man lives in St Louis in a house worth $110K, he owes $55K, he loses the ability to work, and he has zero income and no other assets.  He can sell his house, pocket the $55K, move to a C- apartment that costs $650/month, and live very frugally on another $450/month.  He can't invest the $55K because it won't generate significant income and without the ability to work, he needs to have a way to access money on a monthly basis.  In about 4 years, the $55K has dwindled to little more than $0, the man is summarily evicted, loses the few worldly possessions he has left that can't fit in his car, and begins sleeping in his car parked in a grocery store parking lot.  He depends on the local food bank for meals.  It's October.  He dreads the coming winter, imagining sleeping in his car to be like sleeping in an icebox.

    $1M provides options.  It provides a safety net.  It doesn't promise a lavish lifestyle, but to be able to live life in a home of your own and paying all your bills seems pretty doggone "wealthy" to me, compared to the other scenario which is where people with no significant net worth might one day find themselves.

     You missed my point completely.  Nor was I ever implying $1m did not give options.  And anyone can take my examples and spin them in a way that serves their narrative.   I simply believe that $1m 'net worth' is a world of a difference from $1m in income producing assets, or $1m cash.  Point, end of story.  You make it sound sooo easy to just sell off that house in LA and move to the midwest.  Seriously?  Just like that?  No questions asked? While practical, it's highly unlikely.  Pull the 4 kids out of school where all there friends are?  Move halfway across the country from the other 36 direct family members that live in the houses that line the street?  What if the house doesn't sell?  Sure its "worth" $2m according to Zillow but what if it sits on a lot that makes it undesirable to everyone shopping in that price range.    And your Midwest example isnt even remotely close to the Midwest example I gave.  The guy owns $1m worth of property, FREE and CLEAR generating a net cash flow of $10k/ month, managed but someone else.  My point was Id rather be that guy.  Simple as that.  But they both have '$1m net worth"  It all relative here.  Not sure why you chose to twist my examples around.    

     We can sit here and come up with hypotheticals until our faces are blue, this will prove nothing.  I agree $1m in net worth gives someone options.   Never said otherwise.  I'd just rather be the guy with $1m in cash, or assets, or both, than the person with $1m in unliquid equity.  That WAS the point I was trying to illustrate. There is no right or wrong answer here.  I even went on to say it lifestyle matters in all this.  Confused why it got twisted. 

    What $1m of net worth would you rather have?

     No offense intended, William.  I guess we simply have a difference of opinion. 

    But I agree some of the differences of what people consider wealth/rich or not come down to each person's lifestyle.  For some people, having $1M of rental realty generating $4K-$9K a month is a phenomenal achievement and a great place to be in life.  For others, that "passive" income doesn't come close to matching their non-realty income and it's not that big of a deal.  Some people would be happy to stop working their traditional W2 at that point, and live life on their own rules.  Other people would ridicule the notion of thinking $1M of net worth is even the beginning of "enough."  Some people have a lower-expense lifestyle, some people have a higher-expense lifestyle.

    I can't say either side is right or wrong.  I just know the cold hard facts say that anyone who has a net worth of $1M is wealthier than 99% of all people in the world, and wealthier than 96% of all Americans.  Whether a specific person considers that "rich" or "wealthy" or worthy of mention, is not for me to say.  Personally, I consider it fantastic!  And I commend anyone who achieved it.

    1Reply
  • Timothy W.
    Attorney · Raleigh, NC · Member since 2008 · 4k+ posts · 1k+ votes
    7y

    On a world perspective, an American with 50k in the bank is rich but completely reliant on the system that got him 50k.  Some dude in the middle of the jungle isn't worth 2 dollars and needs no one.  Rich isn't freedom no matter what the dollar number is if you're reliant.  Getting yourself self-reliant is the real freedom.

    7Reply
  • Shawn M.
    Investor · New Haven, CT · Member since 2012 · 285 posts · 175 votes
    7y

    @Shiloh Lundahl

    Net worth is worthless, cash flow is wealth.

    2Reply
  • Dean Letfus
    Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes
    7y

    An interesting read. In New Zealand where I am from a million dollars is the cost of an average house in Auckland so it is a meaningless figure these days.  I think it is a term that will fade away as it is no statement of wealth anymore is it?

    0Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    7y
    Originally posted by @Shawn M.:

    @Shiloh Lundahl

    Net worth is worthless, cash flow is wealth.

    Actually the definition of wealth is literally defined as net worth. Assets-liabilities = Net Worth. Assets can produce income, either through cash flow or by being sold (or both ways potentially).

    2Reply
  • Irina Belkofer
    Real Estate Broker · Cleveland, OH · Member since 2017 · 719 posts · 658 votes
    7y
    Originally posted by @Joe Splitrock:
    Originally posted by @Shawn M.:

    @Shiloh Lundahl

    Net worth is worthless, cash flow is wealth.

    Actually the definition of wealth is literally defined as net worth. Assets-liabilities = Net Worth. Assets can produce income, either through cash flow or by being sold (or both ways potentially).

     By definition that might be true but in real life it might be very misleading.

    Here is two opposite scenarios:

    1. House paid off in California as a primary residence $1M - no cash flow and the only asset (potentially could be sold, off course)

    2. Highly leveraged rentals somewhere in Cleveland 5% down 200 houses each worth $100K. Net worth $1M, NOI=$1,440,000/year (30 year fixed, 3.5%, $95K each House; with $14.4K gross income - $1200/mo rent, free cash flow $7200/year each). Ok, %% is arguable but generally numbers are ok.

    Where would you prefer to be: net worth wealthy or cash flow wealthy?

    1Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    7y
    Originally posted by @Irina Belkofer:
    Originally posted by @Joe Splitrock:
    Originally posted by @Shawn M.:

    @Shiloh Lundahl

    Net worth is worthless, cash flow is wealth.

    Actually the definition of wealth is literally defined as net worth. Assets-liabilities = Net Worth. Assets can produce income, either through cash flow or by being sold (or both ways potentially).

     By definition that might be true but in real life it might be very misleading.

    Here is two opposite scenarios:

    1. House paid off in California as a primary residence $1M - no cash flow and the only asset (potentially could be sold, off course)

    2. Highly leveraged rentals somewhere in Cleveland 5% down 200 houses each worth $100K. Net worth $1M, NOI=$1,440,000/year (30 year fixed, 3.5%, $95K each House; with $14.4K gross income - $1200/mo rent, free cash flow $7200/year each). Ok, %% is arguable but generally numbers are ok.

    Where would you prefer to be: net worth wealthy or cash flow wealthy?

    Kind of a bad comparison. First example has no investments. Second example is completely unrealistic investments from several angles: 

    - 3.5% loan

    - 200 loans with 30 year term

    - 5% down payment

    - Only way to reach that cash flow is 0% vacancy, no repairs, no CAPEX and self manage

    - Cash on cash return of over 100% 

    Second issue is you are not comparing "net worth" to "no net worth". You are comparing it to the same net worth and one person is an investor and the other isn't. Of course it matters where your money is invested. I could add other examples to the mix where non-cash flow net worth may be better.

    3. Invest $1M in Tesla in 2012 at $27 per share. No cash flow. Investment is worth $10M today and produces no cash flow.

    I could also add examples where there is negative equity but cash flow. Is it better to have negative equity but monthly cash flow versus having $1M equity in a home that you could tap for investments? I would argue that simply saying cash flow is better and net worth is worthless, is very simplistic. Of course the details matter and we could setup a variety of situations if we were just trying to prove a specific point. At the end of the day, wealth is net worth. Sorry that is just how it is defined. 

    1Reply
  • Irina Belkofer
    Real Estate Broker · Cleveland, OH · Member since 2017 · 719 posts · 658 votes
    7y

    @Joe Splitrock I was exaggerating because we are talking about $1M net worth.

    If we get real life examples for real people, there is plenty of net worth millionaires because they have paid off houses, 401-K's etc - they worth a lot but no cash flow.

    Off course, capital gains count too, in Cali it's a major consideration, but no cash flow.....and with all that net worth people have to live and work and keep saving in 401-K.

    My second part is about controllling assets which is not really your own net worth: for example, if I have $300K in debt with today's worth $450K of real estate (also including my primary residence, which is not income producing), but I have cash flow of $5.4K per month after expenses, it's still better than $150K sitting in bank and producing nothing.

    Net worth is like a balance: it shows only today's net worth. If market crashes tomorrow, it will drop to 40-50% today's number. Cash flow is like income statement: rents won't disappear over night, people do live somewhere. It might decrease as well as vacancies, but it still will support your living expenses.

    Small real life example doesn't connect to %%, terms etc but it shows the same: net worth alone doesn't tell you the whole story, it needs your P&L as well as cash flow statement, to estimate who is wealthy and who's rich in paper only.

    BTW, definition of accredited investor includes not only your net worth(excluding primary residence) but also your income.

    1Reply
  • Jack B.
    Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes
    7y

    If your million bucks allows you to live the life you want without working, not having to worry about money, buying a car, etc. then you're still rich, not middle class. Are you going to party like Justin Bieber who makes 80 million in a YEAR? No....That's for the super rich.

    1Reply
  • Kyle MccawBusiness Member
    Property Manager · Keller, TX · Member since 2011 · 1k+ posts · 1k+ votes
    7y

    Very true. The million dollar mark is really just a number. Your return on your equity is important. What matters is how your million dollars is working for you. Is it just real estate dead equity with no cashflow? Is it in cashflowing notes? Is it sitting in a 0.01% saving account. All these have completely different incomes attached to the million dollars. 

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  • Dan Z.
    Rental Property Investor · Seattle, WA · Member since 2015 · 21 posts · 2 votes
    7y
    Originally posted by @Jay Hinrichs:
    Originally posted by @David Zheng:

    I used to resonate with this feeling a lot. For example... at first I was like I'll just have 1 super car but now I'm telling myself why can't I have a bmw i8 with my lambo.

    the answer I found wasn't to spend less. that's hard once you've inflated your lifestyle. in my mind the only way to do it is to make MORE. its more motivating to try and chase something than give up what you have.

    for myself I never compared wealth to what other people thought or any static number. I compared it to what I wanted. private jet charters, yachts, beach houses. I'll track these prices and as inflation/price goes up, so do my monthly cashflow goals.

    I was waiting for Mr. Young entrepreneur Lambo owner/driver to comment.. its interesting from someone of your age and success to learn your thought process.

    AS for Jets  maybe try the Jetsmarter app I have that one.. I have not activated it yet but tempted.. . you can get rides on G 4 one way from Vegas to NYC for as little at 2500.. I am going to try it once and see how it goes.. now my thought process is this is where a lot of millionares will be and B C grade entertainers.. give me 4 hours and they cant get away from me and see if I can come up with some great contacts.. Just think of all the people on this site .. who say HOW do I attract private money.. well thats one way..  :) let you know how it goes.

    While I certainly am not the Lambo owner/driver like @David Zheng, and maybe not qualify for "Mr. Young entrepreneur" either as I already turned 30 one month ago... I concur the idea that without craving for fast cars & lux lifestyle, maybe we'll just set ourselves low and be like our "Poor Dad" thinking stocks & mutual funds in the 401(K), our primary house, and SSI (although not sure if there'll still be anything left in 3 decades) are what we rely on for retirement.... 

    With that being said, I still feel like I need another $1M to convince myself to switch my 718 Cayman GTS to that lizard green GT3....

    BTW I'll have my first sabbatical early next year!  Did your daughter take the shorter one 1 mo or the longer 2 mo?

    1Reply
  • Kody Foster
    Longview, TX · Member since 2017 · 26 posts · 17 votes
    7y
    @Shiloh Lundahl True wealth lies in Christ. I feel in today’s market just 1 million would be considered middle class. Still, 1 million is a great accomplishment. Enjoy your life, provide the best life for your family (whatever you think that is). Work hard. People striving to meet certain marks is great, but many will say once you get there the satisfaction is not what you believe it to be.
    2Reply
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