All over the world people are enthralled with the American (and Australian) TV program “Who wants to be a Millionaire?”, where, by answering a series of questions correctly, the contestant can walk away with a million dollars. No doubt a lot of the excitement about this show is the subconscious desire by everyone to be a millionaire.
In fact at my seminars, when I ask the audience: “Who wants to be a millionaire?” just about every hand goes up.
So assuming that you, the reader, also like this notion, I now challenge you to answer the following question: What is the definition of a millionaire?
I also know from having asked this question many times, that not many people have a clear idea. Some will say: “A millionaire has a million dollars!”. Well, that’s a simple answer, but if you have your total assets of a million dollars in your pocket, and you also have a debt to the bank of $2m, then you are not necessarily enviably well off.
What if you were to say that a millionaire has a net worth of a million dollars. This is probably most poor people’s (those who are not millionaires!) definition of a millionaire. Well, a net worth of a million dollars for your great-grandfather in 1910 would have meant a lot more than a net worth of a million dollars today. Through the ravages of inflation, the value of money goes down, and a million dollars is worth less and less. Depending on where you live, a net worth of a million dollars, while infinitely better than a net worth of nothing, does itself not indicate the ability to live it up. And what if your net worth is made up of a home worth $4m, with a mortgage of $3m on it? You would still be paying interest of around $300,000 per annum on the loan, and even if your annual income was a whopping half million dollars, by the time you paid your taxes, basic necessities and the mortgage interest, you would have little left over for the luxuries of life.
Well, in that case we could say that a millionaire is someone who can put his hands on a million dollars of cash. When you consider that the average person in the Western World, on retirement, can barely put his hands on $12,000 cash, then being able to uplift $1,000,000 surely is significant? Possibly, but the moment you invested it to try to increase it, you would, by your own definition, no longer be able to put your hands on it, and therefore you would no longer be a millionaire. That leads us to the next level…
What if we said that a millionaire was someone who had an annual income of one million dollars? Surely that’s significant? Surely such a person is over-the-top rich? Again, it depends. Depending on where you live, the job you have (if you have one!) and therefore the professional indemnity insurance premiums that you must take out, and a myriad of other factors, a million dollars of annual income may or may not seem a lot.
So how about this for a definition… a millionaire is someone who, on a whim, can put a million dollars of spare cash into a venture, and if the venture falls over and the “millionaire” loses his money, he merely shrugs his shoulders and looks for the next venture to put more money in, without lamenting that he has been financially ruined. Surely such a person truly is a millionaire?
Consider the following situation. Last month I was approached by the inheritors of vast tracks of land – hundreds of thousands of hectares, in fact, worth several hundreds of millions of dollars.
By any of the first three definitions above, these inheritors were millionaires. We could even say they were millionaires many hundreds of times over, but let’s just keep things in perspective, because by the last two definitions above, they were not only not hecto-millionaires, nor even mere deca-millionaires, but not even plain, vanilla millionaires.
Think about this carefully. They had hundreds of millions of dollars worth of land, but essentially no income or money in the bank. Their question to me was basically: “How can we become millionaires? We have all these assets, but not the financial means to better our families anything like what we should be able to, given our asset base”.
Before you simply write their predicament off as academic self-indulgence, let me ask you what would you do? You see, if you do not have an answer, then you are a lot worse off than they are, for not only are you equally at a loss as to what to do with such an asset base, but even if you had it you still wouldn’t be able to turn it into cashflow! They at least had the courage to ask someone. And don’t you think that one way or another, they should have the financial clout to bring in expert advice?
To say they should simply sell the land is of course facile, as they may have a familial or cultural attachment to the land, just like you may have an attachment to your jet-skis or your holiday home that on purely financial terms you should sell (you could rent jet-skis or holiday accommodation for much less than the annual cost of holding these assets).
So how about a joint-venture, where you as land-holder supply the land, and the j.v.-partner supplies the technology and/or expertise to produce a new crop (such as chestnuts), or provides a new tourist facility (such as Euro-Disney in France), or a private highway (perhaps with no speed-limit, such as in Germany). Then again, you could sell off some of the land, to give the cash needed to invest in an income-producing project to spin off cashflow.
You see, being rich isn’t just about assets. It’s mainly about cashflow. Land is an asset. So are your skills, ideas, and drive. Life is about turning assets into cashflow.
Which brings me to my final definition of a millionaire. A millionaire is someone who knows how to use the real estate between his two ears, and turn it into something that generates lots of cashflow.
And a final word: your purpose in life is not to collect the most dollars, but the most happy memories…
Richer than the gold of kings are memories of happy things.